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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) October 23, 2019

 

AVERY DENNISON CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware	1-7685	95-1492269
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

 

207 Goode Avenue Glendale, California		91203
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (626) 304-2000

 

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1 par value	AVY	New York Stock Exchange
1.25% Senior Notes due 2025	AVY25	New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Section 2 - Financial Information

 

Item 2.02  Results of Operations and Financial Condition.

 

Avery Dennison Corporation’s (the “Company’s”) press release, dated October 23, 2019, regarding the Company’s preliminary, unaudited financial results for third quarter 2019 and updated guidance for the 2019 fiscal year, is attached hereto as Exhibit 99.1 and is being furnished (not filed) with this Form 8-K.

 

The Company’s supplemental presentation materials, dated October 23, 2019, regarding the Company’s preliminary, unaudited financial review and analysis for third quarter 2019 and updated guidance for the 2019 fiscal year, is attached hereto as Exhibit 99.2 and is being furnished (not filed) with this Form 8-K. The press release and presentation materials are also available on the Company's website at www.investors.averydennison.com.

 

The Company will discuss its preliminary, unaudited financial results during a webcast and teleconference today, October 23, 2019, at 1:00 p.m. ET. To access the webcast and teleconference, please go to the Company’s website at www.investors.averydennison.com.

 

Section 9 - Financial Statements and Exhibits

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

99.1	Press release, dated October 23, 2019, regarding the Company’s preliminary, unaudited third quarter 2019 financial results.

 

99.2	Supplemental presentation materials, dated October 23, 2019, regarding the Company’s preliminary, unaudited financial review and analysis for third quarter 2019.

 

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

 

Certain statements contained in this report on Form 8-K and in Exhibits 99.1 and 99.2 are forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in the Company’s markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in cost and availability of raw materials; the Company’s ability to generate sustained productivity improvement; the Company’s ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; the Company’s ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the U.S. Tax Cuts and Jobs Act and regulations issued related thereto, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection and infringement of intellectual property; the impact of epidemiological events on the economy and the Company’s customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

 

 

 

 

The Company believes that the most significant risk factors that could affect its financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for the Company's products and foreign currency fluctuations; (2) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; (3) competitors' actions, including pricing, expansion in key markets, and product offerings; and (4) the execution and integration of acquisitions.

 

For a more detailed discussion of these and other factors, see Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in the Company’s 2018 Form 10-K, filed with the Securities and Exchange Commission on February 27, 2019, and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this Form 8-K are made only as of the date of this Form 8-K, and the Company undertakes no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.	Description
99.1	Press release, dated October 23, 2019, regarding the Company’s preliminary, unaudited third quarter 2019 financial results.
99.2	Supplemental presentation materials, dated October 23, 2019, regarding the Company’s preliminary, unaudited financial review and analysis for third quarter 2019.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		AVERY DENNISON CORPORATION
Date: October 23, 2019	By:	/s/ Gregory S. Lovins
		Name:	Gregory S. Lovins
		Title:	Senior Vice President and Chief Financial Officer

 

 

Exhibit 99.1

 

 

 

For Immediate Release

 

AVERY DENNISON ANNOUNCES

THIRD QUARTER 2019 RESULTS

 

GLENDALE, Calif., October 23, 2019 – Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its third quarter ended September 28, 2019. All non-GAAP financial measures referenced in this document are defined and reconciled to GAAP in the attached pages A-4 through A-8. Unless otherwise indicated, comparisons are to the same period in the prior year.

 

“We continue to deliver solid profit growth despite soft market demand,” said Mitch Butier, Chairman, President and CEO. “Our focus in this slower growth environment has been to protect our margins in the base business, while driving faster-than-average growth in high value categories like RFID, and we’re executing well on both fronts.

 

“For the quarter, Label and Graphic Materials delivered modest organic growth, as volumes improved relative to the first half of the year, and operating margin was strong; Retail Branding and Information Solutions delivered solid organic growth, as continued strength in RFID more than offset a slowdown in the base business, and operating margin remained strong; and IHM outperformed expectations on both the top and bottom lines, delivering solid organic growth and strong margin expansion.

 

“We have revised the high end of our guidance range for 2019 earnings per share, reflecting the incremental negative impact from currency translation, largely offset by stronger operational results and a modestly lower tax rate,” added Butier. “We’re confident in our ability to achieve our long-term targets, reflecting the resilience of our business and ability of our team to adapt to changing market conditions.”

 

 

Third Quarter 2019 Results by Segment

 

Label and Graphic Materials

 

•	Reported sales declined 0.8 percent; on an organic basis, sales grew 1.2 percent, as volume/mix improved modestly. On an organic basis, sales were up low-single digits in both Label and Packaging Materials and the combined Graphics and Reflective Solutions businesses.
•	Reported operating margin increased 60 basis points to 13.4 percent, reflecting the benefit from productivity initiatives, including restructuring and material re-engineering, partially offset by higher restructuring charges, net of reversals, and increased employee-related costs. Adjusted operating margin increased 120 basis points to 13.5 percent.

 

Retail Branding and Information Solutions

 

•	Reported sales increased 2.1 percent; on an organic basis, sales grew 4.1 percent, driven primarily by continued strength in sales of radio frequency identification (RFID) solutions, which increased by approximately 20 percent.
•	Reported operating margin increased 60 basis points to 11.2 percent, as productivity, higher volume, and lower restructuring charges more than offset higher employee-related costs and growth-related investments. Adjusted operating margin increased 10 basis points to 11.5 percent.

 

 

Industrial and Healthcare Materials

 

•	Reported sales increased 1.4 percent; on an organic basis, sales increased 3.7 percent, driven by a low-to-mid single digit increase in industrial categories and a high-single digit increase in healthcare categories.
•	Reported operating margin increased 120 basis points to 10.4 percent, as the benefits from higher volume/mix and productivity more than offset higher restructuring charges and employee-related costs. Adjusted operating margin increased 180 basis points to 11.0 percent.

 

Other

 

Share Repurchases / Equity Dilution

 

The company repurchased 0.8 million shares in the third quarter at an aggregate cost of $87.6 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down by 3.8 million compared to the same time last year.

 

During the first three quarters of the year, the company returned $346 million in cash to shareholders through a combination of share repurchases and dividends, up from $306 million for the same period last year.

 

Income Taxes

 

The company’s third quarter effective tax rate was 19.2 percent, compared to 10.5 percent in the prior year. The adjusted tax rate (non-GAAP) for the quarter was 24.1 percent, reflecting the company’s current expectation for a full year adjusted tax rate of 24.7 percent.

 

 

Cost Reduction Actions

 

In the third quarter, the company realized approximately $18 million in pretax savings from restructuring, net of transition costs, and incurred pretax restructuring charges of approximately $3 million, related to cash severance costs.

 

Outlook

 

In its supplemental presentation materials, “Third Quarter 2019 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its 2019 financial results. Based on the factors listed and other assumptions, the company has revised its guidance range for 2019 reported earnings per share from a range of $3.15 to $3.30 to a range of $3.15 to $3.25.

 

Excluding an estimated $3.35 per share related to pension settlement charges, restructuring charges and other items, the company’s guidance for adjusted earnings per share has been revised to a range of $6.50 to $6.60.

 

For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Third Quarter Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.

 

Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.

 

About Avery Dennison

 

Avery Dennison (NYSE: AVY) is a global materials science company specializing in the design and manufacture of a wide variety of labeling and functional materials. The company’s products, which are used in nearly every major industry, include pressure-sensitive materials for labels and graphic applications; tapes and other bonding solutions for industrial, medical, and retail applications; tags, labels and embellishments for apparel; and radio frequency identification (RFID) solutions serving retail apparel and other markets. Headquartered in Glendale, California, the company employs approximately 30,000 employees in more than 50 countries. Reported sales in 2018 were $7.2 billion. Learn more at www.averydennison.com.

 

# # #

 

 

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

 

Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and local economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in our markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in cost and availability of raw materials; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive products and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the U.S. Tax Cuts and Jobs Act, and regulations issued thereto, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pension, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

 

We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volume; (3) competitors' actions, including pricing, expansion in key markets, and product offerings; and (4) the execution and integration of acquisitions.

 

For a more detailed discussion of these and other factors, see “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our 2018 Form 10-K, filed with the Securities and Exchange Commission on February 27, 2019 and subsequent quarterly reports on Form 10-Q. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

 

For more information and to listen to a live broadcast or an audio replay of the quarterly conference call with analysts, visit the Avery Dennison website at www.investors.averydennison.com

 

Contacts:

 

Media Relations:

Rob Six (626) 304-2361

rob.six@averydennison.com

 

Investor Relations:

Cindy Guenther (626) 304-2204

cynthia.guenther@averydennison.com

 

 

 

	Third Quarter Financial Summary - Preliminary, unaudited
	(In millions, except % and per share amounts)
			3Q		3Q		% Sales Change vs. P/Y
			2019		2018		Reported		Ex. Currency		Organic
									(a)		(b)
	Net sales, by segment:
	Label and Graphic Materials		$1,185.1		$1,194.2		(0.8%)		1.2%		1.2%
	Retail Branding and Information Solutions		406.8		398.4		2.1%		4.1%		4.1%
	Industrial and Healthcare Materials		169.5		167.1		1.4%		3.7%		3.7%
	Total net sales		$1,761.4		$1,759.7		0.1%		2.1%		2.1%
			As Reported (GAAP)										Adjusted Non-GAAP (c)
			3Q		3Q		%		% of Sales				3Q		3Q		%		% of Sales
			2019		2018		Change		2019		2018		2019		2018		Change		2019		2018
	Operating income (loss) / operating margins before interest, other non-operating expense, and taxes, by segment:
	Label and Graphic Materials		$159.0		$152.9				13.4%		12.8%		$160.2		$146.9				13.5%		12.3%
	Retail Branding and Information Solutions		45.7		42.4				11.2%		10.6%		46.9		45.4				11.5%		11.4%
	Industrial and Healthcare Materials		17.7		15.3				10.4%		9.2%		18.6		15.3				11.0%		9.2%
	Corporate expense		(22.7)		(18.9)								(19.3)		(18.9)
	Total operating income / operating margins before interest, other non-operating expense, and taxes		$199.7		$191.7		4%		11.3%		10.9%		$206.4		$188.7		9%		11.7%		10.7%
	Interest expense		$19.0		$14.7								$19.0		$14.7
	Other non-operating expense (d)		$0.8		$9.0								$0.8		$2.3
	Income before taxes		$179.9		$168.0		7%		10.2%		9.5%		$186.6		$171.7		9%		10.6%		9.8%
	Provision for income taxes		$34.6		$17.7								$44.9		$42.9
	Equity method investment losses		($0.7)		($0.8)								($0.7)		($0.8)
	Net income		$144.6		$149.5		(3%)		8.2%		8.5%		$141.0		$128.0		10%		8.0%		7.3%
	Net income per common share, assuming dilution		$1.71		$1.69		1%						$1.66		$1.45		14%
	3Q Free Cash Flow (e)												$162.3		$132.9
	YTD Free Cash Flow (e)												$327.4		$260.5

 

	See accompanying schedules A-4 to A-8 for reconciliations from GAAP to non-GAAP financial measures.
(a)	Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation, and, where applicable, currency adjustment for transitional reporting of highly inflationary economies (Argentina). Segment results are also adjusted for the reclassification of sales between segments. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations.
(b)	Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year.
(c)	Excludes impact of restructuring charges and other items.
(d)	As reported "Other non-operating expense" for the third quarter of 2018 includes $6.7 of pension plan settlement charges.
(e)	Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for the cash contributions related to the termination of our U.S. pension plan.

 

 

 

A-1  

 

AVERY DENNISON CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

 

		(UNAUDITED)
		Three Months Ended				Nine Months Ended
		Sep. 28, 2019		Sep. 29, 2018		Sep. 28, 2019		Sep. 29, 2018
Net sales	$	1,761.4	$	1,759.7	$	5,297.2	$	5,390.3
Cost of products sold		1,289.7		1,300.5		3,877.8		3,946.3
Gross profit		471.7		459.2		1,419.4		1,444.0
Marketing, general and administrative expense		265.3		270.5		807.3		853.0
Other expense (income), net(1)		6.7		(3.0)		21.7		66.9
Interest expense		19.0		14.7		58.0		42.2
Other non-operating expense(2)		0.8		9.0		448.2		14.9
Income before taxes		179.9		168.0		84.2		467.0
Provision for (benefit from) income taxes(3)		34.6		17.7		(58.9)		94.9
Equity method investment losses		(0.7)		(0.8)		(2.0)		(1.8)
Net income	$	144.6	$	149.5	$	141.1	$	370.3
Per share amounts:
Net income per common share, assuming dilution	$	1.71	$	1.69	$	1.66	$	4.16
Weighted average number of common shares outstanding, assuming dilution		84.8		88.5		85.1		89.1

 

 

(1)	“Other expense (income), net” for the third quarter of 2019 includes severance and related costs of $3.3 and legal settlement of $3.4.
	“Other expense (income), net” for the third quarter of 2018 includes severance and related costs, net of reversals of ($7.1) and asset impairment charges of $.7, partially offset by Argentine peso remeasurement transition loss of $3.4.
	“Other expense (income), net” for 2019 YTD includes severance and related costs of $19.8, asset impairment and lease cancellation charges of $1.7, and legal settlement of $3.4, partially offset by gain on sales of assets of $3.2.
	“Other expense (income), net” for 2018 YTD includes severance and related costs of $56, asset impairment and lease cancellation charges of $9.7, Argentine peso remeasurement transition loss of $3.4, and other restructuring-related charge of $.5, partially offset by net gain on sales of assets of $2.7.
(2)	“Other non-operating expense” for 2019 and 2018 YTD includes $446.9 and $7.4, respectively, of pension plan settlements and related charges.
(3)	“Provision for (benefit from) income taxes” for 2019 YTD includes tax benefit of approximately $179.8 related to the termination of our U.S. pension plan.

 

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A-2

 

AVERY DENNISON CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

 

		(UNAUDITED)
ASSETS			Sep. 28, 2019				Sep. 29, 2018
Current assets:
Cash and cash equivalents		$	224.2			$	217.6
Trade accounts receivable, net			1,224.2				1,235.7
Inventories, net			665.0				682.5
Other current assets			220.0				223.0
Total current assets			2,333.4				2,358.8
Property, plant and equipment, net			1,142.1				1,086.9
Goodwill and other intangibles resulting from business acquisitions, net			1,049.5				1,101.7
Non-current deferred income taxes			195.8				195.1
Other assets			617.9				439.4
		$	5,338.7			$	5,181.9
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt and finance leases		$	514.2			$	571.7
Accounts payable			1,041.2				1,048.0
Other current liabilities			712.5				738.5
Total current liabilities			2,267.9				2,358.2
Long-term debt and finance leases			1,483.7				1,295.3
Other long-term liabilities			529.7				481.3
Shareholders' equity:
Common stock			124.1				124.1
Capital in excess of par value			864.8				862.4
Retained earnings			2,861.7				2,809.4
Treasury stock at cost			(2,393.9	)			(2,008.4	)
Accumulated other comprehensive loss			(399.3	)			(740.4	)
Total shareholders' equity			1,057.4				1,047.1
		$	5,338.7			$	5,181.9

 

In the first quarter of 2019, we adopted Accounting Standards Codification ("ASU") No. 2016-02, Leases. This ASU requires lessees to recognize on their balance sheets the rights and obligations created by leases. As allowed under this ASU, we elected to apply it using a modified retrospective approach. This approach applies to all leases that existed at or commenced after the date of our initial application. As such, prior year comparative periods have not been adjusted.

 

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A-3 

 

AVERY DENNISON CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

		(UNAUDITED)
		Nine Months Ended
		Sep. 28, 2019				Sep. 29, 2018
Operating Activities:
Net income		$	141.1			$	370.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			105.3				106.2
Amortization			28.1				29.8
Provision for doubtful accounts and sales returns			42.4				34.3
Stock-based compensation			25.5				24.8
Pension plan settlements and related charges			446.9				7.4
Deferred income taxes and other non-cash taxes			(176.4	)			(7.8	)
Other non-cash expense and loss (income and gain), net			17.5				47.4
Changes in assets and liabilities and other adjustments			(163.4	)			(424.7	)
Net cash provided by operating activities			467.0				187.7
Investing Activities:
Purchases of property, plant and equipment			(132.9	)			(132.7	)
Purchases of software and other deferred charges			(27.4	)			(21.5	)
Proceeds from sales of property, plant and equipment			7.7				9.4
Proceeds from insurance and sales (purchases) of investments, net			3.5				17.6
Payments for investments in businesses			(6.5	)			(0.2	)
Net cash used in investing activities			(155.6	)			(127.4	)
Financing Activities:
Net increase in borrowings (maturities of three months or less)			68.9				301.4
Repayments of long-term debt and finance leases			(17.7	)			(4.4	)
Dividends paid			(141.3	)			(130.6	)
Share repurchases			(204.3	)			(175.1	)
Net (tax withholding) proceeds related to stock-based compensation			(17.4	)			(31.9	)
Payments of contingent consideration			(1.6	)			(17.3	)
Net cash used in financing activities			(313.4	)			(57.9	)
Effect of foreign currency translation on cash balances			(5.8	)			(9.2	)
Decrease in cash and cash equivalents			(7.8	)			(6.8	)
Cash and cash equivalents, beginning of year			232.0				224.4
Cash and cash equivalents, end of period		$	224.2			$	217.6

 

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A-4

 

Reconciliation of Non-GAAP Financial Measures to GAAP

 

We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures.  These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures.  These non-GAAP financial measures are intended to supplement the presentation of our financial results that are prepared in accordance with GAAP.  Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity.

 

Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions.  The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it difficult to assess our underlying performance in a single period.  By excluding the accounting effects, both positive or negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures.  These non-GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing.

 

We use the following non-GAAP financial measures in the accompanying news release and presentation:

 

Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation, and, where applicable, currency adjustment for transitional reporting of highly inflationary economies (Argentina). Segment results are also adjusted for the reclassification of sales between segments. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations.  

 

Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year.  

 

We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.

 

Adjusted operating income refers to income before taxes, interest expense, other non-operating expense, and other expense (income), net.     

 

Adjusted operating margin refers to adjusted operating income as a percentage of net sales.     

 

Adjusted tax rate refers to the projected full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact that rate, such as impacts related to the enactment of the U.S. Tax Cuts and Jobs Act and our U.S. pension plan termination, effects of certain discrete tax planning actions, and other items.

 

Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items.

 

Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by weighted average number of common shares outstanding, assuming dilution.

 

We believe that adjusted operating margin, adjusted net income, and adjusted EPS assist investors in understanding our core operating trends and comparing our results with those of our competitors.

 

Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for the cash contributions related to the termination of our U.S. pension plan. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.

 

The following reconciliations are provided in accordance with Regulations G and S-K and reconcile our non-GAAP financial measures with the most directly comparable GAAP financial measures.

 

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AVERY DENNISON CORPORATION

PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL MEASURES

(In millions, except % and per share amounts)

 

		(UNAUDITED)
			Three Months Ended								Nine Months Ended
			Sep. 28, 2019				Sep. 29, 2018				Sep. 28, 2019				Sep. 29, 2018
Reconciliation from GAAP to Non-GAAP operating margins:
Net sales		$	1,761.4			$	1,759.7			$	5,297.2			$	5,390.3
Income before taxes		$	179.9			$	168.0			$	84.2			$	467.0
Income before taxes as a percentage of net sales			10.2%				9.5%				1.6%				8.7%
Adjustments:
Interest expense		$	19.0			$	14.7			$	58.0			$	42.2
Other non-operating expense			0.8				9.0				448.2				14.9
Operating income before interest expense, other non-operating expense, and taxes		$	199.7			$	191.7			$	590.4			$	524.1
Operating margins			11.3%				10.9%				11.1%				9.7%
Income before taxes		$	179.9			$	168.0			$	84.2			$	467.0
Adjustments:
Restructuring charges:
Severance and related costs, net of reversals			3.3				(7.1	)			19.8				56.0
Asset impairment and lease cancellation charges			---				0.7				1.7				9.7
Legal settlement			3.4				---				3.4				---
Argentine peso remeasurement transition loss			---				3.4				---				3.4
Other restructuring-related charge			---				---				---				0.5
Net gain on sales of assets			---				---				(3.2	)			(2.7	)
Interest expense			19.0				14.7				58.0				42.2
Other non-operating expense			0.8				9.0				448.2				14.9
Adjusted operating income before interest expense, other non-operating expense, and taxes (non-GAAP)		$	206.4			$	188.7			$	612.1			$	591.0
Adjusted operating margins (non-GAAP)			11.7%				10.7%				11.6%				11.0%
Reconciliation from GAAP to Non-GAAP net income:
As reported net income		$	144.6			$	149.5			$	141.1			$	370.3
Adjustments:
Restructuring charges, net of reversals and other items(1)			6.7				(3.0	)			21.7				66.9
Pension plan settlements and related charges			---				6.7				446.9				7.4
Tax benefit from pension plan settlements and related charges			---				---				(179.8	)			---
Tax benefit from pension plan contributions(2)			---				(31.0	)			---				(31.0	)
Tax effect on pre-tax adjustments and impact of adjusted tax rate			(10.3	)			5.8				(15.6	)			(9.4	)
Adjusted net income (non-GAAP)		$	141.0			$	128.0			$	414.3			$	404.2

 

⁽¹⁾ Includes restructuring and related charges, legal settlement, Argentine peso remeasurement transition loss, and net gain on sales of assets.  

⁽²⁾ Tax benefits from the deduction of the third quarter 2018 pension contribution on the company's 2017 U.S. income tax return. In the fourth quarter of 2018, we finalized our provisional estimate as defined under SEC Staff Accounting Bulletin No. 118 related to the U.S. Tax Cuts and Jobs Act ("TCJA") of 2017.

 

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(continued)

 

AVERY DENNISON CORPORATION

PRELIMINARY RECONCILIATION FROM GAAP TO NON-GAAP FINANCIAL MEASURES

(In millions, except % and per share amounts)

 

		(UNAUDITED)
		Three Months Ended								Nine Months Ended
			Sep. 28, 2019				Sep. 29, 2018				Sep. 28, 2019				Sep. 29, 2018
Reconciliation from GAAP to Non-GAAP net income per common share:
As reported net income per common share, assuming dilution		$	1.71			$	1.69			$	1.66			$	4.16
Adjustments per common share, net of tax:
Restructuring charges, net of reversals and other items(1)			0.07				(0.03	)			0.25				0.75
Pension plan settlements and related charges			---				0.08				3.14				0.08
TCJA provisional estimate(2)			---				(0.35	)			---				(0.35	)
Tax effect on pre-tax adjustments and impact of adjusted tax rate			(0.12	)			0.06				(0.18	)			(0.10	)
Adjusted net income per common share, assuming dilution (non-GAAP)		$	1.66			$	1.45			$	4.87			$	4.54
Weighted average number of common shares outstanding, assuming dilution			84.8				88.5				85.1				89.1

 

The adjusted tax rate was 24.1% and 24.7% for three and nine months ended Sep. 28, 2019, respectively, and 25% for the three and nine months ended Sep. 29, 2018.

 

⁽¹⁾ Includes restructuring and related charges, legal settlement, Argentine peso remeasurement transition loss, and net gain on sales of assets.

⁽²⁾ Tax benefits from the deduction of the third quarter 2018 pension contribution on the company's 2017 U.S. income tax return. In the fourth quarter of 2018, we finalized our provisional estimate as defined under SEC Staff Accounting Bulletin No. 118 related to the TCJA.

 

		(UNAUDITED)
		Three Months Ended								Nine Months Ended
		Sep. 28, 2019				Sep. 29, 2018				Sep. 28, 2019				Sep. 29, 2018
Reconciliation of free cash flow:
Net cash provided by (used in) operating activities		$	228.2			$	(21.8	)		$	467.0			$	187.7
Purchases of property, plant and equipment			(53.1	)			(53.2	)			(132.9	)			(132.7	)
Purchases of software and other deferred charges			(14.4	)			(7.6	)			(27.4	)			(21.5	)
Proceeds from sales of property, plant and equipment			0.3				0.1				7.7				9.4
Proceeds from insurance and sales (purchases) of investments, net			(0.8	)			15.4				3.5				17.6
Pension plan contributions for plan termination			2.1				200.0				9.5				200.0
Free cash flow (non-GAAP)		$	162.3			$	132.9			$	327.4			$	260.5

 

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A-6

 

AVERY DENNISON CORPORATION

PRELIMINARY SUPPLEMENTARY INFORMATION

(In millions, except %)

(UNAUDITED)

 

		Third Quarter Ended
		NET SALES						OPERATING INCOME (LOSS)						OPERATING MARGINS
		2019			2018			2019 (1)			2018 (2)			2019		2018
Label and Graphic Materials		$	1,185.1		$	1,194.2		$	159.0		$	152.9		13.4%		12.8%
Retail Branding and Information Solutions		406.8			398.4			45.7			42.4			11.2%		10.6%
Industrial and Healthcare Materials		169.5			167.1			17.7			15.3			10.4%		9.2%
Corporate Expense		N/A			N/A			(22.7)			(18.9)			N/A		N/A
TOTAL FROM OPERATIONS		$	1,761.4		$	1,759.7		$	199.7		$	191.7		11.3%		10.9%

 

⁽¹⁾ Operating income for the third quarter of 2019 includes severance and related costs of $3.3 and legal settlement of $3.4. Of the total $6.7, the Label and Graphic Materials segment recorded $1.2, the Retail Branding and Information Solutions segment recorded $1.2, the Industrial and Healthcare Materials segment recorded $.9, and Corporate recorded $3.4.

 

⁽²⁾ Operating income for the third quarter of 2018 includes severance and related costs, net of reversals of ($7.1) and asset impairment charges of $.7, partially offset by Argentine peso remeasurement transition loss of $3.4. Of the total ($3), the Label and Graphic Materials segment recorded ($6) and the Retail Branding and Information Solutions segment recorded $3.

 

RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION

 

		Third Quarter Ended
		OPERATING INCOME						OPERATING MARGINS
		2019			2018			2019		2018
Label and Graphic Materials
Operating income and margins, as reported		$	159.0		$	152.9		13.4%		12.8%
Adjustments:
Restructuring charges:
Severance and related costs, net of reversals		1.2			(9.7)			0.1%		(0.8%)
Asset impairment charges		---			0.3			---		---
Argentine peso remeasurement transition loss		---			3.4			---		0.3%
Adjusted operating income and margins (non-GAAP)		$	160.2		$	146.9		13.5%		12.3%
Retail Branding and Information Solutions
Operating income and margins, as reported		$	45.7		$	42.4		11.2%		10.6%
Adjustments:
Restructuring charges:
Severance and related costs		1.2			2.6			0.3%		0.7%
Asset impairment charges		---			0.4			---		0.1%
Adjusted operating income and margins (non-GAAP)		$	46.9		$	45.4		11.5%		11.4%
Industrial and Healthcare Materials
Operating income and margins, as reported		$	17.7		$	15.3		10.4%		9.2%
Adjustments:
Restructuring charges:
Severance and related costs		0.9			---			0.6%		---
Adjusted operating income and margins (non-GAAP)		$	18.6		$	15.3		11.0%		9.2%

 

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AVERY DENNISON CORPORATION

PRELIMINARY SUPPLEMENTARY INFORMATION

(In millions, except %)

(UNAUDITED)

 

		Nine Months Year-to-Date
		NET SALES						OPERATING INCOME (LOSS)						OPERATING MARGINS
		2019			2018			2019(1)			2018(2)			2019		2018
Label and Graphic Materials		$	3,569.7		$	3,669.7		$	460.6		$	418.1		12.9%		11.4%
Retail Branding and Information Solutions		1,223.4			1,201.1			147.5			122.4			12.1%		10.2%
Industrial and Healthcare Materials		504.1			519.5			47.8			44.9			9.5%		8.6%
Corporate Expense		N/A			N/A			(65.5)			(61.3)			N/A		N/A
TOTAL FROM OPERATIONS		$	5,297.2		$	5,390.3		$	590.4		$	524.1		11.1%		9.7%

 

⁽¹⁾ Operating income for 2019 includes severance and related costs of $19.8, asset impairment and lease cancellation charges of $1.7, and legal settlement of $3.4, partially offset by gain on sales of assets of $3.2. Of the total $21.7, the Label and Graphic Materials segment recorded $13.2, the Retail Branding and Information Solutions segment recorded $.9, the Industrial and Healthcare Materials segment recorded $4.2, and Corporate recorded $3.4.

 

⁽²⁾ Operating income for 2018 includes severance and related costs of $56, asset impairment and lease cancellation charges of $9.7, Argentine peso remeasurement transition loss of $3.4, and other restructuring-related charge of $.5, partially offset by net gain on sales of assets of $2.7. Of the total $66.9, the Label and Graphic Materials segment recorded $59.9, the Retail Branding and Information Solutions segment recorded $9.1, the Industrial and Healthcare Materials segment recorded $.2, and Corporate recorded ($2.3).

 

RECONCILIATION FROM GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION

 

		Nine Months Year-to-Date
		OPERATING INCOME						OPERATING MARGINS
		2019			2018			2019		2018
Label and Graphic Materials
Operating income and margins, as reported		$	460.6		$	418.1		12.9%		11.4%
Adjustments:
Restructuring charges:
Severance and related costs		12.6			48.7			0.4%		1.3%
Asset impairment and lease cancellation charges		1.3			7.2			---		0.2%
Argentine peso remeasurement transition loss		---			3.4			---		0.1%
Other restructuring-related charge		---			0.5			---		---
(Gain) loss on sales of assets		(0.7)			0.1			---		---
Adjusted operating income and margins (non-GAAP)		$	473.8		$	478.0		13.3%		13.0%
Retail Branding and Information Solutions
Operating income and margins, as reported		$	147.5		$	122.4		12.1%		10.2%
Adjustments:
Restructuring charges:
Severance and related costs		3.0			7.1			0.2%		0.5%
Asset impairment and lease cancellation charges		0.4			2.5			---		0.2%
Net gain on sales of assets		(2.5)			(0.5)			(0.2%)		---
Adjusted operating income and margins (non-GAAP)		$	148.4		$	131.5		12.1%		10.9%
Industrial and Healthcare Materials
Operating income and margins, as reported		$	47.8		$	44.9		9.5%		8.6%
Adjustments:
Restructuring charges:
Severance and related costs		4.2			0.2			0.8%		0.1%
Adjusted operating income and margins (non-GAAP)		$	52.0		$	45.1		10.3%		8.7%

 

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A-8

 

AVERY DENNISON CORPORATION

PRELIMINARY SUPPLEMENTARY INFORMATION

(UNAUDITED)

 

 

 

 

		Third Quarter 2019
		Total Company		Label and Graphic Materials		Retail Branding and Information Solutions		Industrial and Healthcare Materials
Reconciliation from GAAP to Non-GAAP sales change
Reported net sales change		0.1%		(0.8%)		2.1%		1.4%
Reclassification of sales between segments		---		(0.2%)		0.5%		---
Foreign currency translation		2.0%		2.1%		1.5%		2.3%
Sales change ex. currency (non-GAAP)(1)		2.1%		1.2%		4.1%		3.7%
Acquisitions		---		---		---		---
Organic sales change (non-GAAP)		2.1%		1.2%		4.1%		3.7%

 

 

 

		Nine Months Year-to-Date 2019
		Total Company		Label and Graphic Materials		Retail Branding and Information Solutions		Industrial and Healthcare Materials
Reconciliation from GAAP to Non-GAAP sales change
Reported net sales change		(1.7%)		(2.7%)		1.9%		(3.0%)
Reclassification of sales between segments		---		(0.2%)		0.6%		---
Foreign currency translation		3.7%		4.1%		2.7%		3.8%
Sales change ex. currency (non-GAAP)(1)		2.0%		1.2%		5.1%		0.9%
Acquisitions		---		---		---		---
Organic sales change (non-GAAP)		2.0%		1.2%		5.1%		0.9%

 

 

⁽¹⁾ Totals may not sum due to rounding

 

 

####

Exhibit 99.2

  

Third Quarter 2019 Financial Review and Analysis 1 October 23, 2019 Supplemental Presentation Materials Unless otherwise indicated, comparisons are to the same period in the prior year. October 23, 2019 Third Quarter 2019 Financial Review and Analysis (preliminary, unaudited)

Third Quarter 2019 Financial Review and Analysis 2 October 23, 2019 Safe Harbor Statement Certain statements contained in this document are "forward - looking statements" intended to qualify for the safe harbor from liab ility established by the Private Securities Litigation Reform Act of 1995. These forward - looking statements, and financial or other business targets, are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but are not limited to, risks and uncertainties relating to the following: fluctuations in demand affecting sales to customers; worldwide and loc al economic conditions; changes in political conditions; changes in governmental laws and regulations; fluctuations in foreign currency exchange rates and other ri sks associated with foreign operations, including in emerging markets; the financial condition and inventory strategies of customers; changes in our mark ets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in cost and availability of raw mate ria ls; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; the impact of competitive pr odu cts and pricing; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integrati on of acquisitions; timely development and market acceptance of new products, including sustainable or sustainably - sourced products; investment in development activiti es and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations; successful implementatio n o f new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber - attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of fi nan cial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangem ent s and maintain access to capital; fluctuations in interest and tax rates; changes in tax laws and regulations, including the U.S. Tax Cuts and Jobs Act (“TCJA” ), and regulations issued hereto, and uncertainties associated with interpretations of such laws and regulations; outcome of tax audits; fluctuations in pensio n, insurance, and employee benefit costs; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety; protection an d infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and na tur al disasters; and other factors . We believe that the most significant risk factors that could affect our financial performance in the near - term include: (1) the impacts of global economic conditions and political uncertainty on underlying demand for our products and foreign currency fluctuations; (2) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through selling price increases, without a significant loss of volum e; (3) competitors' actions, including pricing, expansion in key markets, and product offerings; and (4) the execution and integration of acquisitions. For a more detailed discussion of these and other factors, see “Risk Factors” and “Management’s Discussion and Analysis of Re sul ts of Operations and Financial Condition” in our 2018 Form 10 - K, filed with the Securities and Exchange Commission on February 27, 2019 and subsequen t quarterly reports on Form 10 - Q. The forward - looking statements included in this document are made only as of the date of this document, and we undert ake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

Third Quarter 2019 Financial Review and Analysis 3 October 23, 2019 Use of Non - GAAP Financial Measures This presentation contains certain non - GAAP financial measures as defined by SEC rules. We report our financial results in conf ormity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non - GAAP financial measures. These non - GAAP financial measures are not in acc ordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non - GAAP financial measures are intended to supplement the presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analyst s, we believe that the supplemental non - GAAP financial measures we provide are useful to their assessment of our performance and opera ting trends, as well as liquidity. In accordance with Regulations G and S - K, reconciliations of non - GAAP financial measures to the most directly comparable GAAP financial measures, including limitations associated with these non - GAAP financial measures, are provided in the financial schedules accompanying the earnings news release for the quarter (see Attachments A - 4 through A - 8 to news release dated October 23, 2019). Our non - GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it difficult to assess our underlying performance in a single period. By excluding the accounting effects, both positiv e o r negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension o bli gations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity m eas ures. These non - GAAP financial measures are used internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period. While some of the items w e e xclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing. We use the following non - GAAP financial measures in this presentation: • Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation, and, where a ppl icable, currency adjustment for transitional reporting of highly inflationary economies (Argentina). Segment results are also adjusted for the reclassification of sales between segments. The estimated im pac t of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations . • Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and , where applicable, the extra week in our fiscal year . We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the o ngo ing activities of our businesses and enhance their ability to evaluate our results from period to period. • Adjusted operating income refers to income before taxes, interest expense, other non - operating expense, and other expense, net. • Adjusted operating margin refers to adjusted operating income as a percentage of net sales . • Adjusted tax rate refers to the projected full - year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to s ignificantly impact that rate, such as impacts related to the enactment of the TCJA and our U.S. pension plan termination, effects of certain discrete tax planning actions, and other items. • Adjusted net income refers to income before taxes, tax - effected at the adjusted tax rate, and adjusted for tax - effected restructuring charges and ot her items. • Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by weighted average number of common shares outstanding, assuming dilution. We believe that adjusted operating margin, adjusted net income, and adjusted EPS assist investors in understanding our core o per ating trends and comparing our results with those of our competitors. • Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other def err ed charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for our cash contributions related to the termination of our U.S. pension plan. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions . This document has been furnished (not filed) on Form 8 - K with the SEC and may be found on our website at www.investors.averydenn ison.com.

Third Quarter 2019 Financial Review and Analysis 4 October 23, 2019 Third Quarter Review Reported EPS of $1.71; adj. EPS (non - GAAP) of $1.66 ● Reported sales up 0.1%, including a negative 2.0% impact from currency translation ○ Organic sales change (non - GAAP) of 2.1% ● Reported operating margin up 40 bps ○ Adjusted operating margin (non - GAAP) improved 100 bps LGM delivered modest organic growth, with volumes improving relative to the first half of the year. Operating margin was strong, driven by restructuring and material re - engineering initiatives RBIS’ organic growth was solid, as continued strength in RFID more than offset a slowdown in the base; operating margin remained strong IHM delivered solid organic growth and strong margin expansion Revised high end of FY19 reported and adjusted EPS guidance ranges ● Incremental headwind from currency translation largely offset by stronger operational results and modestly lower tax rate

Third Quarter 2019 Financial Review and Analysis 5 October 23, 2019 Sales Trend Analysis * Totals may not sum due to rounding. 3Q18 4Q18 1Q19 2Q19 3Q19 Reported Sales Change 4.8% 1.9% (2.0%) (3.2%) 0.1% Organic Sales Change 6.1% 4.8% 2.4% 1.6% 2.1% Currency Translation (1.3%) (2.9%) (4.4%) (4.7%) (2.0%) Reported Sales Change* 4.8% 1.9% (2.0%) (3.2%) 0.1%

Third Quarter 2019 Financial Review and Analysis 6 October 23, 2019 Third Quarter Sales and Margin Analysis 3Q19 Reported Organic Sales Change : Label and Graphic Materials (0.8%) 1.2% Retail Branding and Information Solutions 2.1% 4.1% Industrial and Healthcare Materials 1.4% 3.7% Total Company 0.1% 2.1% Reported Adjusted (Non - GAAP) 3Q19 3Q18 3Q19 3Q18 Operating Margin : Label and Graphic Materials 13.4% 12.8% 13.5% 12.3% Retail Branding and Information Solutions 11.2% 10.6% 11.5% 11.4% Industrial and Healthcare Materials 10.4% 9.2% 11.0% 9.2% Total Company 11.3% 10.9% 11.7% 10.7%

Third Quarter 2019 Financial Review and Analysis 7 October 23, 2019 LABEL AND GRAPHIC MATERIALS ● Reported sales of $1.19 bil., down 0.8% ○ On organic basis, sales up 1.2%, as volume/mix improved modestly • Label and Packaging Materials up low - single digits • Combined Graphics and Reflective Solutions up low - single digits ● Reported operating margin increased 60 basis points to 13.4%, reflecting benefit from productivity initiatives, including restructuring and material re - engineering, partially offset by higher restructuring charges, net of reversals, and increased employee - related costs ○ Adjusted operating margin up 120 basis points to 13.5% Third Quarter Segment Overview

Third Quarter 2019 Financial Review and Analysis 8 October 23, 2019 RETAIL BRANDING AND INFORMATION SOLUTIONS ● Reported sales of $407 mil., up 2.1% ○ On organic basis, sales up 4.1%, driven primarily by continued strength in RFID • RFID solutions up more than 20% ● Reported operating margin increased 60 basis points to 11.2%, as productivity, higher volume, and lower restructuring charges more than offset higher employee - related costs and growth - related investments ○ Adjusted operating margin increased 10 basis points to 11.5% INDUSTRIAL AND HEALTHCARE MATERIALS ● Reported sales of $170 mil., up 1.4% ○ Sales up 3.7% on organic basis, driven by a low - to - mid single digit increase in industrial categories and a high - single digit increase in healthcare categories ● Reported operating margin up 120 basis points to 10.4%, as the benefits from higher volume/mix and productivity more than offset higher restructuring charges and employee - related costs ○ Adjusted operating margin increased 180 basis points to 11.0% Third Quarter Segment Overview (cont.)

Third Quarter 2019 Financial Review and Analysis 9 October 23, 2019 Adjusted EPS (non - GAAP) $6.50 – $6.60 Contributing Factors to 2019 Results $6.50 – $6.65 Previous Updated 2019 EPS Guidance ● Reported sales change of (1.4)% to (1.1)% (previously (0.5)% to 0%) including a 3.4 point headwind from currency translation at recent rates ○ O rganic sales growth of 2.0% to 2.3% (previously 2.0% to 2.5%) ● Currency translation headwind to operating income of ~$37 mil., assuming recent rates (previously ~$28 mil.) ● Savings of ~$50 mil. from restructuring actions, net of transition costs (previously $45 mil. to $50 mil .) ● Adjusted tax rate in the mid - twenty percent range ● Interest expense of $75 mil. to $80 mil. ● Fixed and IT capital spend of $270 mil. to $280 mil. ● Average shares outstanding (assuming dilution) of ~85 mil. (previously 84.5 mil. to 85.0 mil.) Add Back : Est. pension settlement charges (largely in Q1) Est. restructuring charges and other items Reported EPS $3.15 – $3.25 $3.15 – $3.30 ~$0.20 ~$3.15 ~$0.20 ~$3.15

Third Quarter 2019 Financial Review and Analysis 10 October 23, 2019 © 2017 Avery Dennison Corporation. All rights reserved.