Avery Dennison (NYSE: AVY) makes office products and self-adhesive labels that cover everything from shampoo bottles to highway signs [1]. 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,[2] a 6% increase since 2007 due to an operations focus on Asia, Latin America, and Eastern Europe. [3] 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[4] 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.

Business Overview

Product Segments

The company divides its sales into three different product segments:[5][6]

Pressure-sensitive Materials (56% of net sales)

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.

Office and Consumer Products (14% of net sales)

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.

Retail Information Services (RIS) (22% of net sales)

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.

Business Growth

FY 2009 (ended January 2, 2010)[7]

  • For the year, Avery Dennison had a net loss of $747 million, worse than its $12.5 million net loss in 2008. The loss in net income was attributed to lower net sales and impairment of goodwill. These negative factors were offset by cost savings and increases in price.
  • Net sales fell 11.3% to $5.95 billion, down from $6.7 billion. There was a 9% decline in organic sales growth and a 4% decline due to foreign currency rates.
  • Sales decreased in all of the company's regional segments, with the hardest hit regions being Europe and the US which had a 12% and 9% drop respectively.
  • All of the company's product segments also suffered declines in net sales and operating profit. The hardest hit segment was RIS, which incurred a $900 million operating income loss due to goodwill and indefinite-lived intangible assets.

Q1 2010 (ended April 3, 2010)[8]

  • In the first quarter, Avery had positive net earnings of $54.7 million, compared to a net loss of $900 million in Q1 2008.
  • Net sales increased 9% to $1.55 billion. The pressure-sensitive materials segment led the way with a 9% increase to $900 million. This was offset by the office and consumer product segment which suffered a 2% decline in sales.
  • Both the pressure-sensitive materials and RIS segments had positive growth in sales volume.

Trends and Forces

A Recovering Economy Growing Demand for Avery Dennison’s Products

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[9] 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.[10] 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.[11]

Rising Commodities and Energy Prices are Forcing Avery Dennison to Make Difficult Choices

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[12] 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%.[13]

Higher production costs due to high raw materials and energy costs have already forced the company to divest away from some of its low margin businesses and reduce its workforce [14][15].

A Strengthening U.S. Dollar Hurts Avery Dennison’s Foreign Profits

Because 66% of Avery Dennison's revenue comes from international sales [3], the fluctuations in the foreign currency exchange rates have a tremendous affect on the company's revenue. Although a strengthening US dollar [16] 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:

  • 3M Company (MMM) - 3M is one of the world's largest multi-industry companys as they sell a wide range of items, such as lcd TVs and band-aids, in a variety of markets. However, the company has a very strong presence in the pressure-sensitive materials market; the company's biggest name adhesive products are Scotch Tape and Post-It. [17] Both brands are AVY's biggest competition in the business.
  • UPM-Kymmene Oyj (UPM) - UPM is a global forest industry group that makes products such as magazine papers, newsprint, specialty papers, wood products, and self adhesive label materials [18]. These adhesive materials only accounted for 12% of the company's revenue in 2009 however, but still remains a big competitor of AVY in the business.[19]
  • Bemis Company (BMS) - Although the company focuses on making flexible packaging material, the company also has a strong pressure sensitive materials business. These products are sold in the label, graphic, and technical markets.[20]

Office and Consumer Products Competitors:

  • Acco Brands (ABD) - is a top supplier of general office and business supplies. They sell office supplies ranging from staplers to binders, document finishing such as binding and lamination, and computer product accessories such as mice and keyboards. Its office products segment represent half of the company's annual revenue and thus make it a top competitor of AVY in this business.[21]

Retail Information Services Competitors:

  • Checkpoint Systms (CKP) - Checkpoint is a global producer of identification, tracking, security, and merchandising products for the retail industry.[22] Since AVY's acquisiton of Paxar, Checkpoint has become the company's largest competitor in the business.


  1. CNBC "Pulse of the Consumer (Video)" 28 March 2008
  2. Avery Dennison"Quick Facts: Corporate Profile"
  3. 3.0 3.1 AVY 2009 10-K pg. 2
  4. AVY 2009 10-K pg. 5
  5. AVY 2009 10-K pg. 1-4
  6. AVY 2009 10-K Exhibit 13 "Results of Operations by Segment" pg 24-25
  7. AVY 2009 10-K Exhibit 13 "Five-Year Summary" pg. 18
  8. AVY Q1 2010 Report
  9. Market Watch "Staples profit rises 32% as it tempers optimism with caution" 20 May 2010
  10. SPLS 2009 10-K pg. 5
  11. CNN Money "Consumer confidence on the rise" 25 May 2010
  12. AVY 2009 10-K pg. 5
  13. AVY 2009 10-K Exhibit 13 pg. 22
  14. AllBusiness “Avery Dennison to Reduce Workforce, Divest Holdings” 1 Jan 2006
  15. AVY 2007 10-K pg. 17
  16. The Street “Dollar Shows Strength” 1 June 2010
  17. MMM 2009 10-K pg. 3-5
  18. Google Finance: OTC: UPMKY Summary
  19. UMPKY 2009 Annual Report pg. 5
  20. BMS 2009 10-K pg. 3
  21. ABD 2009 10-K pg. 6-7
  22. CKP 2009 10-K pg. 3
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