Avery Dennison (AVY) Q4 2008 earnings summary

Executive summary

• FY08 sales rose 6% to $6.71B, driven by acquisitions and currency; organic sales declined 3% amid worsening economic conditions.

• Net income fell 12% to $266.1M; lower organic volume, cost inflation, acquisition interest and amortization outweighed productivity savings and a lower tax rate.

• Q4 sales were $1,511.5M, gross profit $378.4M, net income $42.6M and diluted EPS $0.43.

Financial highlights

• FY08 net sales were $6,710.4M versus $6,307.8M; gross profit was $1,727.0M and gross margin 25.7% versus 27.3%.

• Income from continuing operations before taxes was $270.6M; net income was $266.1M and diluted EPS was $2.70, versus $303.5M and $3.07 in 2007.

• Operating cash flow reached $539.7M; free cash flow was $365.3M versus $244.6M in 2007, reflecting improved operating cash flow and lower capital spending.

Outlook and guidance

• No 2009 earnings forecast was issued given global economic conditions; continued exchange-rate trends were expected to hurt 2009 earnings.

• Cost actions target $150M annualized savings by 2010; ~$70M net of transition costs was expected to benefit 2009, with ~$120M restructuring charges, mostly in 2009.

• Total incremental savings from implemented actions were expected to reach $110M in 2009, including ~$40M from earlier actions; higher restructuring charges were anticipated versus 2008.

• 2009 capital and software expenditures were expected at $120M–$150M; pension and other employee-related expenses and contributions were also expected to rise.