UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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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).
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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 25, 2023, announcing the Company’s preliminary, unaudited financial results for the third quarter of 2023 and guidance for the fourth quarter of 2023 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 25, 2023, regarding the Company’s preliminary, unaudited financial review and analysis for the third quarter of 2023 and guidance for the fourth quarter of 2023 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 to be held on October 25, 2023, 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.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this Form 8-K and the exhibits attached hereto 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.
The Company believes that the most significant risk factors that could affect its financial performance in the near term include: (i) the impacts to underlying demand for the Company’s products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors’ actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions.
Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following:
| • | International Operations – worldwide and local economic and market conditions; changes in political conditions, including those related to China, the Russian invasion of Ukraine and the Israel-Hamas war; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets |
| • | The Company’s Business – fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in the Company’s markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service |
| quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; the Company’s ability to generate sustained productivity improvement; the Company’s ability to achieve and sustain targeted cost reductions; collection of receivables from customers; and our environmental, social and governance practices |
| • | Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets |
| • | Information Technology – disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems |
| • | Human Capital – recruitment and retention of employees and collective labor arrangements |
| • | The Company’s Indebtedness – credit risks; the Company’s ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with the Company’s debt covenants |
| • | Ownership of the Company’s Stock – potential significant variability of the Company’s stock price and amounts of future dividends and share repurchases |
| • | Legal and Regulatory Matters – protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance |
| • | Other Financial Matters – fluctuations in pension costs and goodwill impairment |
For a more detailed discussion of these factors, see Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023, 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 25, 2023, announcing the Company’s preliminary, unaudited financial results for the third quarter of 2023. | |
| 99.2 | Supplemental presentation materials, dated October 25, 2023, regarding the Company’s preliminary, unaudited financial review and analysis for the third quarter of 2023. | |
| 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 25, 2023 | 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 2023 RESULTS
Highlights:
| ● | 3Q23 Net sales of $2.1 billion |
| ¡ | Sales change ex. currency (non-GAAP) down 10% |
| ¡ | Organic sales change (non-GAAP) down 11% |
| ● | 3Q23 Reported EPS of $1.71 |
| ¡ | Adjusted EPS (non-GAAP) of $2.10, up 9% sequentially |
| ● | 4Q23 Reported EPS guidance of $2.05 to $2.20 |
| ¡ | Adjusted EPS guidance of $2.10 to $2.25 |
MENTOR, Ohio, October 25, 2023 – Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its third quarter ended September 30, 2023. Non-GAAP financial measures referenced in this release are reconciled from GAAP in the attached financial schedules. Unless otherwise indicated, comparisons are to the same period in the prior year.
“Earnings per share were in line with our expectations for the third quarter, again increasing sequentially,” said Deon Stander, president and CEO. “Volume in both Label Materials and Apparel Solutions improved sequentially, continuing to recover from slow market conditions, largely inventory destocking, while our Intelligent Labels platform continued to accelerate adoption into new categories.
“We expect further sequential improvement in the fourth quarter, as the pace of inventory destocking continues to moderate and non-apparel intelligent label programs accelerate.
“In Intelligent Labels, we expect to deliver more than twenty percent growth annually in the coming years, as adoption accelerates in logistics, food, and general retail, and apparel rebounds, further advancing our leadership position at the intersection of the physical and digital,” added Stander.
“We remain confident that the consistent execution of our strategies will enable us to meet our long-term goals for superior value creation through a balance of profitable growth and capital discipline.
“Once again, I want to thank our entire team for their continued resilience and commitment to addressing the unique challenges at hand.”
Third Quarter 2023 Results by Segment
Materials Group
| ● | Reported sales decreased 14% to $1.5 billion. Sales were down 16% ex. currency and on an organic basis. |
| ¡ | Label Materials sales were down high-teens on an organic basis. |
| ∎ | Lower volume was driven primarily by inventory destocking. |
| ∎ | Volume was up sequentially as the impact of inventory destocking continues to moderate. |
| ¡ | Sales decreased by low-single digits organically in the Graphics and Reflective Solutions businesses. |
| ¡ | Sales increased by low-single digits organically in the combined Performance Tapes and Medical businesses. |
| ● | Reported operating margin was 12.1%. Adjusted EBITDA margin (non-GAAP) was strong, increasing 70 basis points sequentially to 16.4%. Adjusted EBITDA margin increased 90 basis points compared to prior year, as productivity and temporary cost-saving actions more than offset lower volume and mix. |
Solutions Group
| ● | Reported sales increased 3% to $642 million. Sales were up 5% ex. currency and 1% on an organic basis. |
| ¡ | Apparel Solutions volume was up sequentially; retailer and brand sentiment remains muted. |
| ¡ | Sales in high-value categories were up high-single digits on an organic basis. |
| ¡ | Sales were down mid-to-high single digits organically in base solutions. |
| ● | Reported operating margin was 7.9%. Adjusted EBITDA margin was 16.4%, up 60 basis points sequentially and is expected to further improve in Q4. Adjusted EBITDA margin decreased 250 basis points compared to prior year, driven by volume, higher employee costs and growth investments, partially offset by productivity and temporary cost-saving actions. |
| ● | The company announced an agreement to acquire Silver Crystal Group, expanding our external embellishments portfolio, with annual sales of approximately $30 million. |
Other
Balance Sheet and Capital Deployment
During the first three quarters of the year, the company deployed $204 million for acquisitions and returned $309 million in cash to shareholders through a combination of dividends and share repurchases. The company repurchased 0.7 million shares at an aggregate cost of $117 million during the first three quarters of the year. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down 0.7 million compared to the same time last year.
The company continues to deploy capital in a disciplined manner, executing its long-term capital allocation strategy. The company’s balance sheet remains strong. Net debt to adjusted EBITDA (non-GAAP) was 2.6x at the end of the third quarter.
Income Taxes
The company’s reported third quarter effective tax rate was 25.1%. The adjusted tax rate (non-GAAP) for the quarter was 26.3%.
The company’s 2023 adjusted tax rate is expected to be in the mid-twenty percent range based on current tax regulations.
Cost Reduction Actions
During the first three quarters of the year, the company realized approximately $45 million in pre-tax savings from restructuring, net of transition costs, and incurred approximately $71 million in pre-tax restructuring charges.
Guidance
In its supplemental presentation materials, “Third Quarter 2023 Financial Review and Analysis,” the company provides a list of factors that it believes will contribute to its fourth quarter 2023 financial results. Based on the factors listed and other assumptions, the company expects fourth quarter 2023 reported earnings per share of $2.05 to $2.20.
Excluding an estimated $0.05 per share impact of restructuring charges and other items, the company expects fourth quarter 2023 adjusted earnings per share of $2.10 to $2.25.
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 2023 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 Corporation (NYSE: AVY) is a global materials science and digital identification solutions company that provides branding and information labeling solutions, including pressure-sensitive materials, radio-frequency identification (RFID) inlays and tags, and a variety of converted products and solutions. The company designs and manufactures a wide range of labeling and functional materials that enhance branded packaging, carry or display information that connects the physical and the digital, and improve customers’ product performance. The company serves an array of industries worldwide, including home and personal care, apparel, e-commerce, logistics, food and grocery, pharmaceuticals and automotive. The company employs approximately 36,000 employees in more than 50 countries. Reported sales in 2022 were $9.0 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.
We believe that the most significant risk factors that could affect our financial performance in the near term include: (i) the impacts to underlying demand for our products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors’ actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions.
Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following:
| ● | International Operations – worldwide and local economic and market conditions; changes in political conditions, including those related to China, the Russian invasion of Ukraine and the Israel-Hamas war; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets |
| ● | Our Business – fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; collection of receivables from customers; and our environmental, social and governance practices |
| ● | Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets |
| ● | Information Technology – disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems |
| ● | Human Capital – recruitment and retention of employees and collective labor arrangements |
| ● | Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with our debt covenants |
| ● | Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases |
| ● | Legal and Regulatory Matters – protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance |
| ● | Other Financial Matters – fluctuations in pension costs and goodwill impairment |
For a more detailed discussion of these factors, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023, 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:
John Eble
Vice President, Finance and Investor Relations
investorcom@averydennison.com
Kristin Robinson
Vice President, Global Communications
kristin.robinson@averydennison.com
| Third Quarter Financial Summary - Preliminary, unaudited |
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| (In millions, except % and per share amounts) |
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| 3Q | 3Q | % Sales Change vs. PY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Reported | Ex. Currency | Organic | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales, by segment: |
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| Materials Group |
$1,456.0 | $1,694.0 | (14.0%) | (15.7%) | (15.7%) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Solutions Group |
642.3 | 623.1 | 3.1% | 4.5% | 0.6% | |||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total net sales |
$2,098.3 | $2,317.1 | (9.4%) | (10.4%) | (11.4%) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| As Reported (GAAP) | Adjusted Non-GAAP | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3Q | 3Q | % | % of Sales | 3Q | 3Q | % | % of Sales | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | 2023 | 2022 | Change | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) / operating margins before interest, other non-operating expense (income), and taxes, by segment: |
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| Materials Group |
$176.5 | $235.9 | 12.1% | 13.9% | $208.3 | $228.6 | 14.3% | 13.5% | ||||||||||||||||||||||||||||||||||||||||||||||||
| Solutions Group |
50.7 | 75.8 | 7.9% | 12.2% | 61.4 | 79.2 | 9.6% | 12.7% | ||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate expense (a) |
(20.3) | (19.4) | (16.5) | (19.4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total operating income / operating margins before interest, other non-operating expense (income), and taxes |
$206.9 | $292.3 | (29%) | 9.9% | 12.6% | $253.2 | $288.4 | (12%) | 12.1% | 12.4% | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense |
$31.0 | $21.2 | $31.0 | $21.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other non-operating expense (income), net |
($8.7) | ($1.4) | ($8.7) | ($1.4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before taxes |
$184.6 | $272.5 | (32%) | 8.8% | 11.8% | $230.9 | $268.6 | (14%) | 11.0% | 11.6% | ||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes |
$46.3 | $51.0 | $60.8 | $67.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income |
$138.3 | $221.5 | (38%) | 6.6% | 9.6% | $170.1 | $201.5 | (16%) | 8.1% | 8.7% | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income per common share, assuming dilution |
$1.71 | $2.70 | (37%) | $2.10 | $2.46 | (15%) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 3Q Adjusted free cash flow |
$309.9 | $140.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| YTD Adjusted free cash flow |
$373.6 | $422.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA: |
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| Materials Group |
$239.5 | $262.0 | 16.4% | 15.5% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Solutions Group |
$105.3 | $117.8 | 16.4% | 18.9% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate expense |
($16.5) | ($19.4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Total Adjusted EBITDA |
$ | 328.3 | $ | 360.4 | 15.6% | 15.6% | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Previously reported segment results have been recast to reflect our current operating structure.
See accompanying schedules A-4 to A-9 for reconciliations of non-GAAP financial measures from GAAP.
| (a) | As reported “Corporate expense” for the third quarter of 2023 includes severance and related costs of $1 and asset impairment charges of $2.8. |
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. 30, 2023 | Oct. 1, 2022 | Sep. 30, 2023 | Oct. 1, 2022 | |||||||||||||
| Net sales |
$ | 2,098.3 | $ | 2,317.1 | $ | 6,253.8 | $ | 7,013.4 | ||||||||
| Cost of products sold |
1,512.5 | 1,697.9 | 4,572.3 | 5,109.4 | ||||||||||||
| Gross profit |
585.8 | 619.2 | 1,681.5 | 1,904.0 | ||||||||||||
| Marketing, general and administrative expense |
332.6 | 330.8 | 986.6 | 1,018.5 | ||||||||||||
| Other expense (income), net(1) |
46.3 | (3.9 | ) | 132.4 | (2.1 | ) | ||||||||||
| Interest expense |
31.0 | 21.2 | 89.3 | 61.6 | ||||||||||||
| Other non-operating expense (income), net |
(8.7 | ) | (1.4 | ) | (19.9 | ) | (4.1 | ) | ||||||||
| Income before taxes |
184.6 | 272.5 | 493.1 | 830.1 | ||||||||||||
| Provision for income taxes |
46.3 | 51.0 | 133.2 | 195.9 | ||||||||||||
| Net income |
$ | 138.3 | $ | 221.5 | $ | 359.9 | $ | 634.2 | ||||||||
| Per share amounts: |
||||||||||||||||
| Net income per common share, assuming dilution |
$ | 1.71 | $ | 2.70 | $ | 4.43 | $ | 7.70 | ||||||||
| Weighted average number of common shares outstanding, assuming dilution |
81.0 | 81.9 | 81.2 | 82.4 | ||||||||||||
| (1) | “Other expense (income), net” for the third quarter of 2023 includes severance and related costs of $38.7, asset impairment charges of $5.1 and outcomes of legal proceedings of $2.5. |
“Other expense (income), net” for the third quarter of 2022 includes gain on venture investment of $8.7, partially offset by severance and related costs of $4.7 and asset impairment charges of $.1.
“Other expense (income), net” for 2023 YTD includes severance and related costs of $64.6, asset impairment charges of $6.8, outcomes of legal proceedings of $56.3, transaction and related costs of $4.2 and loss on sale of asset of $.5.
“Other expense (income), net” for 2022 YTD includes gain on venture investment of $12.4 and gain on sale of assets of $.5, partially offset by severance and related costs of $8.7 and asset impairment charges of $.1, outcomes of legal proceedings of $1.7 and transaction and related costs of $.3.
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A-2
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
| (UNAUDITED) | ||||||||
| ASSETS | Sep. 30, 2023 | Oct. 1, 2022 | ||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 209.9 | $ | 128.2 | ||||
| Trade accounts receivable, net |
1,426.2 | 1,585.6 | ||||||
| Inventories |
936.1 | 1,014.4 | ||||||
| Other current assets |
242.1 | 233.6 | ||||||
| Total current assets |
2,814.3 | 2,961.8 | ||||||
| Property, plant and equipment, net |
1,555.2 | 1,442.6 | ||||||
| Goodwill and other intangibles resulting from business acquisitions, net |
2,836.6 | 2,679.9 | ||||||
| Deferred tax assets |
115.2 | 118.1 | ||||||
| Other assets |
811.8 | 839.9 | ||||||
| $ | 8,133.1 | $ | 8,042.3 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities: |
||||||||
| Short-term borrowings and current portion of long-term debt and finance leases |
$ | 716.0 | $ | 669.9 | ||||
| Accounts payable |
1,265.3 | 1,383.1 | ||||||
| Other current liabilities |
763.0 | 886.3 | ||||||
| Total current liabilities |
2,744.3 | 2,939.3 | ||||||
| Long-term debt and finance leases |
2,597.6 | 2,462.9 | ||||||
| Other long-term liabilities |
727.6 | 632.8 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock |
124.1 | 124.1 | ||||||
| Capital in excess of par value |
852.5 | 866.5 | ||||||
| Retained earnings |
4,608.2 | 4,347.0 | ||||||
| Treasury stock at cost |
(3,118.6 | ) | (2,962.3 | ) | ||||
| Accumulated other comprehensive loss |
(402.6 | ) | (368.0 | ) | ||||
| Total shareholders’ equity |
2,063.6 | 2,007.3 | ||||||
| $ | 8,133.1 | $ | 8,042.3 | |||||
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A-3
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| (UNAUDITED) | ||||||||||||
| Nine Months Ended | ||||||||||||
| Sep. 30, 2023 | Oct. 1, 2022 | |||||||||||
| Operating Activities |
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| Net income |
$ | 359.9 | $ | 634.2 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation |
138.5 | 132.2 | ||||||||||
| Amortization |
82.9 | 85.0 | ||||||||||
| Provision for credit losses and sales returns |
32.4 | 36.9 | ||||||||||
| Stock-based compensation |
17.4 | 34.5 | ||||||||||
| Deferred taxes and other non-cash taxes |
(29.4 | ) | (8.5 | ) | ||||||||
| Other non-cash expense and loss (income and gain), net |
25.2 | 14.7 | ||||||||||
| Changes in assets and liabilities and other adjustments |
(112.8 | ) | (313.8 | ) | ||||||||
| Net cash provided by operating activities |
514.1 | 615.2 | ||||||||||
| Investing Activities |
||||||||||||
| Purchases of property, plant and equipment |
(173.0 | ) | (183.2 | ) | ||||||||
| Purchases of software and other deferred charges |
(15.3 | ) | (13.9 | ) | ||||||||
| Proceeds from sales of property, plant and equipment |
0.7 | 2.2 | ||||||||||
| Proceeds from insurance and sales (purchases) of investments, net |
47.1 | 1.9 | ||||||||||
| Payments for acquisitions, net of cash acquired, and venture investments |
(203.7 | ) | (37.0 | ) | ||||||||
| Net cash used in investing activities |
(344.2 | ) | (230.0 | ) | ||||||||
| Financing Activities |
||||||||||||
| Net increase (decrease) in borrowings with maturities of three months or less |
70.6 | 115.9 | ||||||||||
| Additional long-term borrowings |
394.9 | --- | ||||||||||
| Repayments of long-term debt and finance leases |
(254.2 | ) | (4.4 | ) | ||||||||
| Dividends paid |
(191.5 | ) | (178.3 | ) | ||||||||
| Share repurchases |
(117.1 | ) | (318.6 | ) | ||||||||
| Net (tax withholding) proceeds related to stock-based compensation |
(23.8 | ) | (25.1 | ) | ||||||||
| Other |
(1.6 | ) | --- | |||||||||
| Net cash used in financing activities |
(122.7 | ) | (410.5 | ) | ||||||||
| Effect of foreign currency translation on cash balances |
(4.5 | ) | (9.2 | ) | ||||||||
| Increase (decrease) in cash and cash equivalents |
42.7 | (34.5 | ) | |||||||||
| Cash and cash equivalents, beginning of year |
167.2 | 162.7 | ||||||||||
| Cash and cash equivalents, end of period |
$ | 209.9 | $ | 128.2 | ||||||||
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A-4
Reconciliation of Non-GAAP Financial Measures from 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 prepared in accordance with GAAP. Based on feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments 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 more difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, outcomes of certain legal proceedings, 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, gains or losses on venture investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency or timing.
We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for quarters and year-to-date periods, as applicable.
We use the non-GAAP financial measures described below in the accompanying news release.
Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation and the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year, and currency adjustment for transitional reporting of highly inflationary economies. 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 acquisitions and product line divestitures.
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 net income adjusted for taxes; other expense (income), net; interest expense; and other non-operating expense (income), net.
Adjusted EBITDA refers to adjusted operating income before depreciation and amortization.
Adjusted operating margin refers to adjusted operating income as a percentage of net sales.
Adjusted EBITDA margin refers to adjusted EBITDA 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 effects of certain discrete tax planning actions, impacts related to enactments of comprehensive tax law changes, 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 the weighted average number of common shares outstanding, assuming dilution.
We believe that adjusted operating margin, adjusted EBITDA margin, adjusted net income, and adjusted EPS assist investors in understanding our core operating trends and comparing our results with those of our competitors.
Net debt to adjusted EBITDA ratio refers to total debt (including finance leases) less cash and cash equivalents, divided by adjusted EBITDA for the last twelve months. We believe that the net debt to adjusted EBITDA ratio assists investors in assessing our leverage position.
Adjusted 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. Adjusted free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. We believe that adjusted free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.
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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A-5
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION OF NON-GAAP FINANCIAL MEASURES FROM GAAP
(In millions, except % and per share amounts)
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Sep. 30, 2023 | Oct. 1, 2022 | Sep. 30, 2023 | Oct. 1, 2022 | |||||||||||||
| Reconciliation of non-GAAP operating margins from GAAP: |
||||||||||||||||
| Net sales |
$ | 2,098.3 | $ | 2,317.1 | $ | 6,253.8 | $ | 7,013.4 | ||||||||
|
|
|
|||||||||||||||
| Income before taxes |
$ | 184.6 | $ | 272.5 | $ | 493.1 | $ | 830.1 | ||||||||
| Income before taxes as a percentage of net sales |
8.8 | % | 11.8 | % | 7.9 | % | 11.8% | |||||||||
| Adjustments: |
||||||||||||||||
| Interest expense |
$ | 31.0 | $ | 21.2 | $ | 89.3 | $ | 61.6 | ||||||||
| Other non-operating expense (income), net |
(8.7 | ) | (1.4 | ) | (19.9 | ) | (4.1) | |||||||||
|
|
|
|||||||||||||||
| Operating income before interest expense, other non-operating expense (income) and taxes |
$ | 206.9 | $ | 292.3 | $ | 562.5 | $ | 887.6 | ||||||||
| Operating margins |
9.9 | % | 12.6 | % | 9.0 | % | 12.7% | |||||||||
| As reported net income |
$ | 138.3 | $ | 221.5 | $ | 359.9 | $ | 634.2 | ||||||||
| Adjustments: |
||||||||||||||||
| Restructuring charges: |
||||||||||||||||
| Severance and related costs |
38.7 | 4.7 | 64.6 | 8.7 | ||||||||||||
| Asset impairment charges |
5.1 | 0.1 | 6.8 | 0.1 | ||||||||||||
| Outcomes of legal proceedings |
2.5 | --- | 56.3 | 1.7 | ||||||||||||
| Transaction and related costs |
--- | --- | 4.2 | 0.3 | ||||||||||||
| (Gain) loss on sales of assets |
--- | --- | 0.5 | (0.5) | ||||||||||||
| Gain on venture investment |
--- | (8.7 | ) | --- | (12.4) | |||||||||||
| Interest expense |
31.0 | 21.2 | 89.3 | 61.6 | ||||||||||||
| Other non-operating expense (income), net |
(8.7 | ) | (1.4 | ) | (19.9 | ) | (4.1) | |||||||||
| Provision for income taxes |
46.3 | 51.0 | 133.2 | 195.9 | ||||||||||||
|
|
|
|||||||||||||||
| Adjusted operating income (non-GAAP) |
$ | 253.2 | $ | 288.4 | $ | 694.9 | $ | 885.5 | ||||||||
| Adjusted operating margins (non-GAAP) |
12.1 | % | 12.4 | % | 11.1 | % | 12.6% | |||||||||
| Depreciation and amortization |
75.1 | 72.0 | 221.4 | 217.2 | ||||||||||||
| Adjusted EBITDA (non-GAAP) |
328.3 | 360.4 | 916.3 | 1,102.7 | ||||||||||||
| Adjusted EBITDA margins (non-GAAP) |
15.6 | % | 15.6 | % | 14.7 | % | 15.7% | |||||||||
| Reconciliation of non-GAAP net income from GAAP: |
||||||||||||||||
| As reported net income |
$ | 138.3 | $ | 221.5 | $ | 359.9 | $ | 634.2 | ||||||||
| Adjustments: |
||||||||||||||||
| Restructuring charges and other items(1) |
46.3 | (3.9 | ) | 132.4 | (2.1) | |||||||||||
| Tax effect on restructuring charges and other items and impact of adjusted tax rate |
(14.5 | ) | (16.1 | ) | (28.2 | ) | (14.4) | |||||||||
| Adjusted net income (non-GAAP) |
$ | 170.1 | $ | 201.5 | $ | 464.1 | $ | 617.7 | ||||||||
| (1) | Included pretax restructuring charges, outcomes of legal proceedings, transaction and related costs, gain/loss on sales of assets and gain on venture investment. |
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A-5
(continued)
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION OF NON-GAAP FINANCIAL MEASURES FROM GAAP
(In millions, except % and per share amounts)
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Sep. 30, 2023 | Oct. 1, 2022 | Sep. 30, 2023 | Oct. 1, 2022 | |||||||||||||
| Reconciliation of non-GAAP net income per common share from GAAP: |
||||||||||||||||
| As reported net income per common share, assuming dilution |
$ | 1.71 | $ | 2.70 | $ | 4.43 | $ | 7.70 | ||||||||
| Adjustments per common share, net of tax: |
||||||||||||||||
| Restructuring charges and other items(1) |
0.57 | (0.05 | ) | 1.63 | (0.03 | ) | ||||||||||
| Tax effect on restructuring charges and other items and impact of adjusted tax rate |
(0.18 | ) | (0.19 | ) | (0.34 | ) | (0.17 | ) | ||||||||
| Adjusted net income per common share, assuming dilution (non-GAAP) |
$ | 2.10 | $ | 2.46 | $ | 5.72 | $ | 7.50 | ||||||||
| Weighted average number of common shares outstanding, assuming dilution |
81.0 | 81.9 | 81.2 | 82.4 | ||||||||||||
Our adjusted tax rate was 26.3% and 25.8% for the three and nine months ended Sep. 30, 2023, respectively, and 25% and 25.4% for the three and nine months ended Oct. 1, 2022, respectively.
| (1) | Included pretax restructuring charges, outcomes of legal proceedings, transaction and related costs, gain/loss on sales of assets and gain on venture investment. |
| (UNAUDITED) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| Sep. 30, 2023 | Oct. 1, 2022 | Sep. 30, 2023 | Oct. 1, 2022 | |||||||||||||
| Reconciliation of adjusted free cash flow: |
||||||||||||||||
| Net cash provided by operating activities |
$ | 322.6 | $ | 220.8 | $ | 514.1 | $ | 615.2 | ||||||||
| Purchases of property, plant and equipment |
(57.1 | ) | (76.4 | ) | (173.0 | ) | (183.2 | ) | ||||||||
| Purchases of software and other deferred charges |
(4.3 | ) | (4.0 | ) | (15.3 | ) | (13.9 | ) | ||||||||
| Proceeds from sales of property, plant and equipment |
0.4 | 0.1 | 0.7 | 2.2 | ||||||||||||
| Proceeds from insurance and sales (purchases) of investments, net |
48.3 | (0.1 | ) | 47.1 | 1.9 | |||||||||||
| Payments for certain acquisition-related transaction costs |
--- | --- | --- | 0.6 | ||||||||||||
| Adjusted free cash flow (non-GAAP) |
$ | 309.9 | $ | 140.4 | $ | 373.6 | $ | 422.8 | ||||||||
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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 | ||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Materials Group |
$ | 1,456.0 | $ | 1,694.0 | $ | 176.5 | $ | 235.9 | 12.1 | % | 13.9 | % | ||||||||||||||||||||
| Solutions Group |
642.3 | 623.1 | 50.7 | 75.8 | 7.9 | % | 12.2 | % | ||||||||||||||||||||||||
| Corporate Expense |
N/A | N/A | (20.3 | ) | (19.4 | ) | N/A | N/A | ||||||||||||||||||||||||
| TOTAL FROM OPERATIONS |
$ | 2,098.3 | $ | 2,317.1 | $ | 206.9 | $ | 292.3 | 9.9 | % | 12.6 | % | ||||||||||||||||||||
RECONCILIATION OF NON-GAAP SUPPLEMENTARY INFORMATION FROM GAAP
| Third Quarter Ended | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Materials Group |
||||||||||||||||||||
| Operating income and margins, as reported |
$ | 176.5 | $ | 235.9 | 12.1 | % | 13.9% | |||||||||||||
| Adjustments: |
||||||||||||||||||||
| Restructuring charges: |
||||||||||||||||||||
| Severance and related costs |
29.4 | 1.4 | 2.0 | % | 0.1% | |||||||||||||||
| Asset impairment charges |
1.2 | --- | 0.1 | % | --- | |||||||||||||||
| Outcomes of legal proceedings |
1.2 | --- | 0.1 | % | --- | |||||||||||||||
| Gain on venture investment |
--- | (8.7 | ) | --- | (0.5%) | |||||||||||||||
| Adjusted operating income and margins (non-GAAP) |
$ | 208.3 | $ | 228.6 | 14.3 | % | 13.5% | |||||||||||||
| Depreciation and amortization |
31.2 | 33.4 | 2.1 | % | 2.0% | |||||||||||||||
| Adjusted EBITDA and margins (non-GAAP) |
$ | 239.5 | $ | 262.0 | 16.4 | % | 15.5% | |||||||||||||
| Solutions Group |
||||||||||||||||||||
| Operating income and margins, as reported |
$ | 50.7 | $ | 75.8 | 7.9 | % | 12.2% | |||||||||||||
| Adjustments: |
||||||||||||||||||||
| Restructuring charges: |
||||||||||||||||||||
| Severance and related costs |
8.3 | 3.3 | 1.3 | % | 0.5% | |||||||||||||||
| Asset impairment charges |
1.1 | 0.1 | 0.2 | % | --- | |||||||||||||||
| Outcomes of legal proceedings |
1.3 | --- | 0.2 | % | --- | |||||||||||||||
| Adjusted operating income and margins (non-GAAP) |
$ | 61.4 | $ | 79.2 | 9.6 | % | 12.7% | |||||||||||||
| Depreciation and amortization |
43.9 | 38.6 | 6.8 | % | 6.2% | |||||||||||||||
| Adjusted EBITDA and margins (non-GAAP) |
$ | 105.3 | $ | 117.8 | 16.4 | % | 18.9% | |||||||||||||
Previously reported segment results have been recast to reflect our current operating structure.
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A-7
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except %)
(UNAUDITED)
| Nine Months Ended | ||||||||||||||||||||||||||||||||
| NET SALES | OPERATING INCOME (LOSS) | OPERATING MARGINS | ||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Materials Group |
$ | 4,392.5 | $ | 5,053.8 | $ | 530.8 | $ | 705.4 | 12.1 | % | 14.0 | % | ||||||||||||||||||||
| Solutions Group |
1,861.3 | 1,959.6 | 95.0 | 250.7 | 5.1 | % | 12.8 | % | ||||||||||||||||||||||||
| Corporate Expense |
N/A | N/A | (63.3 | ) | (68.5 | ) | N/A | N/A | ||||||||||||||||||||||||
| TOTAL FROM OPERATIONS |
$ | 6,253.8 | $ | 7,013.4 | $ | 562.5 | $ | 887.6 | 9.0 | % | 12.7 | % | ||||||||||||||||||||
RECONCILIATION OF NON-GAAP SUPPLEMENTARY INFORMATION FROM GAAP
| Nine Months Ended | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Materials Group |
||||||||||||||||||||
| Operating income and margins, as reported |
$ | 530.8 | $ | 705.4 | 12.1 | % | 14.0% | |||||||||||||
| Adjustments: |
||||||||||||||||||||
| Restructuring charges: |
||||||||||||||||||||
| Severance and related costs, net of reversals |
48.2 | 2.5 | 1.1 | % | --- | |||||||||||||||
| Asset impairment charges |
2.3 | --- | 0.1 | % | --- | |||||||||||||||
| Outcomes of legal proceedings |
1.2 | --- | --- | --- | ||||||||||||||||
| Loss on sales of assets |
0.5 | --- | --- | --- | ||||||||||||||||
| Gain on venture investment |
--- | (12.4 | ) | --- | (0.2%) | |||||||||||||||
| Adjusted operating income and margins (non-GAAP) |
$ | 583.0 | $ | 695.5 | 13.3 | % | 13.8% | |||||||||||||
| Depreciation and amortization |
95.9 | 102.1 | 2.2 | % | 2.0% | |||||||||||||||
| Adjusted EBITDA and margins (non-GAAP) |
$ | 678.9 | $ | 797.6 | 15.5 | % | 15.8% | |||||||||||||
| Solutions Group |
||||||||||||||||||||
| Operating income and margins, as reported |
$ | 95.0 | $ | 250.7 | 5.1 | % | 12.8% | |||||||||||||
| Adjustments: |
||||||||||||||||||||
| Restructuring charges: |
||||||||||||||||||||
| Severance and related costs |
15.5 | 5.4 | 0.8 | % | 0.3% | |||||||||||||||
| Asset impairment charges |
1.7 | 0.1 | 0.1 | % | --- | |||||||||||||||
| Outcomes of legal proceedings |
55.1 | 1.0 | 3.0 | % | --- | |||||||||||||||
| Transaction and related costs |
4.2 | 0.3 | 0.2 | % | --- | |||||||||||||||
| Gain on sales of assets |
--- | (0.5 | ) | --- | --- | |||||||||||||||
| Adjusted operating income and margins (non-GAAP) |
$ | 171.5 | $ | 257.0 | 9.2 | % | 13.1% | |||||||||||||
| Depreciation and amortization |
125.5 | 115.1 | 6.8 | % | 5.9% | |||||||||||||||
| Adjusted EBITDA and margins (non-GAAP) |
$ | 297.0 | $ | 372.1 | 16.0 | % | 19.0% | |||||||||||||
Previously reported segment results have been recast to reflect our current operating structure.
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A-8
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except ratios)
(UNAUDITED)
| QTD | ||||||||||||||||
| 4Q22 | 1Q23 | 2Q23 | 3Q23 | |||||||||||||
| Reconciliation of adjusted EBITDA from GAAP: |
||||||||||||||||
| As reported net income |
$ | 122.9 | $ | 121.2 | $ | 100.4 | $ | 138.3 | ||||||||
| Other expense (income), net |
1.5 | 17.8 | 68.3 | 46.3 | ||||||||||||
| Interest expense |
22.5 | 26.4 | 31.9 | 31.0 | ||||||||||||
| Other non-operating expense (income), net |
(5.3) | (4.6) | (6.6) | (8.7) | ||||||||||||
| Provision for income taxes |
46.3 | 47.1 | 39.8 | 46.3 | ||||||||||||
| Depreciation and amortization |
73.5 | 72.3 | 74.0 | 75.1 | ||||||||||||
| Adjusted EBITDA (non-GAAP) |
$ | 261.4 | $ | 280.2 | $ | 307.8 | $ | 328.3 | ||||||||
| Total Debt |
$ | 3,313.6 | ||||||||||||||
| Less: Cash and cash equivalents |
209.9 | |||||||||||||||
| Net Debt |
$ | 3,103.7 | ||||||||||||||
| Net Debt to Adjusted EBITDA LTM* (non-GAAP) |
2.6 | |||||||||||||||
*LTM = Last twelve months (4Q22 to 3Q23)
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A-9
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(UNAUDITED)
| Third Quarter 2023 | ||||||||||||
| Total Company |
Materials Group |
Solutions Group |
||||||||||
| Reconciliation of organic sales change from GAAP: |
||||||||||||
| Reported net sales change |
(9.4%) | (14.0%) | 3.1% | |||||||||
| Reclassification of sales between segments |
--- | 0.1% | (0.2%) | |||||||||
| Foreign currency translation |
(0.9%) | (1.7%) | 1.6% | |||||||||
| Sales change ex. currency (non-GAAP)(1) |
(10.4%) | (15.7%) | 4.5% | |||||||||
| Acquisitions |
(1.0%) | --- | (3.9%) | |||||||||
| Organic sales change (non-GAAP)(1) |
(11.4%) | (15.7%) | 0.6% | |||||||||
| Nine Months Ended 2023 | ||||||||||||
| Total Company |
Materials Group |
Solutions Group |
||||||||||
| Reconciliation of organic sales change from GAAP: |
||||||||||||
| Reported net sales change |
(10.8%) | (13.1%) | (5.0%) | |||||||||
| Reclassification of sales between segments |
--- | 0.1% | (0.3%) | |||||||||
| Foreign currency translation |
1.2% | 0.7% | 2.4% | |||||||||
| Sales change ex. currency (non-GAAP)(1) |
(9.7%) | (12.3%) | (3.0%) | |||||||||
| Acquisitions |
(0.7%) | --- | (2.4%) | |||||||||
| Organic sales change (non-GAAP)(1) |
(10.3%) | (12.3%) | (5.3%) | |||||||||
(1) Totals may not sum due to rounding.
Exhibit 99.2 Third Quarter 2023 Financial Review and Analysis (preliminary, unaudited) October 25, 2023 Supplemental Presentation Materials Unless otherwise indicated, comparisons are to the same period in the prior year. October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 1
Safe Harbor Statement 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. We believe that the most significant risk factors that could affect our financial performance in the near term include: (i) the impacts to underlying demand for our products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors' actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following: ● International Operations – worldwide and local economic and market conditions; changes in political conditions, including those related to China, the Russian invasion of Ukraine and the Israel-Hamas war; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets ● Our Business – fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; collection of receivables from customers; and our environmental, social and governance practices ● Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets ● Information Technology – disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems ● Human Capital – recruitment and retention of employees and collective labor arrangements ● Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with our debt covenants ● Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases ● Legal and Regulatory Matters – protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance ● Other Financial Matters – fluctuations in pension costs and goodwill impairment For a more detailed discussion of these factors, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023, 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. October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 2
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 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 prepared in accordance with GAAP. Based on feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments of our performance and operating trends, as well as liquidity. In accordance with Regulations G and S-K, reconciliations of non-GAAP financial measures from the most directly comparable GAAP financial measures, including limitations associated with these non-GAAP financial measures, are provided in the appendix to this document and/or the financial schedules accompanying the earnings news release for the quarter (see Attachments A-4 through A-9 to news release dated October 25, 2023). 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 more difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, outcomes of certain legal proceedings, 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, gains or losses on venture investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency or timing. We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for quarters and year-to-date periods, as applicable. We use the non-GAAP financial measures described below 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 the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year, and currency adjustment for transitional reporting of highly inflationary economies. 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 acquisitions and product line divestitures. 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. We believe that the following measures assist investors in understanding our core operating trends and comparing our results with those of our competitors. • Adjusted operating income refers to net income adjusted for taxes; other expense (income), net; interest expense; and other non-operating expense (income), net. • Adjusted EBITDA refers to adjusted operating income before depreciation and amortization. • Adjusted operating margin refers to adjusted operating income as a percentage of net sales. • Adjusted EBITDA margin refers to adjusted EBITDA 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 effects of certain discrete tax planning actions, impacts related to enactments of comprehensive tax law changes, 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 the weighted average number of common shares outstanding, assuming dilution. • Adjusted free cash flow (adjusted FCF) 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. Adjusted free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. We believe that adjusted 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.averydennison.com. October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 3
Q3 adj. EPS in line with expectations, continuing to increase sequentially; expect further improvement in Q4 Label Materials volume continues to improve ● Impact of inventory destocking continues to moderate ● Demand increased in emerging regions; remained soft in developed regions ● Margins improved sequentially and remain strong Apparel Solutions volume improved sequentially ● Following mixed back-to-school season, retailer and brand sentiment remains muted Adoption of Intelligent Labels continues to accelerate ● Non-apparel categories, particularly Logistics and Food, up ~75% compared to prior year ● Expect low-to-mid teens growth in 2023, on slower apparel recovery ● Expect 20%+ growth in the coming years as new categories adopt and apparel rebounds Expect Q4 adj. EPS to improve sequentially; guidance range of $2.10 to $2.25 October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 4
Third quarter 2023 review Reported EPS of $1.71 Adj. EPS (non-GAAP) of $2.10, up 9% sequentially Net sales of $2.1 bil. ● Sales change ex. currency (non-GAAP) down 10% ● Organic sales change (non-GAAP) down 11% Reported operating income of $207 mil. ● Adj. EBITDA (non-GAAP) of $328 mil., up 7% sequentially QTD adj. free cash flow (non-GAAP) of $310 mil., up $170 mil. Maintaining strong balance sheet; deploying capital in disciplined manner October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 5
U.S. Consumer Sentiment U.S. Business Sentiment (Mfg. PMI) Avg. AVY Label Volume (NA + Europe) Source: University of Michigan Source: Institute for Supply Management ● Economic indicators conflicting Apparel Imports (US + Europe) U.S. Apparel Inventory to Sales Ratio ● Business and consumer sentiment remains relatively low ● Label volume continues to improve as destocking wanes 2010-2019 Avg. ● Apparel imports below demand levels for 4 consecutive quarters ● U.S. apparel inventory level below pre-pandemic average Source: Otexa and Eurostat Source: U.S. Census Bureau October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 6
Intelligent Labels Organic Sales Change % vs. PY $0.8B ~20% Org. Sales CAGR $0.25B ● Q3 2023 organic sales up ~10% ○ Non-apparel categories, particularly Logistics and Food, up ~75% compared to prior year ○ Apparel down; retailer and brand sentiment remains muted ● Anticipate ~40% growth in Q4 ● Expect 20%+ growth in coming years as new categories adopt and apparel rebounds October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 7
Quarterly sales trend analysis 3Q22 4Q22 1Q23 2Q23 3Q23 Reported Sales Change 12% (7%) (12%) (11%) (9%) (1) Organic Sales Change 16% (1%) (9%) (10%) (11%) Acquisitions/Divestitures 4% 0% 0% 1% 1% (1),(2) Sales Change Ex. Currency 19% (1%) (9%) (10%) (10%) Currency Translation (7%) (6%) (3%) (1%) 1% (2) Reported Sales Change 12% (7%) (12%) (11%) (9%) (1) Non-GAAP (2) Totals may not sum due to rounding October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 8
Quarterly sales trend analysis (cont.) Organic Sales Change 3Q22 4Q22 1Q23 2Q23 3Q23 Materials Group 19% 2% (9%) (12%) (16%) Solutions Group 7% (8%) (9%) (7%) 1% Total Company 16% (1%) (9%) (10%) (11%) Total Company 19% (1%) (9%) (10%) (10%) Sales Change Ex. Currency October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 9
Sales change and operating margin comparison Q3 Sales Change Reported Ex. Currency Organic Materials Group (14%) (16%) (16%) Solutions Group 3% 5% 1% Total Company (9%) (10%) (11%) Reported Adj. EBITDA Margin Operating Margin (non-GAAP) 3Q23 3Q22 3Q23 3Q22 Materials Group 12.1% 13.9% 16.4% 15.5% Solutions Group 7.9% 12.2% 16.4% 18.9% Total Company 9.9% 12.6% 15.6% 15.6% October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 10
Third Quarter 2023 Results AVY ‘22 Sales by Segment Materials Group Materials Group 72% Reported sales decreased 14% to $1.5 bil. Solutions Group Sales down 16% ex. currency and organically ● Label Materials down high-teens on organic basis ○ Lower volume driven primarily by inventory destocking ○ Volume up sequentially as the impact of inventory Materials Group destocking continues to moderate 2022 Sales by Product ● Graphics and Reflectives down low-single digits organically High-Value Label Materials ● Performance Tapes and Medical up low-single digits Categories Graphics & Reflectives organically 35% Performance Tapes & Medical Reported operating margin of 12.1% Other ● Strong adj. EBITDA margin of 16.4%, up 70 bps sequentially Materials Group ● Adj. EBITDA margin increased 90 bps compared to prior year 2022 Sales by Geography as productivity and temporary cost-saving actions more than U.S. & Canada offset lower volume/mix Emerging Western Europe Markets E. Europe & MENA 36% Asia Pacific Latin America October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 11 11 End Market Product Category
Third Quarter 2023 Results AVY ‘22 Sales by Segment Solutions Group Materials Group 28% Reported sales increased 3% to $642 mil. Solutions Group Sales up 5% ex. currency and 1% organically ● Apparel Solutions volume up sequentially; retailer and brand sentiment remains muted ● High-value categories up high-single digits organically Solutions Group ● Base solutions down mid-to-high single digits organically 2022 Sales by Product Base Solutions Reported operating margin of 7.9% High-Value Categories Intelligent Labels ● Adj. EBITDA margin of 16.4%, up 60 bps sequentially; expect 53% Vestcom further improvement in Q4 Ext. Embellishments ● Adj. EBITDA margin decreased 250 bps compared to prior year, driven by volume, higher employee-related costs and growth investments, partially offset by productivity and Solutions Group temporary cost-saving actions 2022 Sales by Geography U.S. & Canada Announced agreement to acquire Silver Crystal Group, expanding Europe our external embellishments portfolio; ~$30 mil. in annual sales. Asia Pacific Latin America October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 12 12 Est. End Market Product Category
EPS Guidance Q4 2023 Reported EPS $2.05 - $2.20 Add Back: Est. restructuring costs and other items ~$0.05 Adjusted EPS $2.10 - $2.25 ● Expect Q4 2023 adj. EPS to increase sequentially ○ Volume to again improve sequentially in Label Materials and Intelligent Labels ○ Anticipate organic sales growth compared to prior year Additional full-year considerations ● Incremental savings of ~$65 mil. from restructuring actions, net ● Fixed and IT capital spend of ~$300 mil. (previously ~$325 mil.) ● Currency translation headwind to FY operating income of ~$18 mil. at recent rates (previously ~$15 mil.) ● Tax rate in mid-20% range October 25, 2023 Preliminary & unaudited, Q3 2023 financial review and analysis 13
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