Avery Dennison (NYSE: AVY) makes office products and self-adhesive labels that cover everything from shampoo bottles to highway signs . The company also makes barcode tags, price tags, and security devices for retailers. With product sales in over 89 countries world-wide, international sales represented 66% of net sales in 2009, a 6% increase since 2007 due to an operations focus on Asia, Latin America, and Eastern Europe.  Avery Dennison's self-adhesive labels, which accounted for more than half of the company's revenue in 2009, are in high demand in many different industries worldwide.
This demand however, is being threatened by a sluggish economy as businesses and families cut back spending on office and home supplies. Additionally, Avery Dennison is hurt when the demand falls for products in other industries that use Avery's adhesive labels -- when this happens the manufacturers of these products will demand less from Avery. Additionally, increasing energy and commodities prices are also hiking up the cost of obtaining raw materials and making products. Avery Dennison is dependent on raw material such as paper, plastic film, and resins to make its products. Rising energy and commodities costs are forcing Avery Dennison into a difficult choice - raise prices on its products and risk losing customers, or cut its operating margins and earn less profit.
This segment sells labels and adhesives. These products are sold globally to label printers and other converters; so other corporations take this material and make all the labels you see on vitamin bottles and jars of jelly. These items are sold under the brands Fasson, JAC, and Avery Dennison. Net sales in 2009 was down 9% to $3.3 billion. Operating income for this segment in 2009 was $184.7 million.
This segment sells binders, dividers, sheet protectors, printable media and other stationary products. This wide range of printable media and other products are usually sold through office product superstores, mass-market distributors, wholesalers and dealers. The products are sold under the brands Avery, Marks-A-Lot, and HI-LITER. In 2009, net sales in this segment decreased 9% to $850 million. Operating income was $118.1 million.
This segment sells barcodes, product labels, and other price marking and identification products. These various products are targeted to retailers, apparel manufacturers, distributors and industrial customers globally. They also make Radio Frequency Identification tags and other information management products which allow important data to be collected for market analysis. Net sales fell 15% in 2009 to $1.3 billion. Operating loss was -$900 million due to acquisition integration costs.
Avery Dennison also earns revenue through its other specialty converting businesses. Some products in this segment include specialty tapes, automotive products,and business media. These sales accounted for 8% of the company's net sales in 2009.
In 2009 the large office supply retailer Staples (SPLS), which sells many of Avery Dennison's products on its shelves, reported that its Q1 2010 earnings increased by 32% on 3% increased traffic Additionally, the company's percentage of net sales from office supplies increased by 6.4 percentage points to 47.9% of net sales since 2007. This shows that the demand for Avery Dennison's products is increasing as the economy rebounds, which could lead large retailers like Staples to sell more of Avery's products. Avery Dennison is dependent on consumers and businesses buying typical home and office products, especially durable goods. After taking a hit from the 2007-2008 credit crunch and slumping housing market, consumers have started to regain their confidence in 2010, something that Avery hopes will help its bottom line.
Avery Dennison has been forced to raise prices on some of its adhesive products due to higher raw materials costs. The ability to obtain raw materials such as paper, plastic films, and resins at favorable prices is an essential part of the company’s success. Higher commodities prices translate into high production costs for the company, which forces the company to either raise the prices of its products by placing the burden on the consumer or to take the burden itself by absorbing the higher costs and decreasing profit margins. As a result, even though net sales increased 6.4% from 2007 to 2008, the cost of products sold has increased at a faster rate of 8.7%.
Because 66% of Avery Dennison's revenue comes from international sales , the fluctuations in the foreign currency exchange rates have a tremendous affect on the company's revenue. Although a strengthening US dollar  helps the US economy as a whole, it actually is detrimental to Avery Dennison's bottom line. A strengthening US dollar means that every unit of foreign currency can be exchange for fewer dollars. So when Avery Dennison exchanges the revenue it collects in foreign currency into US dollars, the company is collecting less US dollars which translate into high profits. However, the opposite is just as true. If the dollar weakens against foreign currency, it would help Avery Dennison's foreign profits.
Because Avery Dennison makes hundreds of different products, the company faces competition from both big companies with a diversified line of products and smaller narrowly-focused companies.
Pressure-sensitive Materials Competitors:
Office and Consumer Products Competitors:
Retail Information Services Competitors: