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LehmanBrothers_2607Handout LehmanBrothers_2607Handout Presentation Transcript

  • Lehman Brothers Industrial Select Conference February 6, 2007 Dean A. Scarborough President and Chief Executive Officer
  • Forward-Looking Statements Certain information presented in this document may constitute “forward-looking” statements. These statements and financial or other business targets 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 currency exchange rates; worldwide and local economic conditions; impact of competitive products and pricing; selling prices; impact of legal proceedings, including the Canadian Department of Justice and the 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 or of the recently concluded investigations by the U.S. Department of Justice (“DOJ”) and the European Commission (including purported class actions seeking treble damages for alleged unlawful competitive practices, and a purported class action related to alleged disclosure and fiduciary duty violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation), as well as the 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 acquisitions; financial condition and inventory strategies of customers; timely development and market acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company’s SEC filings. The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial expectations in the near-term include (1) the impact of economic conditions on underlying demand for the Company’s products; (2) the impact of competitors’ actions, including expansion in key markets, product offerings and pricing; (3) the degree to which higher raw material and energy-related costs can be passed on to customers through selling price increases (and previously implemented selling price increases can be sustained), without a significant loss of volume; (4) potential adverse developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties, judgments or settlements; and (5) the ability of the Company to achieve and sustain targeted cost reductions. 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.
  • Balanced strategy for sustained value creation • Significant investments to drive both top line growth and productivity improvement – Acquisitions in 2002 – Portfolio rationalization (divestitures; strategic product pruning) – Major restructuring program initiated late 2005 • Two major growth platforms continue to draw heavy share of investment today – Emerging markets – RFID • Core businesses generating solid free cash flow to support sustained value creation ahead
  • Pressure-sensitive (“self-stick”) technology
  • Three operating segments…and “other specialty” 2006 Net Sales = $5.6 billion Other Specialty Converting Retail Information Services Pressure- sensitive Materials Office and Consumer Products
  • Pressure-sensitive Materials Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $3.2 B + 3.6% + 3.1% + 9.6% 9.6% 9.0% 8.6% Excluding currency, acquisitions, and divestitures – see Appendix for detail (1) Excluding restructuring charges and other items – see Appendix for detail (2)
  • Office and Consumer Products Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $1.1 B - 0.4% - 0.6% - 5.1% 16.5% 16.9% 15.9% Excluding currency, acquisitions, and divestitures – see Appendix for detail (1) Excluding restructuring charges and other items – see Appendix for detail (2)
  • Retail Information Services Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $0.7 B + 4.8% + 3.1% + 9.8% 8.4% 7.2% 7.4% Excluding currency, acquisitions, and divestitures – see Appendix for detail (1) Excluding restructuring charges and other items – see Appendix for detail (2)
  • Other Specialty Converting Businesses Adj. Organic Sales Growth(1) Operating Margin(2) 2006 2005 2004 2006 2005 2006 Sales 2004 $0.6 B + 2.3% + 4.9% + 8.2% 3.5% 3.4% 7.0% Excluding currency, acquisitions, and divestitures – see Appendix for detail (1) Excluding restructuring charges and other items – see Appendix for detail (2)
  • Full Year 2006 Highlights • Modest growth in sales on adjusted organic basis (3%) – Continued strength in emerging markets – Good progress against share gain objectives for Roll Materials business in North America and Europe during second half of the year – Early signs of improvement in growth trajectory for Office Products branded printable media – Solid growth in Retail Information Services from continued global share gain – Mixed results for Graphics and Reflective – solid performance internationally, partially offset by decline in North America, with reduced profitability overall
  • Full Year 2006 Highlights (continued) • Gross profit and EBIT margin (before restructuring charges) up 40 basis points and 30 basis points, respectively • U.S. DOJ and European Union investigations closed with no action • Board raised authorization for share repurchase to 7.4 mil. shares in late October
  • Overview of Today’s Portfolio Long-Term Operating 3-5 Yr Sales Margin Target Growth Drivers Growth Target* Pressure- • Emerging markets 5-7% 10-12% sensitive • Increased penetration of PS Materials label technology for product ID (food & beverage) • Share gain in durables • RFID adoption driving carton labeling penetration • Increased penetration of Office & ~ flat 18-20% printable media products Consumer (with improved Products product mix) • New category innovation; existing product upgrades • Global consolidation Retail Info 6-8% 10-12% Services • New products and services • Emerging markets Other Specialty 10%+ > 10% Converting • New products, niche applications * Excluding acquisitions and divestitures
  • Margin expansion is key near-term priority • Maintain our pricing rigor • $90 to $100 million of annual savings from restructuring actions completed in 2006 • Productivity improvement initiatives across all businesses • Enterprise Lean Sigma to drive continuous improvement • RFID still costing ~ $25 to $30 mil. pre-tax; losses will decline as revenue ramps up
  • International operations growing faster-than- average… and profitability is expanding 2006 Revenue Operating Margin**, by Region International Operations (before intergeographic eliminations) 11.0% Latin Other* America 10.0% Asia 9.0% U.S. 8.0% Eastern 7.0% Europe 6.0% 5.0% Western 2003 2004 2005 2006 Europe * “Other” includes Canada, Australia, and South Africa ** Excluding restructuring charges
  • We’ve increased our participation in the rapidly growing emerging markets Emerging Markets Share of Total Sales 2001 2006 2011 Contribution to Overall 2.7 pts. 2.9 pts. 3.9 pts. Growth: Emerging Markets Local Management Leveraging Global Capabilities
  • Key Growth Priorities By Business • Grow materials businesses through expansion in emerging markets, increased service leadership, and innovation in new applications • Invest in new marketing programs to accelerate growth of Avery-brand printable media products • Accelerate growth of RIS business with new products and continued geographic expansion • Expand new RFID business through share gain of rapidly expanding carton label market and innovation in new applications for selected markets
  • Pressure-Sensitive Materials Market leader Global scale advantages… technology development, raw material sourcing, global customers Regional scale advantages… superior service (Exact, Next Day Delivery, Fasson Optimum Performance), lower cost asset configuration and utilization Opportunities Challenges Emerging markets Slower domestic market growth Beverage market conversion Optimizing volume / price / mix Durables share gain equation in more competitive RFID adoption driving carton market labeling penetration
  • Competitive advantage drives superior performance Operating Margin* AVY PSM Segment vs. Peers 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2003 2004 2005 2006 AVY PSM BMS PS Sector UPM Converting * Excluding restructuring charges
  • 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
  • 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 Rapid growth in Asia (China, India, other countries in region) Achieving scale in Latin Leveraging full portfolio of America and Europe products and services
  • RFID Is Avery Dennison’s #1 growth opportunity
  • Where We Play In RFID Value Chain Converting/ Printing Partners Avery Dennison - Retail Information Services Avery Dennison RFID, RF IDentics Chip Chip Antenna Antenna Inlay Label Distribution End user Design Manufacture Design Manufacture Assembly Conversion & Service Sales through value-adding converters Partnerships with all major chip suppliers aggregates volume, facilitates better customer service
  • RFID… fundamental improvement in competitive position vs. a year ago • Manufacturing speeds, yields beating internal targets • Customers, other partners recognize our technical capabilities • Continue to target significant share gain for carton labeling applications (market share objective of 30%+) • Sufficient progress to begin broadening reach: – Develop and commercialize HF products – Increase pharmaceutical, apparel, other item level engagements – Expand activities in Europe / Asia
  • 2007 Earnings Guidance Pro-forma earnings per share, fully diluted* $4.00 - $4.35 $3.77 $3.44 $3.04 $2.82 $2.70 2002 2003 2004 2005 2006 2007 Guidance * Excludes restructuring charges, gains on sale of assets, and other items – see Appendix for detail.
  • Capital model provides significant flexibility for funding requirements 2007 Capital Allocation CAPEX/Software ~ $210-$225 mil. Cash Flow from Operations Acquisitions ~ $550 mil. + Available + Cash > $1 bil. Dividends ~ $165 mil. Debt Capacity $500+ mil. Share Repurchase Over $600 mil. in “unallocated” cash
  • Capital spending… continued shift towards emerging markets Total Capital Spending & Capital Efficiency 2.3 $206 mil. $162 mil. $160 - $165 mil. $162 mil. $201 mil. 2.1 Capital $150 mil. Turnover (Ratio of Sales to Average Invested 2.0 Capital) 1.8 2002 2003 2004 2005 2006 2007e Emerging Markets
  • Expect continued modest increase to dividend $1.80 31 consecutive years of dividend increase $1.60 $1.40 Dividends per share $1.20 $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 '06
  • Key Takeaways • Solid progress against near-term goals… balanced strategy for growth and margin expansion • Net restructuring savings of ~ $50 mil. in ’06, incremental $40- $50 mil. in ’07… near-term earnings growth achievable through actions largely within our control • Gaining share in the important N.A. market for roll materials • Emerging markets represent an increasing share of the portfolio… consistent source of profitable growth • Return on capital is strong and improving • Significant free cash flow potential, to fund acquisitions and/or share repurchase, as appropriate
  • APPENDIX Reconciliation of Non-GAAP Financial Measures to GAAP
  • GAAP EPS to Pro-forma EPS* 2001 2002 2003 2004 2005 2006 GAAP EPS 2.47 2.59 2.68 2.78 2.25 3.66 Restructuring & asset impairment, environmental 0.14 0.23 0.26 0.26 1.07 0.33 Gains on sale of business/assets, legal settlements, and other items (0.15) - (0.24) - (0.02) (0.22) Tax Expense on Repatriated Earnings - - - - 0.14 - Pro-forma EPS 2.46 2.82 2.70 3.04 3.44 3.77 * Historical figures have NOT been adjusted to remove the contribution from businesses subsequently divested or discontinued.
  • 2006 Organic Sales Growth by Segment Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2005 GAAP $3,114.5 $1,136.1 $630.4 $592.5 Sales* Impact of 2006 $15.4 $1.2 $3.4 $0.6 Currency Changes 2005 Adjusted $3,129.9 $1,137.3 $633.8 $593.1 Non-GAAP Sales 2006 GAAP $3,236.3 $1,072.0 $667.7 $599.9 Sales Estimated Impact of Acquisitions & $0.0 ($51.0) $3.2 ($6.6) Divestitures Comparability ($5.0) ($10.2) $0.0 $0.0 Adjustments 2006 Adjusted $3,241.3 $1,133.2 $664.5 $606.5 Non-GAAP Sales GAAP Sales 3.9% -5.6% 5.9% 1.2% Growth Adjusted Non-GAAP 3.6% -0.4% 4.8% 2.3% Organic Sales Growth * 2005 GAAP sales have been re-stated for Business Media reporting change from RIS to Other Specialty Converting.
  • 2005 Organic Sales Growth by Segment Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2004 GAAP $2,984.5 $1,172.5 $636.1 $523.8 Sales Impact of 2005 $57.8 $7.7 $6.7 $4.4 Currency Changes 2004 Adjusted $3,042.3 $1,180.2 $642.8 $528.2 Non-GAAP Sales 2005 GAAP $3,114.5 $1,136.1 $674.8 $548.1 Sales Estimated Impact of Acquisitions & $0.0 $0.0 $17.8 $0.0 Divestitures Comparability ($22.8) ($37.1) ($5.8) ($5.8) Adjustments 2005 Adjusted $3,137.3 $1,173.2 $662.8 $553.9 Non-GAAP Sales GAAP Sales 4.4% -3.1% 6.1% 4.6% Growth Adjusted Non-GAAP 3.1% -0.6% 3.1% 4.9% Organic Sales Growth
  • 2004 Organic Sales Growth by Segment Pressure Office and Retail Other Specialty Sensitive Consumer Information Converting Materials Products Services Businesses 2003 GAAP $2,572.6 $1,168.1 $552.7 $469.2 Sales Impact of 2004 $145.6 $35.1 $12.3 $14.5 Currency Changes 2003 Adjusted $2,718.1 $1,203.2 $565.1 $483.7 Non-GAAP Sales 2004 GAAP $3,008.5 $1,172.5 $636.1 $523.8 Sales Estimated Impact of Acquisitions & $0.0 $0.0 $10.1 ($5.3) Divestitures Comparability $28.3 $30.5 $5.8 $5.8 Adjustments 2004 Adjusted $2,980.2 $1,142.0 $620.2 $523.3 Non-GAAP Sales GAAP Sales 16.9% 0.4% 15.1% 11.6% Growth Adjusted Non-GAAP 9.6% -5.1% 9.8% 8.2% Organic Sales Growth
  • Operating Margin by Segment FY2004 FY2005 FY2006 Pressure Sensitive Materials Net Sales $2,984.8 $3,114.5 $3,236.3 Operating income, as reported $221.4 $258.1 $301.2 Operating margin, as reported 7.4% 8.3% 9.3% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $34.4 $23.0 $9.3 Adjusted non-GAAP operating income $255.8 $281.1 $310.5 Adjusted non-GAAP operating margin 8.6% 9.0% 9.6% Office and Consumer Products Net Sales $1,172.5 $1,136.1 $1,072.0 Operating income, as reported $186.4 $168.0 $179.0 Operating margin, as reported 15.9% 14.8% 16.7% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $0.5 $24.1 ($2.3) Adjusted non-GAAP operating income $186.9 $192.1 $176.7 Adjusted non-GAAP operating margin 15.9% 16.9% 16.5%
  • Operating Margin by Segment FY2004 FY2005 FY2006 Retail Information Services Net Sales $592.7 $630.4 $667.7 Operating income, as reported $43.4 $37.7 $45.0 Operating margin, as reported 7.3% 6.0% 6.7% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $0.3 $7.5 $11.2 Adjusted non-GAAP operating income $43.7 $45.2 $56.2 Adjusted non-GAAP operating margin 7.4% 7.2% 8.4% Other Specialty Converting Businesses Net Sales $567.0 $592.5 $599.9 Operating income, as reported $39.9 $14.1 $17.2 Operating margin, as reported 7.0% 2.4% 2.9% Non-GAAP adjustments: Restructuring costs, asset impairment and lease cancellation costs $0.0 $6.2 $3.7 Adjusted non-GAAP operating income $39.9 $20.3 $20.9 Adjusted non-GAAP operating margin 7.0% 3.4% 3.5%