On Thursday, Citi adjusted its price target on shares of Avery Dennison (NYSE:AVY), a major producer of labeling and packaging materials, reducing it to $228 from the previous $240, while maintaining a Neutral rating on the stock. The revision follows a pattern of tempered sales growth outlooks for Avery Dennison's fiscal year 2024 Industrial Labels (IL) segment, which has seen expectations decline for the third consecutive quarter. Initially, sales growth was projected above 20% in January, around 20% in April, mid-teens by July, and now it has been adjusted to double-digit percentages in October.
The analyst noted that Avery Dennison's stock traded lower as the company's sales growth outlook in the IL segment moderated, primarily due to a softer logistics sector. Additionally, retail performance in Europe was weaker than anticipated, continuing the trend in the current quarter due to seasonality. Despite near-term market volatility, the analyst anticipates the company is well-positioned to potentially exceed $10 in earnings per share in 2025, with Citi's estimate at $10.45 compared to a consensus of $10.56.
The report also highlighted some positive aspects, such as the normalization of volumes in the label and apparel segments, with mid-single to high-single digit percentage volume growth despite challenges in Europe and uneven holiday spending in North America. Furthermore, industrial label growth remains robust in the double digits, despite caution in the logistics space, and productivity is surpassing expectations, with savings anticipated to be over $55 million.
In the Industrial Labels division, Avery Dennison is expanding its Radio-Frequency Identification (RFID) technology into the less-saturated Food category. The company is currently piloting this technology in approximately 2,800 Kroger (NYSE:KR) bakeries and has plans to extend its use into produce and protein sectors. The analyst's view for the company's performance in 2024-2025 remains largely unchanged, supporting their decision to sustain a Neutral rating on the stock.
In other recent news, Avery Dennison Corporation (NYSE:AVY) showcased strong financial performance, with a 9% year-over-year increase in adjusted earnings per share, reaching $2.33 in the third quarter. The company also raised its full-year earnings guidance to between $9.35 and $9.50 per share, signaling a potential growth of around 20% compared to the previous year. This development comes despite a challenging macroeconomic environment, as the company projects organic sales growth between 4.5% and 5%.
BMO Capital Markets adjusted its outlook on Avery Dennison by reducing its price target to $247 from $252, while maintaining an Outperform rating on the stock. This decision follows Avery Dennison's recent financial performance and the introduction of a new grocery platform. The analyst from BMO Capital addressed investor concerns, stating that neither the growth prospects for RFID nor the company's market position are in jeopardy.
Avery Dennison has also announced a significant partnership with Kroger to implement RFID technology in inventory management. The company's Materials Group and Solutions Group demonstrated solid growth, with Intelligent Labels growing in the mid-teens year-to-date. Despite facing macroeconomic headwinds and logistical challenges, Avery Dennison's restructuring actions are expected to save over $55 million.
InvestingPro Insights
Avery Dennison's financial metrics and market performance offer additional context to Citi's analysis. According to InvestingPro data, the company's market capitalization stands at $16.51 billion, with a P/E ratio of 24.15 based on the last twelve months as of Q2 2024. This valuation aligns with an InvestingPro Tip indicating that AVY is "Trading at a high P/E ratio relative to near-term earnings growth," which investors should consider in light of Citi's tempered growth outlook.
Despite the moderated sales growth expectations, Avery Dennison has demonstrated financial resilience. The company's revenue for the last twelve months as of Q2 2024 was $8.59 billion, with a modest growth of 1.14%. More impressively, EBITDA growth over the same period was 16.69%, suggesting improved operational efficiency—a point that resonates with Citi's observation on productivity surpassing expectations.
An InvestingPro Tip highlights that Avery Dennison "Has raised its dividend for 13 consecutive years," reflecting the company's commitment to shareholder returns. This is further supported by a current dividend yield of 1.7% and a dividend growth rate of 8.64% over the last twelve months. For investors focused on long-term value, it's worth noting that AVY has maintained dividend payments for 54 consecutive years, demonstrating remarkable consistency.
InvestingPro offers 7 additional tips for Avery Dennison, providing a more comprehensive analysis for investors looking to delve deeper into the company's prospects.
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