Avery Dennison Shares Fall 9% on Earnings Warning

The stock of Avery Dennison Corp. fell 9% on Monday after the Pasadena-based label maker lowered its guidance for the second quarter because of slower sales, higher costs and legal expenses associated with the Justice Department’s probe of the adhesives industry.

The company, which makes office products and labels including self-adhesive stamps for the U.S. Postal Service, said earnings would probably be 68 cents to 72 cents a share, down from a previously expected 77 cents to 82 cents.

The news sent Avery shares down $4.92 to $49.37 on the New York Stock Exchange.

Sales for the quarter ending June 28 are expected to be $1.2 billion to $1.23 billion, up 14% to 16% from the year-earlier period, because of acquisitions last year and favorable currency rates. Yet, revenue growth for the period is expected to be 3% to 5% lower than previously thought.

Avery, which operates worldwide, said a sluggish economy affected most of its businesses, resulting in slower-than-expected sales. Executives attributed more than half of the earnings drop to weaker sales.

In particular, sales growth in its adhesive materials business in North America slowed, while already-weak market conditions in Europe continued into the current quarter, Avery said.

The company said it would offer full-year guidance next month when it reports second-quarter results.

“As always, we are determined to reduce costs in response to economic conditions that are affecting our businesses, and we are taking appropriate actions,” Chief Executive Philip Neal said

In a conference call, Chief Financial Officer Daniel O’Bryant said the company expects legal fees from the federal investigation to be $1 million to $1.5 million for the second quarter.

In April, the Justice Department sued to block a $420-million takeover of Bemis Corp.’s label stock operations by UPM-Kymmene of Finland, contending that UPM and the “leading producer” -- a reference to Avery’s 50% share of U.S. label stock sales -- “have already sought to reach explicit understandings aimed at limiting competition.”

Among other costs, those related to integrating RVL Packaging Inc., a maker of apparel labels acquired last year, were higher than expected.

Analysts said they expect Avery’s business to pick up once the economy recovers. “The question is when the economy will improve,” said Lehman Bros. analyst Ghansham Panjabi.