Avery Expands Indian Facility - Analyst Blog

Avery Dennison Corporation (AVY) has expanded its facility in Pune, India that produces pressure-sensitive materials for labeling and packaging. With this expansion, the company's investment in India has reached the $50 million mark.

The Pune facility, commissioned in 2008, is geared for producing technically advanced pressure-sensitive materials. This will mark Avery's third expansion in the plant since its start-up. The expansion will entail the addition of the widest and fastest adhesive coating line in India as well as new pressure-sensitive roll materials handling and finishing equipment.

Avery Dennison has been offering packaging and labeling solutions in South Asia for more than 15 years, and commands a strong presence in India, Bangladesh, Pakistan and Sri Lanka. In India, Avery operates three manufacturing facilities in Pune, Gurgaon and Bangalore. Its sales and distribution centers in India include facilities in Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kolkata. India has been a rewarding investment generating double-digit annual growth for the company.

The company has spearheaded the use of pressure-sensitive materials for labeling products used for food, beverage, wine and spirits, home and personal care, and pharmaceutical products, and durables. Labels made from pressure-sensitive materials scored over traditional glue-applied labels given their design flexibility and potential for more distinctive branding and lower cost.

Avery Dennison reported adjusted EPS of 62 cents in third-quarter 2010, lower than 82 cents in the year-ago quarter. Management expects revenue to grow 9% in fiscal 2010 and guides adjusted EPS in the range of $3.10 to $3.20.

The company competes with Fortune Brands Inc. (FO) and Bemis Company Inc. (BMS). Avery's third quarter EPS lagged Fortune Brand's third quarter EPS of 72 cents but was ahead of Bemis' reported EPS of 57 cents.

However, Avery's fiscal 2010 guidance range is higher than Fortune Brand's range of $2.60 to $2.90 and Bemis' $2.10 to $2.15. The Zacks Consensus Estimate for Avery stands at $3.08 for fiscal 2010, above the estimates for Fortune Brands and Bemis of $2.78 and $2.14, respectively.

Avery Dennison remains committed to research and development as well as discovering new markets for its products. The company's investments in the emerging markets, like Asia, Latin America and Eastern Europe, have yielded results. Sales from international markets represented around 67% of its net sales through the first nine months of 2010.

The company sees a huge untapped potential in these markets as millions of middle class households turn to consumer packaged goods, a key market served by the company. Further, Indian retail sales are projected to grow by more than 50% over the next five years as the country transitions to a more organized retail sector making it a viable investment option.

On the flipside, inflationary raw materials cost pressure, fluctuations in the foreign exchange market and huge investment budgets may emerge as major issues in the quarters ahead. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock supported by a Neutral rating.

Pasadena, California-based Avery produces pressure-sensitive materials, office products and a variety of tickets, tags, labels and other converted products. Its products are sold under the Avery, Avery Dennison, Avery Graphics and Fasson brands. Its clientele is spread across the U.S., Europe, Asia, Latin America and other regions. Avery runs four major business units - Pressure-Sensitive Materials, Retail Information Services, Office and Consumer Products and The Other Specialty Converting Businesses.

 
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