Avery Dennison Gains From Momentum in Segments Amid High Costs

Avery Dennison Corporation AVY has been gaining from productivity and cost-saving actions. Strong demand for consumer-packaged goods and e-commerce trends will support the company’s top-line growth. Avery Dennison is implementing long-term restructuring actions to boost its base business development while freeing up resources to invest in high-value categories to improve margins.However, AVY has been facing higher raw material costs. This is likely to persist and keep denting the company’s performance. Its high debt levels are worrisome.Factors Driving Avery Dennison’s StockSolid Demand & Volume Growth: Around 40% of the company’s revenues stem from the labeling of non-durable consumer goods like food, beverage, home and personal care products. Demand for these products has been strong. In the long term, growing demand from emerging markets on the back of the rising middle class and the consequent surge in demand for packaged goods and shift in labeling technology to pressure-sensitive materials will drive growth for the company.Also, around 15% of the company’s revenues are tied to logistics and shipping, which will be sustained by growth in e-commerce activities.Upbeat Segmental Performance: Strong demand for consumer-packaged goods and e-commerce trends continue to drive the Materials group segment.The segment is well-poised for profitable growth on solid top-line growth and continued margin expansion. It will gain from volume improvement, growth in the base business and high-value categories led by specialty labels, as well as contributions from productivity initiatives and pricing actions. In the first quarter of 2025, the Materials Group segment gained from productivity improvement and higher volume. The Solutions Group segment in the first quarter was aided by higher volume and benefits from productivity. These are likely to continue and boost the company’s margins in the upcoming quarters. Impressive Strategic Initiatives: Avery Dennison focuses on five overarching priorities — driving outsized growth in high-value product categories, growing profitability in base businesses, relentlessly pursuing productivity improvement, disciplined capital-management approach and leading with environmentally and socially responsible practices and solutions. AVY is executing long-term restructuring initiatives to further enhance the company’s growth in the base business, freeing up resources to invest in high-value categories that support margins.In the past four years, Avery Dennison saw an adjusted EBITDA CAGR of 8% and a sales CAGR of 7%. The company expects more than 15% growth for its Intelligent Labels in 2025.Along with its restructuring efforts to position the company for long-term growth, Avery Dennison has undertaken several pricing and re-engineering actions to mitigate inflationary cost pressure. It has announced additional price increases in most of its businesses across the world. These bode well for the company.Near-Term Concerns for AVYThe company is bearing the brunt of input cost inflation. Particularly, paper and energy costs are likely to be higher in the ongoing quarter. AVY expects inflation to continue to impact its margins. Strong demand and supply constraints continue to push further increases in raw material, labor and freight costs. These factors are expected to dent Avery Dennison’s margins. The company expects the adjusted EPS between $2.30 and $2.50 for second-quarter 2025, indicating a year-over-year dip of 1% at the mid-point. Avery Dennison has been dealing with supply-chain challenges, which are likely to continue impacting its results. Currency translation is also expected to hurt top-line growth.Avery Dennison Stock’s Price PerformanceAVY shares have lost 19.7% in the past year compared with the industry’s 7.6% decline.  Image Source: Zacks Investment Research AVY’s Zacks Rank & Stocks to ConsiderAvery Dennison currently carries a Zacks Rank #4 (Sell).Some better-ranked stocks from the Industrial Products sector are Life360, Inc. LIF, IHI Corporation IHICY and Federal Signal Corporation FSS. LIF and IHICY sport a Zacks Rank #1 (Strong Buy), and FSS has a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.Life360 delivered an average trailing four-quarter earnings surprise of 415%. The Zacks Consensus Estimate for LIF’s 2025 earnings is pinned at 24 cents per share, which indicates a year-over-year upsurge of 500%. Life360’s shares have skyrocketed 125% in a year.The Zacks Consensus Estimate for IHI Corp’s 2025 earnings is pegged at $1.26 per share, indicating a year-over-year increase of 3.8%. IHI Corp’s shares have soared 272% in a year.Federal Signal delivered an average trailing four-quarter earnings surprise of 6.4%. The Zacks Consensus Estimate for FSS’ 2025 earnings is pinned at $3.83 per share, which indicates year-over-year growth of 14.6%. The company’s shares have gained 10% in a year.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Avery Dennison Corporation (AVY): Free Stock Analysis Report Federal Signal Corporation (FSS): Free Stock Analysis Report IHI CORP (IHICY): Free Stock Analysis Report Life360, Inc. (LIF): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks