Avery Dennison (NYSE:AVY) Posts Q4 Sales In Line With Estimates
Adhesive manufacturing company Avery Dennison (NYSE:AVY) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 3.6% year on year to $2.19 billion. Its non-GAAP profit of $2.38 per share was 1.3% below analysts’ consensus estimates.
Revenue: $2.19 billion vs analyst estimates of $2.19 billion (3.6% year-on-year growth, in line)
Adjusted EPS: $2.38 vs analyst expectations of $2.41 (1.3% miss)
Adjusted EBITDA: $358.1 million vs analyst estimates of $364.6 million (16.4% margin, 1.8% miss)
Adjusted EPS guidance for the upcoming financial year 2025 is $10 at the midpoint, missing analyst estimates by 5%
Operating Margin: 12.8%, up from 10.4% in the same quarter last year
Free Cash Flow Margin: 11.5%, up from 10.2% in the same quarter last year
Organic Revenue rose 3.3% year on year (1.1% in the same quarter last year)
Market Capitalization: $15.5 billion
“We delivered strong results in 2024, achieving nineteen percent earnings growth,” said Deon Stander, president and CEO.
Company Overview
Founded as Kum Kleen Products, Avery Dennison (NYSE:AVY) is a manufacturer of adhesive materials, display graphics, and packaging products, serving various industries.
Industrial Packaging
Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Avery Dennison’s 4.4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.
Avery Dennison Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Avery Dennison’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.6% annually. Avery Dennison isn’t alone in its struggles as the Industrial Packaging industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.
Avery Dennison Year-On-Year Revenue Growth
We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, Avery Dennison’s organic revenue averaged 1.5% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.
Avery Dennison Organic Revenue Growth
This quarter, Avery Dennison grew its revenue by 3.6% year on year, and its $2.19 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 4.6% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.
Avery Dennison has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.
Analyzing the trend in its profitability, Avery Dennison’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years, highlighting the long-term consistency of its business.
This quarter, Avery Dennison generated an operating profit margin of 12.8%, up 2.4 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Avery Dennison’s EPS grew at an unimpressive 7.4% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.
Avery Dennison Trailing 12-Month EPS (Non-GAAP)
We can take a deeper look into Avery Dennison’s earnings to better understand the drivers of its performance. A five-year view shows that Avery Dennison has repurchased its stock, shrinking its share count by 4.9%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
Avery Dennison Diluted Shares Outstanding
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Avery Dennison, its two-year annual EPS growth of 1.4% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q4, Avery Dennison reported EPS at $2.38, up from $2.16 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates. Over the next 12 months, Wall Street expects Avery Dennison’s full-year EPS of $9.42 to grow 12.8%.
Key Takeaways from Avery Dennison’s Q4 Results
We struggled to find many resounding positives in these results. Its full-year EPS guidance missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $192.90 immediately following the results.
