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Avery Dennison Management Discusses Q2 2012 Results - Earnings Call Transcript

Stocks in this article: AVY

Retail Branding and Information Solutions results were disappointing in what has always been the seasonally largest sales quarter for this business. The retail apparel market is rebounding more slowly than we had expected. The second quarter did end positively after starting off with sales declines, and that positive trend is continuing into July. Despite sluggish market conditions, we made progress on our growth initiatives and believe we are continuing to gain share in our target segments. Sales of external embellishments were up nearly 60% over last year, and item-level RFID sales were up 35%. And our RFID division, which was integrated into RBIS at the beginning of the year, had a second profitable quarter in a row. Now recall that the RFID division results are reported in Other specialty converting. The RBIS team has done a great job improving both the RFID top and bottom line.

RBIS margins were down more than expected due to lower volumes and higher employee-related costs. We did raise prices, and we will see the full impact of the price increase in the third quarter. At the same time, as we noted in the May investor meeting, RBIS is focused on reducing its fixed cost structure, and has an objective to organize manufacturing more efficiently and reduce its footprint by 20%. Now that the second quarter is over, we are accelerating our cost-out actions.

Office and Consumer Products is reported as a discontinued operation. We still anticipate closing the transaction in the second half. In the business, net sales and operating profit declined from second quarter last year. As you know, the back-to-school season is spread over the second and third quarters, so it's hard to measure the full season's impact today. But based on what we've seen so far, we expect modest growth in back-to-school products this year. Also, OCP's new products, including the Martha Stewart line, are being well-received by consumers.

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