COMPANY DESCRIPTION
Avery Dennison produces pressure-sensitive materials, and a range of tickets, tags, labels, andother converted products.The company has diversified business operations, which enables it tosustain its revenue growth in spite of downturn in any particular product segment. However, intensecompetition could lead to pricing pressures, which could reduce the market share and margins ofthe company.
ECONOMIC MOAT
Avery Dennison is the global leader in pressure-sensitive materials and one of the world's largest producers of graphic tags and labels for apparel and consumer goods companies. Avery's PSM segment accounts for about 70% of group revenue and nearly 90% of continuing operating profits. Even with this dominant position the PSM business is not capital intensive and competitive pressures could rise in the next few years. AVY’s ability to execute at a high level is the driver for success but in our opinion AVY does not have an economic moat.
OUTLOOK
AVY is experiencing some revenue pressure. Approximately 75% of the company's results were from international operations. Over the past year, currency volatility has increased. Swings in a number of currencies, such as the Canadian dollar, Swiss franc, and the Russian ruble have been wide. Movements in foreign exchange rates could likely hurt sales and profitability due to currency translation, over the next few quarters. While share repurchases and dividend hikes are likely to enhance earnings prospects, total return potential over the 3 -to 5-year period remains average.
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STRENGTHS
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Diversified business operations enable the company to achieve sustained growth
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Strong research and development capabilities enhances competitive strength
WEAKNESSES
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High indebtedness could hinder growth and competitiveness
THREATS
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Intense competition could lead to a decline in the product demand, market share andmargins
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Stringent environmental regulations could adversely impact financial performance
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Fluctuations of foreign currency exchange rates may negatively impact profitability
OPPORTUNITIES
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Growing global RFID market could provide opportunity to boost revenues and profitability
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Positive outlook for global rigid packaging market could help to expand market share and revenue
The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.
The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.
