Avery Dennison Corp. recently announced preliminary, unaudited results for its third quarter ended September 26, 2020, and provided an update related to the impact of the COVID-19 pandemic on the company. Net sales were approximately $1.7 billion, down 1.8%, in the 2020 third quarter. Sales were down 1.3% excluding foreign currency adjustments and 3.6% on an organic basis.
“Revenue came in significantly better than we anticipated at the start of the quarter, which, combined with our cost reduction actions, enabled us to deliver strong earnings growth and free cash flow,” said Mitch Butier, chairman, president, and CEO. “The extraordinary agility demonstrated by our team this year is driving solid performance on all fronts, ensuring the health and well-being of our employees, delivering for our customers, supporting our communities, and minimizing the impact of the recession for our shareholders.
“All three of our operating segments expanded their adjusted operating margins compared to last year, despite lower sales, as demand improved sequentially. In particular, LGM [Label and Graphic Materials] delivered sequential improvement in sales across all regions except Europe, with faster-than-expected improvement in high value categories, such as graphics. RBIS [Retail Branding and Information Solutions] likewise improved faster-than-expected, reflecting strong growth in both RFID and external embellishments, as well as a quicker rebound in the base.
“Once again, we are proving our resilience across business cycles. I want to thank our entire team for their ongoing efforts to keep one another safe while delivering for our customers during this challenging period.”
Avery Dennison reports that the safety and well-being of employees has been and will continue to be the company’s top priority during the global health crisis. The company has taken steps to ensure employee safety, as well as help mitigate the financial impact to employees resulting from mandated facility closures and necessary layoffs.
The company has identified approximately 350 confirmed COVID-19 cases among its more than 30,000 employees. Avery Dennison continues to adapt its safety protocols based on new information, and, with government-mandated lockdowns having been lifted, is focused on ensuring a safe return to the workplace where and when it believes it is appropriate to do so.
Following sharp drops in demand in the second quarter, the company reports that volumes have generally been improving faster than expected, though the demand outlook for the fourth quarter and next year remains highly uncertain. Operationally, all manufacturing sites remained open during the third quarter. Throughout the pandemic, disruptions to the company’s supply chain have been negligible.
In light of the near-term demand decline impacting some businesses, in addition to continuing its focus on long-term strategic restructuring, Avery Dennison has undertaken temporary actions to reduce costs, including reductions in travel and other discretionary spending, reduced usage of overtime and temporary employees, delays of merit increases, and furloughs.
The company reports that it continues to estimate incremental savings from restructuring actions, net of transition costs, of $60 million to $70 million during 2020, as well as carryover savings, net of transition costs, of approximately $70 million in 2021. In addition, the company targets nearly $150 million in net temporary savings in 2020, the majority of which is expected to become a headwind as markets continue to recover. In the third quarter, the company realized approximately $13 million in savings from restructuring actions (net of transition costs) and approximately $30 million in temporary savings while incurring net restructuring charges of approximately $11 million.
Reported sales for the 2020 third quarter declined 3.3% in the Label and Graphic Materials segment. Sales were down 2.6% on an organic basis, driven by both volume/mix and deflation-related price. Growth in specialty and durable label categories was more than offset by a decline in the base business.
Sales declined by approximately 8% organically in the combined Graphics and Reflective Solutions businesses. On an organic basis, sales were up low-single digits in North America, down roughly 10% in Western Europe, and comparable to the 2019 quarter in emerging markets.
In the Retail Branding and Information Solutions segment, sales increased 4.7%. Sales were up 5.2% excluding currency effects and down 4.7% on an organic basis, reflecting strong organic growth in high-value categories that was more than offset by an approximately 12% organic decline in the base business, driven by overall lower apparel demand. Enterprise-wide sales of RFID products were up approximately 65% (excluding currencies) with the benefit of the Smartrac acquisition, and up approximately 20% organically, driven by new programs and recovery in the value segment of the apparel market.
Reported sales declined 7% in the Industrial and Healthcare Materials segment. On an organic basis, sales declined 7.6%, reflecting a mid-single-digit decline in industrial categories, and an approximately 11% decline in healthcare categories.
Avery Dennison reports that it is prepared for a range of possible macro scenarios and how they might impact each of its businesses. The company currently expects sales to decline in 2020 on lower demand, with the second quarter representing the trough, and now anticipates that earnings will exceed those of 2019.
For the fourth quarter, the company anticipates an underlying sales trend that is similar to or better than the decline experienced in the third quarter. Additional details are available at www.averydennison.com.