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Avery Dennison Corporation Q1 2010 Earnings Call Transcript

Avery Dennison Corporation Q1 2010 Earnings Call Transcript

Avery Dennison Corporation (AVY)

Q1 2010 Earnings Call Transcript

April 27, 2010 12:00 pm ET


Eric Leeds – Head, IR

Dean Scarborough – Chairman, President and CEO

Dan O'Bryant – EVP, Finance and CFO


Ghansham Panjabi – Robert W. Baird

George Staphos – Banc of America\Merrill Lynch

Silke Kueck – JPMorgan

John McNulty – Credit Suisse

Joe Naya – UBS

Peter Ruschmeier – Barclays Capital



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Welcome to Avery Dennison's earnings conference call for the first quarter ended April 3, 2010. This call is being recorded and will be available for replay from one 11 a.m. Pacific Time today through Midnight Pacific Time April 30, 2010. To access the reply, please dial 800-633-8284 for international callers, 402-977-9140. The conference ID number is 21438866. I would now like to turn the conference over to Eric Leeds, Avery Dennison's Head of Investor Relations.

Eric Leeds

Thank you. Welcome everyone. Our discussion today will reference the earnings release that we issued earlier along with the slide presentation titled first quarter 2010 financial review and analysis. Both documents were furnished today with our 8K and posted at the investor section of our website at We remind you that these results are preliminary as we've not yet filed our 10-Q.

Our news release references GAAP operating margin which includes interest expense, restructuring and other charges included in the other expense line of our P&L. Also referenced are transition costs associated with acquisition integration. Restructuring charges and integration transition costs tend to be fairly disparate in amount, frequency and timing. In light of the nature of these items we'll focus our margin commentary on pretax results before their affect and before interest expenses. This detail is been schedule A2 to A5 of the financial statements accompanying today's earnings release.

We also remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These statements are based on certain assumptions and expectations and future events that are subject to uncertainty. The Safe Harbor statement included in the documents that we provided today along with our 2008 Form 10-K address certain risk factors that could cause actual results to differ from our expectations.

On the call today are Dean Scarborough, Chairman, President and CEO, and Dan O'Bryant, Executive Vice President and CFO. I'll now turn the call over to Dean.

Dean Scarborough

Thanks Eric. The first quarter was an encouraging start to the year. Well, the results benefit from comparison with one of our toughest quarters. We saw meaningful increases in demand especially in raw materials, graphics and reflective products and retail information services.

Our volumes are not all the way back to pre-recession levels, but we are pleased none the less. We saw a solid top line growth across all regions and we had double digit growth in all emerging markets. Gross profit margin was more than a point better than the fourth quarter and more than four points better year-over-year. The operating leverage from restructuring and other productivity initiatives enabled gross margins more than 250 basis points above 2008 levels on 5% lower sales.

Operating margin before restructuring charges and other items improved 170 basis points from the fourth quarter in 2009. We did see raw material inflation accelerating. We did raise prices in the first quarter, but it wasn't enough to offset the inflation that we felt during the last two quarters.

We've announced price increases going forward in many of our businesses, and while we do expect that we will cover the raw material increases there likely will be some lag. Turning to the businesses, the pressure sensitive segment delivered very strong margin growth. Raw materials momentum in the fourth quarter continued especially in emerging markets.

Our end user marketing programs are creating a pipeline of new opportunities for decoration transfer which will enable above market growth as we continue to implement those programs. Graphics and reflective products benefited from restocking to accommodate a modest increase in promotional spending. This division is also launched two new products, a new cast film that has superior conformability and new reflective sheeting that makes signs more visible at night.

Retail information services experienced increased demand and benefited from comparison with one of their most difficult quarters, the first quarter of last year when retailers dramatically accelerated inventory to stocking. What we see is apparel sales beginning to increase and while it's too early to call a pipeline refill because retailers are still watching their inventories closely.

We are definitely seeing an uptick in buying since retailers are tacking to catch up with those sales increases. This year, we actually started strong and we are continuing to see solid demand right through the second quarter today. Office and consumer products were the exception to our margin story in the quarter.

End demand for our products is still declining, but at a slower rate. As both of you know we have new competition in the labels category, and will spend some money to defend our strong brand position as well as continuing to increase our spending on innovation in new areas.

I'm confident we will continue to be successful in our printable media business because we have excellent relationships with customers including an outstanding service record and recognized expertise in category management and the Avery brand has very strong consumer brand equity. In fact, it drives traffic to the stores and our customers understand us.

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