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Avery Dennison's Volume and Sales Drop in Second Quarter

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Avery Dennison reported second-quarter 2023 net sales of $2.1 billion, down 10% year-over-year. Both the materials group and the solutions group reported a loss in volume and sales. In the materials group, reported sales decreased 13% to $1.5 billion. Lower volume was driven primarily by inventory destocking. Sales increased by high-single digits organically in the graphics and reflective solutions businesses, however, sales decreased by low-to-mid single digits organically in the combined performance tapes and medical businesses.

Reported operating margin decreased 150 basis points to 13.1%. Adjusted EBITDA margin decreased 100 basis points compared to the second quarter prior year. Productivity initiatives and temporary cost-saving actions largely offset lower volume.

In the solutions group, reported sales decreased 7% to $615 million. Sales were down in the high-teens organically in base solutions as retailer and brand sentiment remains muted.

Reported operating margin decreased approximately 14 points to -1.2% with an increased accrual for a legacy legal matter. Adjusted EBITDA margin decreased 320 basis points to 15.8%, driven by lower volume and growth investments. As in the materials group, it was partially offset by productivity initiatives and temporary cost-saving actions. The company anticipates adjusted EBITDA margin will improve sequentially.

“Earnings per share increased sequentially in the second quarter, a trend we expect to continue in coming quarters,” said Mitch Butier, chairman and CEO. “Volumes in our materials businesses continue to recover from slow market conditions, largely destocking, while our intelligent labels platform accelerates adoption into new categories.

"While it's good to see the continuing sequential improvements in our materials businesses and the building momentum in intelligent labels, the pace of our recovery is slower than anticipated. Our results for the quarter were below our expectation due to lower revenue, something the team was able to largely offset through cost reduction actions.

“We remain confident this period of challenging results will soon pass. Our leadership positions in large diverse growing markets, the strategic foundations we have laid, and the dedication and expertise of our team positions us well to continue to deliver GDP+ growth and top-quartile returns over the long-run,” said Deon Stander, president and COO.

Due to the poor financial performance, Avery Dennison has taken cost reduction action. During the first half of the year, the company realized approximately $24 million in pre-tax savings from restructuring, net of transition costs, and incurred approximately $28 million in pre-tax restructuring charges.

Avery Dennison believes that its third quarter 2023 financial results will improve. It expects third quarter 2023 reported earnings per share of $1.70 to $1.90. Excluding an estimated $0.30 per share impact of restructuring charges and other items, the company expects third quarter 2023 adjusted earnings per share of $2.00 to $2.20.

To learn more, visit www.averydennison.com.