Avery Dennison Sticks by Slow, Steady Growth

Not all the action is in Internet stocks these days. Check out the business of making sticky little pieces of paper--or more precisely, Avery Dennison Corp.

A leading maker of self-adhesive stamps, labels and other consumer and office items, Avery Dennison turned in another handsome gain in quarterly earnings Tuesday, sending its stock to a 52-week high.

The Pasadena-based company said net income in the quarter ended June 27 rose 16% from a year earlier to $57.4 million, or 55 cents per diluted share, on a 3% gain in sales to $871.5 million. It was Avery Dennison’s 18th straight quarter of double-digit gains in earnings per share.

Its stock climbed $1.38 a share to $59.06 in New York Stock Exchange composite trading and has now surged 47% over the last 12 months.

Avery Dennison, in fact, has been on a roll for some time. During the last three years, the company has generated a total return (stock price gains plus dividends) for its shareholders of nearly 200%, or 43% a year on average.

Indeed, although the company is best known to the public for making the popular Bugs Bunny stamp of last year and millions of other self-adhesive postage stamps, it’s a tortoise of industry: slow and steady and winning the race.

“That’s why people buy this stock, because people are buying [Avery’s] consistency,” said analyst Gilbert Yang of J.P. Morgan Securities in New York.

Besides stamps, the company makes labels that adorn dozens of products found along supermarket aisles; retail tags and labeling systems; highlighting pens, labels and other stationery goods; play stickers for kids; and specialty chemicals, tapes and films.

Its labels are found on plastic bottles of Coca-Cola and Dove soap products. Avery Dennison also makes the “test” strips on Duracell batteries, and film that auto makers use to paint plastic car parts.

The company’s products are sold in 89 countries, and Avery Dennison has a work force of 16,900 people in 200 production and sales facilities worldwide.

Over the decades, the company has expanded its reach, first entering Europe in the 1940s. In recent years, Avery Dennison has invested tens of millions of dollars to expand in Asia and Latin America. Profits in some of those regions are still years away, but the company believes they’ll pay off over the long haul.

Presently, of course, Asia is in big trouble. But it’s not having a major impact on Avery Dennison because, for now, less than 5% of the company’s sales come from that region.

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What is notable about Avery Dennison is that its business--which is subject to changing prices for raw materials, price-cutting by its rivals, the low-price nature of many of its products and fluctuating currency values around the globe--typically carries thin profit margins.

But Avery Dennison has gradually widened those margins along with its sales since 1991, thanks to escalating demand for its products and a tight grip on costs. That year, it earned 2.5 cents of profit per dollar of sales, but its margin was 6.6 cents in the most recent quarter.

“There’s no magic here,” Philip Neal, who became Avery Dennison’s chief executive two months ago, said in an interview. “Our people know they must improve margins year after year if they want to get more money to invest in their business.” Neal, a 24-year veteran of the company, succeeded Charles D. Miller, who was CEO for 21 years and remains chairman.

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Avery Dennison’s growing profit margin is a key reason it’s delivering bigger returns on its stockholders’ investment. Whereas the company’s profit amounted to just 7.7 cents for every dollar of its holders’ equity in 1991, the return last year was more than three times higher--24.8 cents.

Which is why analyst Charles LoCastro at Donaldson, Lufkin & Jenrette Securities in New York recently called Avery Dennison a stock for investors who want to “sleep well” and still “get rich slowly.”

Avery Dennison, with sales of $3.3 billion last year, was founded during the Depression by R. Stanton Avery with $100 he borrowed from his fiancee. An Oklahoma City native, Avery started the company to sell his invention: the first commercially feasible self-adhesive label. Avery died last December at age 90.

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Avery Dennison’s stock has risen steadily in recent years in tandem with consistent profit growth. Monday closes on the New York Stock Exchange and latest:

Tuesday: $59.06, up $1.38

Source: Bloomberg News