Avery Dennison Corporation — Fiscal 2019 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 28, 2019, not a standalone fourth quarter. Avery Dennison manufactures pressure-sensitive materials, labels, tags, tickets, RFID inlays, tapes, reflective products, fasteners, and related solutions.
- Reportable segments: Label and Graphic Materials (LGM), Retail Branding and Information Solutions (RBIS), and Industrial and Healthcare Materials (IHM).
- Approximate sales mix: LGM 67%, RBIS 23%, and IHM 10%.
- International operations represented approximately 77% of 2019 sales. The company operated approximately 180 facilities, employed more than 30,000 people, and had operations in more than 50 countries.
Financial metrics and liquidity
The filing text provided does not include the consolidated income statement, balance sheet, or cash flow figures; those statements and management’s discussion are incorporated by reference from the 2019 Annual Report. Accordingly, clear values for revenue, operating income, net income, EPS, cash flow, margins, cash balances, and liquidity ratios are not available in the provided text.
- Total debt at December 28, 2019 was approximately $1.94 billion.
- Average variable-rate borrowings during 2019 were approximately $325 million; $171 million of outstanding debt carried variable interest rates at year-end, excluding debt based on LIBOR.
- Goodwill was $930.8 million at December 28, 2019.
- The company repurchased approximately 268,900 shares in the fourth quarter at an average price of $124.38 per share. Approximately $644.7 million remained available under outstanding repurchase authorizations at year-end.
- Environmental remediation liabilities were $21.4 million at year-end.
- The company reported effective disclosure controls and effective internal control over financial reporting as of December 28, 2019.
Material changes versus the prior comparable period
- Raw-material inflation moderated in 2019 following targeted LGM price increases implemented in 2018. However, LGM sales growth was relatively low in North America and Europe, partly due to share losses associated with those pricing actions.
- China and other emerging markets contributed positively overall, but local economic conditions adversely affected China, particularly IHM, where automotive production declined.
- The company continued restructuring and productivity initiatives, including the European LGM footprint restructuring and IHM actions intended to improve speed, reduce complexity, and lower costs.
- The U.S. Avery Dennison Pension Plan settlement was completed in 2019, producing approximately $444 million of pretax charges, partly offset by approximately $179 million of related tax benefits.
- The company implemented a new enterprise resource planning system at several North American LGM locations, affecting order management, pricing, shipping, purchasing, and related processes.
- In November 2019, Avery Dennison announced an agreement to acquire Smartrac’s Transponder Division for approximately $250 million (€225 million), subject to adjustments, with closing expected in the first quarter of 2020.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide a clear numerical 2020 revenue, earnings, margin, or cash-flow guidance figure.
- Management identified the December 2019 emergence of the novel coronavirus as a significant subsequent risk. Manufacturing and other operations in China experienced limited production or closure in early 2020, and the company expected adverse effects on first-quarter and full-year 2020 results.
- China, including Hong Kong, represented approximately 20% of 2019 net sales, while approximately 60% of employees were located in Asia.
- Key risks include foreign-currency volatility, tariffs and trade restrictions, weaker global or emerging-market demand, raw-material and energy costs, customer consolidation and pricing pressure, supply-chain disruption, cybersecurity, environmental liabilities, tax changes, pension-market volatility, acquisition integration, and goodwill impairment.
- The company was designated as a potentially responsible party at eleven U.S. waste-disposal or recycling sites. No settlement had been reached for these sites, and the company could not reasonably estimate a range of potential costs above accrued liabilities.
- The company stated that pending lawsuits, claims, investigations, and regulatory matters were not expected, based on current information, to be material individually or in aggregate, although actual outcomes could differ.
Most important facts for investors to verify
- Retrieve the incorporated 2019 Annual Report to verify revenue, operating income, net income, EPS, cash flow, cash, current debt, net debt, segment results, and margin trends.
- Assess the effect and duration of the pension settlement charge and related tax benefit on reported and adjusted earnings.
- Review 2020 results for the actual impact of the coronavirus on China operations, supply chains, demand, and profitability.
- Evaluate leverage, debt maturities, interest-rate exposure, covenants, and liquidity following the planned Smartrac acquisition.
- Monitor whether LGM pricing actions caused lasting volume or market-share pressure in North America and Europe.
- Review environmental, tax, pension, litigation, and acquisition contingencies for changes in accrued liabilities or expected cash costs.