Avery Dennison Reports First Quarter 2008 Earnings

Business Wire, April 22, 2008

PASADENA, Calif. -- Avery Dennison Corporation (NYSE:AVY):

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Avery Dennison Corporation (NYSE:AVY) today reported net income of $68.4 million or $0.69 per share for the first quarter, compared with $79.1 million or $0.80 per share in the prior year. Results included restructuring and asset impairment charges and transition costs associated with the integration of Paxar, totaling $0.11 and $0.02 in the first quarters of 2008 and 2007, respectively. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".)

Net sales from continuing operations for the first quarter were $1.65 billion, up approximately 18 percent from $1.39 billion for the same quarter last year. Sales before the impact of the Paxar acquisition and foreign currency translation were down approximately 2 percent from the prior year.

"Weak retail demand in the U.S. and raw material inflation impacted our sales and profits during the first quarter," said Dean A. Scarborough, president and chief executive officer of Avery Dennison. "While we are disappointed in these results, we stepped up our initiatives to navigate this difficult economic environment and position the Company for a rebound in the economy.

"Our disciplined approach includes clamping down on expenses, accelerating productivity initiatives and reducing capital spending as we intensify our focus on increasing cash flow," he added. "The integration of Paxar into our Retail Information Services Group remains on track and is expected to drive annual cost synergies of roughly $120 million by the end of 2009.

"Meanwhile, we continue to invest in our long-term growth platforms, including RIS, RFID and our materials businesses in the emerging markets," Scarborough said. "These investments included the acquisition of Asia-based DM Label Group, a manufacturer of interior labels for apparel, which enhances RIS' product portfolio and strengthens our presence in Asia. We also added roll materials capacity in emerging markets, including China and India, where our pressure sensitive materials business continues to achieve double-digit growth. We will continue to actively pursue opportunities to strengthen our position in these businesses and markets in the future."

Additional First Quarter Financial Highlights

(For a more detailed presentation of the Company's results for the quarter, see First Quarter 2008 Financial Review and Analysis, posted at the Company's Web site at www.investors.averydennison.com.)

* Operating margin (GAAP basis) was 3.7 percent, compared to 7.1 percent for the same period last year. Excluding interest expense, the effect of transition costs associated with the Paxar integration, and restructuring and asset impairment charges, operating margin was 6.3 percent, compared to 8.3 percent for the previous year. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".)

* The Company's annual effective tax rate for 2008 is expected to be in the 15 percent to 18 percent range, with the ongoing annual tax rate expected to be in the 17 percent to 19 percent range for the foreseeable future, subject to significant volatility from quarter to quarter. The effective tax rate for the quarter was a negative 12.3 percent, primarily due to the recognition of a $21 million tax benefit, arising from an increased ability to realize deferred tax assets.

Segment Highlights

(See Attachment A-4: "Preliminary Supplementary Information, Reconciliation of GAAP to Non-GAAP Supplementary Information" for adjusted operating margins included below.)

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Outlook for the Year

Avery Dennison announced that it revised its expectations for reported (GAAP) earnings for 2008 to be in the range of $3.60 to $3.90 per share, including an estimated $0.40 per share in restructuring and asset impairment charges and acquisition integration costs. These charges and costs are subject to revision, as plans have not been finalized. Excluding these items, the Company now expects full year earnings per share for 2008 to be in the range of $4.00 to $4.30 per share. (See Attachment A-5: "Preliminary Reconciliation of GAAP to Non-GAAP Measures (Full Year 2008 Estimate)".)

The Company's earnings expectations reflect an assumption of reported revenue growth in the range of 10 to 12 percent, including a 7 percent contribution from acquisitions and an estimated 5 percent benefit from currency translation. The Company reconfirmed its expectations for 2008 free cash flow to be in the range of $400 million to $450 million.

(For a more detailed presentation of the Company's assumptions underlying its revised 2008 earnings expectations, see First Quarter 2008 Financial Review and Analysis, posted at the Company's Web site at www.investors.averydennison.com.)

Note: Throughout this release, all calculations of amounts on a per share basis reflect fully diluted shares outstanding.

Avery Dennison is a global leader in pressure-sensitive labeling materials, retail tag, ticketing and branding systems, and office products. Based in Pasadena, Calif., Avery Dennison is a FORTUNE 500 Company with 2007 sales of $6.3 billion. Avery Dennison employs more than 30,000 individuals in over 60 countries, who develop, manufacture and market a wide range of products for both consumer and industrial markets. Products offered by Avery Dennison include: Fasson-brand self-adhesive materials; Avery Dennison brand products for the retail and apparel industries; Avery-brand office products and graphics imaging media; specialty tapes, peel-and-stick postage stamps, and labels for a wide variety of automotive, industrial and durable goods applications.