Avery Dennison (AVY) Q4 2002 earnings summary

Executive summary

• FY02 sales rose 10.6% to $4.21B, supported by acquisitions and new products; net income increased 5.8% to $257.2M despite lower gross margin and $32.1M of restructuring and asset-related charges.

• Productivity and cost-reduction programs improved profitability; outlook called for continued growth in 2003 through new products, acquisitions, margin initiatives and expansion in emerging markets.

Financial highlights

• Revenue was $4,206.9M vs. $3,803.3M in 2001; excluding FX changes, sales increased 10%.

• Gross margin was 32.2% vs. 32.6% in 2001; lower-margin Jackstädt sales weighed on results, partly offset by cost reduction and productivity gains.

• Net income was $257.2M vs. $243.2M; diluted EPS was $2.59 vs. $2.47, with FY02 net income including $32.1M of pretax charges in Q3 and Q4.

• Interest expense fell to $43.7M from $50.2M, while pretax income as a share of sales declined to 8.7% from 9.5%.

Outlook and guidance

• Continued growth expected in 2003, supported by new products in both segments, contributions from 2002 acquisitions and ongoing cost-management efforts.

• Capital expenditures projected at $175M–$200M in 2003, primarily funded by operating cash flow; software capitalization expected at or below 2002's $20.1M.

• Effective tax rate estimated at 29.5% for 2003; pension expense expected to reduce pretax operating income by ~$10M vs. 2002.

• Approximately 700 additional position reductions expected in 2003–04; ~$20M of severance charges expected in Q1 2004 for remaining Jackstädt integration costs.