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Avery Dennison (AVY) to Post Q2 Earnings: Will It Disappoint?
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Avery Dennison Corporation (AVY - Free Report) is slated to release second-quarter 2018 results on Jul 24 before the opening bell.
In the last reported quarter, the company recorded year-over-year improvement in both its top and bottom lines. It is worth noting that Avery Dennison has outperformed the Zacks Consensus Estimate in the preceding four quarters, recording an average positive earnings surprise of 7%.
Let’s take a look at how things are shaping up prior to this announcement.
Factors at Play
Avery Dennison’s Label and Graphic Materials segment is the largest and highest-return business. The segment will maintain its momentum of strong top-line growth and continued margin expansion, aided by growth in emerging markets, its strategic focus on high-value categories (including specialty labels) as well as the ongoing contribution from productivity initiatives.
Despite a challenging retail environment, the Retail Branding and Information Solutions segment continues to perform well on the back of business model transformation. This has enabled it to gain share market share, while driving significant margin expansion. Avery Dennison has enhanced the segment’s competitiveness through strategic pricing initiatives. Margins are likely to improve driven by the benefits of productivity initiatives and higher volume. Growing adoption of RFID (Radio-frequency identification) by retailers due to increase of omni-channel retailing as well as the requirement to locate inventories at all times is fueling demand. Consequently, RFID sales, which increased 20% year over year in 2017, will continue to boost the segment’s sales in the to-be-reported quarter as well.
However, the Industrial and Healthcare Materials segment’s operating margins are currently bearing the brunt of acquisitions and growth-related investments as well as a number of operational challenges. Further, modest sequential raw material inflation will hinder Avery Dennison’s second-quarter performance. Further, higher-debt levels following the Yongle and Finesse acquisitions remain a concern.
Nevertheless, the Zacks Consensus Estimate for the second quarter is currently pegged at $1.56, reflecting year-over-year growth of 19%. The estimate for revenues is pegged at $1.81 billion, projecting a year-over-year climb of 11%. Focus on productivity, acquisitions, aggressive cost control and share repurchases will drive the results.
Avery Dennison’s shares have underperformed the industry’s performance in the past year. The stock has gained 10.8%, compared with the industry's growth of 12.7%.
Here’s What Our Quantitative Model Predicts
Our proven model does not conclusively show that Avery Dennison will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
That is not the case here as you will see below.
Zacks ESP: The company has an Earnings ESP of 0.00%.
Zacks Rank: Dover carries a Zacks Rank #5 (Strong Sell), which reduces the predictive power of ESP. Notably, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.
Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Alarm.com Holdings, Inc. (ALRM - Free Report) has an Earnings ESP of +1.11% and a Zacks Rank #3. Its shares have gained 17% in the past year.
Rexnord Corporation has an Earnings ESP of +0.93% and a Zacks Rank #3. The company’s shares have been up 24% during the past year.
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Avery Dennison (AVY) to Post Q2 Earnings: Will It Disappoint?
Avery Dennison Corporation price-eps-surprise | Avery Dennison Corporation Quote
Despite a challenging retail environment, the Retail Branding and Information Solutions segment continues to perform well on the back of business model transformation. This has enabled it to gain share market share, while driving significant margin expansion. Avery Dennison has enhanced the segment’s competitiveness through strategic pricing initiatives. Margins are likely to improve driven by the benefits of productivity initiatives and higher volume. Growing adoption of RFID (Radio-frequency identification) by retailers due to increase of omni-channel retailing as well as the requirement to locate inventories at all times is fueling demand. Consequently, RFID sales, which increased 20% year over year in 2017, will continue to boost the segment’s sales in the to-be-reported quarter as well.