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LehmanBrothers2006Speech LehmanBrothers2006Speech Document Transcript

  • Lehman Brothers Industrial Select Conference – February 14, 2006 Lehman Brothers Industrial Select Conference February 14, 2006 Cynthia S. Guenther Vice President, Investor Relations Forward-Looking Statements Certain information provided in this presentation may constitute “forward-looking” statements. These statements are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign exchange rates; worldwide and local economic conditions; selling prices; impact of legal proceedings, including the U.S. Department of Justice (“DOJ”) criminal investigation, as well as the European Commission (“EC”), Canadian Department of Justice, and Australian Competition and Consumer Commission investigations, into industry competitive practices and any related proceedings or lawsuits pertaining to these investigations or to the subject matter thereof (including purported class actions seeking treble damages for alleged unlawful competitive practices, and purported class actions related to alleged disclosure violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation, as well as a likely fine by the EC in respect of certain employee misconduct in Europe); impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; impact of epidemiological events on the economy and the Company’s customers and suppliers; successful integration of acquired companies; financial condition and inventory strategies of customers; development, introduction and acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company’s SEC filings. The Company assumes no obligation to update any forward-looking statements made in this presentation as a result of new information or future events or developments. Use of Non-GAAP Financial Measures This presentation contains certain non-GAAP measures as defined by SEC rules. As required by these rules, we have provided a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, included in the Appendix section of this presentation. 1
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Applying balanced approach to top-line growth and margin expansion to drive sustained value creation Pro-forma earnings per share, fully diluted* $3.45 - $3.80 $3.44 $3.04 $2.82 $2.70 $2.46 2001 2002 2003 2004 2005 2006 Guidance * Excludes restructuring charges, gains on sale of assets, and other items – see Appendix for detail. Discussion Outline • Who are we? • How do we grow? • What’s our competitive advantage? 2
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Pressure-sensitive (“self-stick”) technology is used everywhere… on objects both large and small We serve a diverse set of end markets Transportation Health Care Food/Beverage/ Personal Care Apparel Industrial/ Durable Applications Logistics/ Office Shipping Products 3
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Three Operating Segments…and “Other Specialty” 2005 Net Sales (cont. ops) = $5.5 billion Other Specialty Converting Businesses Retail Information Services Pressure- sensitive Materials Office and Consumer Products Pressure-sensitive Materials Organic Sales Growth(1) Operating Margin(2) 2005 2004 2005 2004 2005 Sales 2003 $3.1 B +10.6% 9.1% 8.6% + 2.4% 7.6% Excluding currency, acquisitions, and divestitures (1) Excluding restructuring charges (2) 4
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Office and Consumer Products Organic Sales Growth(1) Operating Margin(2) 2005 2004 2005 2004 2005 Sales 2003 $1.1 B - 2.5% 16.9% 15.9% 17.2% - 3.7% Excluding currency, acquisitions, and divestitures (1) Excluding restructuring charges (2) Retail Information Services Organic Sales Growth(1) Operating Margin(2) 2005 2004 2005 2004 2005 Sales 2003 $0.7 B + 10.8% 7.4% 7.6% + 2.2% 5.7% Excluding currency, acquisitions, and divestitures (1) Excluding restructuring charges (2) 5
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Other Specialty Converting Businesses Organic Sales Growth(1) Operating Margin(2) 2005 2004 2005 2004 2005 Sales 2003 $0.5 B + 9.5% 2.9% 6.8% + 3.8% 9.8% Excluding currency, acquisitions, and divestitures (1) Excluding restructuring charges (2) We are market leaders in all of our key businesses Global Business Market/Categories Market Position Roll Materials Paper/film roll materials #1 (3x larger than next for labels largest competitor) (Fasson) • Printable media Avery Office #1 Products (labels, dividers) • Binders, sheet #1 or “close #2” protectors (North America only) • Other products Varies by product, region Retail Tickets and tags for One of two global players Information retail apparel Services 6
  • Lehman Brothers Industrial Select Conference – February 14, 2006 More than half of all sales originate outside the US… > 20% from the fastest growing emerging markets 2005 Revenues by Region Latin (before intergeographic Other* America eliminations) Asia Eastern U.S. Europe Western Europe * “Other” includes Canada, Australia, and South Africa We’ve increased our participation in the rapidly growing emerging markets… Emerging Markets Share of Total Sales 2000 2005 2010 Contribution to Overall 0.2 pts. 2.4 pts. 3.5 pts. Growth: Emerging Markets Local Management Leveraging Global Capabilities 7
  • Lehman Brothers Industrial Select Conference – February 14, 2006 … and these markets are contributing significantly to our profit growth and returns Operating Profit from Emerging Markets* ($ millions) > 200 ~ 115 ~ 40 2000 2005 2010 * Figures are approximate. Estimates do not include allocation of expenses incurred in North America and Europe for direct support of businesses in emerging markets (particularly significant for RIS). Largest single growth platform today Organic sales growth has been more volatile of late Organic Sales Growth* 7.4% 4.9% 4.7% 2.5% 1.2% 2000 2001 2002 2003 2004 2005 -1.8% * Excluding currency, acquisitions, and divestitures 8
  • Lehman Brothers Industrial Select Conference – February 14, 2006 In light of soft sales growth and inflationary pressures, we’ve heightened our focus on margin improvement quot;Corequot; Operating Margin* 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- 03 03 03 03 04 04 04 04 05 05 05 05 * Excludes restructuring charges and RFID spending Actions That Drove 2005 Margin Improvement • Disciplined pricing – Optimizing price / volume / mix – Increased focus and accountability • Ongoing productivity improvement actions, e.g.: – Roll Materials: full year benefit of Jac integration savings; leveraging investments in wider, faster coaters – Office Products: Reconfiguration of North American supply chain (including plant closure) – RIS: Transition of manufacturing from Hong Kong to Mainland China • Tight control of operating expenses 9
  • Lehman Brothers Industrial Select Conference – February 14, 2006 New Productivity Initiatives Announced • Targeting $80 to $90 million of annual savings from restructuring actions currently underway – 60%-70% of savings expected to be realized in 2006… offset by transitional costs in the range of $15 to $20 mil. – Portion of net savings reinvested for future growth and productivity improvement – One-time cost (severance, asset write-offs): $38 to $43 mil. (largely recognized in Q4-05) • Divesting several non-strategic businesses – Annual sales of approx. $90 mil. (break-even operating profit) – One-time cost (primarily asset write-offs): $89 mil. (recognized in Q4-05) • Planning continues for additional restructuring actions How do we grow? What’s our competitive advantage? 10
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Pressure-Sensitive Materials Market leader Global scale advantages… technology development, raw material sourcing, global customers Regional scale advantages… higher service (Exact, Next Day Delivery), lower cost asset configuration and utilization Opportunities Challenges Emerging markets Sustaining price increases necessary to offset raw Beverage market conversion material inflation Durables share gain Optimizing volume / price / mix RFID adoption driving carton equation labeling penetration Packaging trends favor transition to pressure- sensitive labeling technology 11
  • Lehman Brothers Industrial Select Conference – February 14, 2006 New applications fuel growth Pressure-sensitive will continue to grow at the expense of alternative decorating technologies… Pressure Sensitive Other Labeling Technologies 10 0 % 90% 80% 70 % 60% 50 % 40% 75 73 73 70 56 30% 20% 35 29 19 10 % 5 0% Food Wine Beer Other Durables Personal Household Pharma Variable Info Beverage Care North America Pressure Sensitive Other Labeling Technologies 10 0 % 90% 80% 70 % 60% 50 % 40% 74 74 69 60 30% 48 46 20% 35 10 % 10 6 0% Food Wine Beer Other Durables Personal Household Pharma Variable Info Beverage Care World 12
  • Lehman Brothers Industrial Select Conference – February 14, 2006 … and emerging markets will continue to expand PS Consumption/Capita relative to GDP/Capita 14.0 United Kingdom Netherlands 12.0 New Zealand Australia United States 10.0 PS/Capita (m2) Germany/France/Sweden Spain Japan/Finland/Italy Taiwan 8.0 Singapore 6.0 Czech Republic Canada Malaysia/South Africa/ South Korea Poland/Chile 4.0 Hungary Indonesia/ Greece Vietnam/ Phillipines Turkey/ 2.0 Venezula Argentina Thailand/Russia/Brazil/Mexico India China/Columbia 0.0 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 GDP/Capita Sources: 1) GDP / Capita – CIA – The World Factbook 2) Population – Population Reference Bureau 3) Market Size Estimates – Avery Dennison Office and Consumer Products Branded Printable Media – innovator of highly differentiated, proprietary products Manage for Growth Filing and Other – low cost provider Manage for Margin Opportunities Challenges New sources of growth for Key growth drivers have Branded Media slowed Expansion of under-penetrated Customer concentration categories Private label growth eroding Cost reduction for Filing share business 13
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Retail Information Services One of two global providers Complex supply chain Labels and tags low cost/high value to retail/apparel companies Customers demand: • Global quality, data integrity, color consistency • Fast, reliable sampling and order fulfillment Opportunities Challenges Industry consolidation driving Increased vendor power share gain Retailer consolidation Elimination of quotas benefiting China / India Achieving scale in Latin Leveraging full portfolio of America and Europe products and services RFID Is Avery Dennison’s #1 growth opportunity 14
  • Lehman Brothers Industrial Select Conference – February 14, 2006 The Opportunity ≈ 5 years • Retail carton labels (announced mandates alone): Wal*Mart + Target + Albertsons + Tesco + Best Buy + Metro ≈ 10 billion labels/yr ≈ $1.0B to 1.5B • DoD (announced mandate) ≈ $1B • Pharma (FDA mandate expected): $500MM 5-10 years • Retail apparel/footwear >$20 per item: $1B • Automotive: $200M • Many others… We are ideally positioned to capture a meaningful share of this large, new market Chip Design Chip Inlay Assembly RFID User Assembly Printers/ (Factory / DC) Applicators RFID Silicon Antenna Label Service Bureau Manufacturing Manufacturing Converting (worldwide) Avery Dennison RFID Division Avery Dennison - Retail Information Services Chip Converting/ Partners Printing Partners 15
  • Lehman Brothers Industrial Select Conference – February 14, 2006 We’re developing multiple sources of competitive advantage that leverage our strengths • Outstanding product performance and testing capabilities • Good linkages to all points in value chain • Superior roll-to-roll manufacturing capability • Superior commercial approach • Corporate credibility / financial strength 2005 Milestones • Began volume production on industry’s first and only high-speed inlay manufacturing process • Joined Intermec’s Rapid Start Licensing program to address IP barrier for customers • Significantly lowered price of world’s first high- volume Gen 2 tag to enable widespread adoption • Released white paper to drive industry progress in tag testing • Chosen as inlay supplier by major end users 16
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Key unknowns continue to affect timing • Technological hurdles, including commercialization of Gen 2 chips • Complex intellectual property environment • Business case attractiveness varies widely by application / user • Infrastructure costs still high • Real implementation experience / expertise not widely available “When”… Not “If”! Shareholder Value Focus • “Value-based management” at AVY… all management processes aligned with value creation • Management incentives tied to growth… in top- line sales, earnings, EVA… and share price (stock options) • Resuming share repurchase program – Actively repurchased shares from 1991 – 2000 – Modest activity following large acquisitions – Repurchased ~ 700,000 shares in Q4-05 • Long history of dividend increase 17
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Expect continued modest increase to dividend $1.80 30 consecutive years of dividend increase… $1.60 ~ 13% compound annual growth $1.40 $1.20 Dividends per share $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 18
  • Lehman Brothers Industrial Select Conference – February 14, 2006 APPENDIX Reconciliation of Non-GAAP Financial Measures to GAAP Earnings per share, fully diluted (GAAP) $3.20 $2.84 $2.78 $2.80 $2.68 $2.59 $2.47 $2.40 $2.25 $2.15 $2.13 $1.93 $2.00 $1.63 $1.60 $1.32 $1.20 $0.97 $0.72 $0.80 $0.66 $0.40 $0.00 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 19
  • Lehman Brothers Industrial Select Conference – February 14, 2006 GAAP EPS to Pro-forma EPS* 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 GAAP EPS 0.66 0.72 0.97 1.32 1.63 1.93 2.15 2.13 2.84 2.47 2.59 2.68 2.78 2.25 Restructuring & asset impairment - - - 0.24 0.10 - - 0.41 - 0.14 0.23 0.26 0.26 1.07 Gains on sale of business/assets, legal settlements, and other items - - - (0.24) (0.11) - - - - (0.15) - (0.24) - (0.02) Tax Expense on Repatriated Earnings - - - - - - - - - - - - - 0.14 Pro-forma EPS 0.66 0.72 0.97 1.32 1.62 1.93 2.15 2.54 2.84 2.46 2.82 2.70 3.04 3.44 * Historical figures have NOT been adjusted to remove the contribution from businesses subsequently divested or discontinued. Total Company Organic Sales Growth 2000 2001 2002 2003 2004 2005* Reported Sales Growth 3.3% (2.3%) 10.6% 14.6% 12.1% 2.9% Less Impact of Currency (4.1%) (1.7%) 0.6% 6.1% 4.7% 1.4% Less Impact of Acquisitions, Net of Divestitures 2.6% 1.2% 5.1% 6.0% 0.1% 0.3% Organic Sales Growth 4.7% (1.8) 4.9% 2.5% 7.4% 1.2% * From continuing operations 20
  • Lehman Brothers Industrial Select Conference – February 14, 2006 2005 Organic Sales Growth by Segment Estimated 2004 Adjusted Impact of 2005 2005 Adjusted Impact of Non-GAAP 2004 GAAP Currency Non GAAP 2005 GAAP GAAP Sales Acquisitions & Non-GAAP Organic Sales Sales Changes Sales Sales Divestitures Sales Growth Growth Pressure Sensitive Materials $2,984.5 $57.8 $3,042.3 $3,114.5 $0.0 $3,114.5 4.4% 2.4% Office and Consumer Products $1,172.5 $7.7 $1,180.2 $1,136.1 $0.0 $1,136.1 -3.1% -3.7% Retail Information Services $636.1 $6.7 $642.8 $674.8 $17.8 $657.0 6.1% 2.2% Other Specialty Converting Businesses $523.8 $4.4 $528.2 $548.1 $0.0 $548.1 4.6% 3.8% 2004 Organic Sales Growth by Segment Estimated 2003 Adjusted Impact of 2004 2004 Adjusted Impact of Non-GAAP Currency Non GAAP 2004 GAAP GAAP Sales 2003 GAAP Acquisitions & Non-GAAP Organic Sales Sales Changes Sales Sales Divestitures Sales Growth Growth Pressure Sensitive Materials $2,572.6 $145.6 $2,718.1 $3,008.5 $0.0 $3,008.5 16.9% 10.6% Office and Consumer Products $1,168.1 $35.1 $1,203.2 $1,172.5 $0.0 $1,172.5 0.4% -2.5% Retail Information Services $552.7 $12.3 $565.1 $636.1 $10.1 $626.0 15.1% 10.8% Other Specialty Converting Businesses $469.2 $14.5 $483.7 $523.8 ($5.3) $529.1 11.6% 9.5% 21
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Operating Margin by Segment FY2003* FY2004* FY2005 Pressure Sensitive Materials Net Sales $2,546.8 $2,984.5 $3,114.5 Operating income, as reported $180.3 $221.4 $259.6 Operating margin, as reported 7.1% 7.4% 8.3% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $13.6 $34.4 $23.0 Adjusted non-GAAP operating income $193.9 $255.8 $282.6 Adjusted non-GAAP operating margin 7.6% 8.6% 9.1% Office and Consumer Products Net Sales $1,168.1 $1,172.5 $1,136.1 Operating income, as reported $188.5 $186.4 $168.0 Operating margin, as reported 16.1% 15.9% 14.8% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $12.5 $0.5 $24.1 Adjusted non-GAAP operating income $201.0 $186.9 $192.1 Adjusted non-GAAP operating margin 17.2% 15.9% 16.9% * Prior periods restated to include the impact of 2005 discontinued operations in Pressure Sensitive segment. Operating Margin by Segment FY2003* FY2004* FY2005 Retail Information Services Net Sales $552.7 $636.1 $674.8 Operating income, as reported $24.2 $47.8 $42.7 Operating margin, as reported 4.4% 7.5% 6.3% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $7.0 $0.2 $7.5 Adjusted non-GAAP operating income $31.3 $48.0 $50.2 Adjusted non-GAAP operating margin 5.7% 7.6% 7.4% Other Specialty Converting Businesses Net Sales $469.2 $523.8 $548.1 Operating income, as reported $43.7 $35.5 $9.5 Operating margin, as reported 9.3% 6.8% 1.7% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $2.5 $0.0 $6.2 Adjusted non-GAAP operating income $46.2 $35.5 $15.7 Adjusted non-GAAP operating margin 9.8% 6.8% 2.9% * Prior periods restated to include the impact of RFID spending in Other Specialty Converting segment. 22
  • Lehman Brothers Industrial Select Conference – February 14, 2006 Total Company Operating Margin Q1-03* Q2-03* Q3-03* Q4-03* Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Net Sales as reported $1,135 $1,192 $1,204 $1,231 $1,243 $1,317 $1,329 $1,428 $1,343 $1,412 $1,355 $1,364 Operating income as reported $96.4 $95.4 $88.1 $54.1 $73.9 $88.7 $102.3 $110.4 $79.7 $115.8 $112.8 $58.5 Operating margin as reported 8.5% 8.0% 7.3% 4.4% 5.9% 6.7% 7.7% 7.7% 5.9% 8.2% 8.3% 4.3% Non-GAAP Adjustments Restructuring, asset impairment, lease $0.0 ($4.0) $0.2 $34.3 $21.4 $13.8 $0.0 $0.0 $4.1 $3.2 $1.7 $56.9 cancellation costs, gain on sale of assets RFID expense $1.2 $1.0 $1.0 $1.2 $1.7 $2.3 $4.1 $8.0 $6.9 $8.0 $7.8 $9.8 Interest expense $14.9 $14.5 $13.9 $14.4 $15.0 $14.1 $14.2 $15.4 $14.5 $15.7 $14.7 $13.0 Adjusted non-GAAP operating income $112.7 $107.0 $103.5 $104.2 $112.0 $118.9 $120.6 $133.8 $105.2 $142.7 $137.0 $138.2 Adjusted non-GAAP operating margin 9.9% 9.0% 8.6% 8.5% 9.0% 9.0% 9.1% 9.4% 7.8% 10.1% 10.1% 10.1% * While the 2004 and 2005 data reflect results from continuing operations, the quarterly data for 2003 has not been restated to reflect the modest impact from 2005 discontinued operations. 23