Avery Dennison (AVY) Q4 2009 earnings summary

Executive summary

• FY09 sales fell 11% reported and 9% organically amid weak markets; net loss was $746.7m versus net income of $266.1m in 2008, including an $832m non-cash impairment charge.

• Q4 2009 sales were $1,521.8m, gross profit $415.1m, net income $49.9m and diluted EPS $0.47.

• FY09 included 53 weeks, with the extra week in Q1; international operations generated 66% of sales.

Financial highlights

• FY09 net sales were $5,952.7m versus $6,710.4m; gross profit was $1,586.5m and gross margin 26.7%, up from 25.7% in 2008.

• Pretax loss was $790.9m; other expense, net, was $191.3m, including restructuring and impairment charges, $41m of legal settlements and a $21.2m debt-extinguishment loss.

• Operating cash flow was $569.0m; free cash flow was $465.7m versus $365.3m in 2008, aided by working-capital productivity and lower capital spending.

• Q4 other expense included $28.9m of restructuring, asset impairment, lease cancellation and legal charges; out-of-period adjustments reduced net income by $5.9m.

Outlook and guidance

• The extra week in FY09 is expected to reduce 2010 sales by approximately $50m versus 2009; incremental pension expense is expected to be approximately $10m.

• 2010 restructuring charges are expected at $15m–$20m, with incremental savings of $70m net of transition costs; capital and software spending is projected at $125m–$150m.

• Pension contributions were projected at $200m–$300m from 2009 through 2013; 2010 contributions were expected to include $3.2m for U.S. plans, at most an additional $25m, and at least $17.6m for international plans.

• The debt-reduction target was at least $350m from end-Q2 2009 through end-2010; approximately $300m was reduced in H2 2009.