Avery Dennison Corp. recently announced preliminary, unaudited results for its second quarter ended June 27, 2020, and provided an update related to the impact of the COVID-19 pandemic on the company. Net sales were $1.5 billion, down 14.9%, in the 2020 second quarter. Sales were down 12% ex. currency and 13.7% on an organic basis.

In the Label and Graphic Materials segment, reported sales declined 8.7% for the quarter. Sales were down 4.9% on an organic basis, driven largely by volume/mix. Label and Packaging Materials was unchanged from the 2019 second quarter, as modest growth in the base and specialty label categories was offset by a mid-teens decline for durable label categories. Sales declined by approximately 30% organically in the combined Graphics and Reflective Solutions businesses. On an organic basis, sales were down low-single digits in North America, mid-single digits in Western Europe where Graphics represents a larger share of the total business, and high-single digits in emerging markets.

The Retail Branding and Information Solutions segment saw 2020 second quarter reported sales decline 29.5%. Sales were down 28.2% ex. currency and 35.5% on an organic basis, in each case reflecting an approximately 40% decline in the base business, driven by site closures and lower apparel demand. Enterprise-wide sales of RFID products were up over 10% ex. currency with the benefit of the Smartrac acquisition and down 20% organically, as increased penetration of the market was more than offset by a decline in existing programs tied to apparel.

In the Industrial and Healthcare Materials segment, reported sales declined 22.8%. On an organic basis, sales fell 20.9%, reflecting an approximately 30% decline in industrial categories driven by automotive. Healthcare categories were relatively unchanged from the 2019 quarter.

“The team has come together extraordinarily well in navigating what is proving to be one of the most challenging periods we have experienced as a company,” said Mitch Butier, chairman, president, and CEO. “The compounding effects of the health, economic and societal crises are having an unprecedented impact on our teams, our markets, and our communities. Our focus continues to be on ensuring the health and welfare of our employees, delivering for our customers, supporting our communities, and minimizing the impact of the recession for our shareholders. I’m pleased to report that we are making solid progress on all fronts.

“Second quarter revenue came in better than we expected. Following a sharp decline in April, total company sales improved sequentially in May and June. In this environment, a key focus is protecting our profitability for the year, which we reported in the first half, with adjusted EBITDA margin above prior year.

“Our strategic priorities are unchanged. We are protecting our investments to expand in high value categories, particularly RFID, while driving long-term profitable growth of our base businesses, and we remain confident in our ability to create significant long-term value for all our stakeholders.

“Once again, I want to thank our entire team for their tireless efforts to keep one another safe while delivering for our customers during this challenging period, bringing a whole new level of agility and dedication to address the unique challenges at hand.”

Avery Dennison reports that the safety and well-being of employees has been and will continue to be the company’s top priority during this global health crisis. The company has taken steps to ensure employee safety, as well as help mitigate the financial impact to employees resulting from mandated facility closures and necessary layoffs. During the second quarter, the company continued to adapt its safety protocols based on new information and shifted its focus to ensuring a safe return to the workplace following the lifting of government-mandated lockdowns.

The company has helped mitigate the financial impact of furloughs and layoffs through limited salary continuation programs, as well as employee assistance grants through the Avery Dennison Foundation, which significantly increased its annual grant-making to fund a new global employee assistance program. The company also shifted internal resources to produce personal protective equipment and hand sanitizer, donating supplies to the local communities in which it operates.

In response to heightened awareness of profound societal issues of racial and other sources of inequality, Avery Dennison reports that it is sharpening its focus on diversity and inclusion to sustain equal opportunity and mutual respect, starting with significant enterprise-wide efforts to listen to and learn from the experiences of employees who represent racial minorities and other marginalized groups. The company is incorporating these learnings in comprehensive plans that will further support its goal of promoting a diverse and inclusive culture within the organization.

The Label and Packaging Materials (LPM) business remained substantially open to serve customers as the COVID-19 pandemic unfolded across the world, with the exception of sites in India, which are now operational. The company’s operations in Europe and North America experienced significant demand surges in mid-March through April, resulting in backlogs that carried into early June, driven by food, hygiene, and pharmaceutical product labeling, as well as variable information labeling related to e-commerce. Demand for these categories slowed later in June in both Europe and North America, as overall supply chain destocking began to impact demand for labels. Demand in emerging markets weakened through the months of April and May, with improvement in June.

In contrast, late in the first quarter, the company began to experience a significant decline in demand for Retail Branding and Information Solutions (RBIS) tickets, tags, and labels for apparel, reflecting the widespread closure of retail stores and apparel manufacturing hubs, as well as a decline in demand for graphics and products serving durable and industrial end markets. These trends continued through April, followed by sequential improvement in May and June, as lockdowns were eased and demand improved.

Avery Dennison reports that focusing on productivity is a key tenet of its strategy for long-term value creation, serving as a key source of strength to ensure the long-term health and sustainability of its businesses through different economic scenarios. In particular, this focus has enabled sustainable improvements in the profitability of its base business while freeing up resources to support growth of higher value categories.

In light of the near-term demand decline impacting some businesses, in addition to continuing its focus on long-term strategic restructuring, the company has undertaken temporary actions to reduce costs, including reductions in travel and other discretionary spending, reduced usage of overtime and temporary employees, delays of merit increases, and furloughs. The company estimates incremental savings from restructuring actions, net of transition costs, of $60 million to $70 million during 2020, and anticipates carryover savings, net of transition costs, of approximately $70 million in 2021, up approximately $10 million since the company’s April outlook for both years.

In addition, the company is targeting net temporary savings of approximately $150 million in 2020 (over half of which has been realized in the first half of the year), with the vast majority of the savings expected to be a headwind as markets recover. In the second quarter, the company realized approximately $15 million in savings from restructuring actions, net of transition costs, and incurred net restructuring charges of approximately $39 million.

Avery Dennison reports that it is prepared for a range of possible macro scenarios and how they might impact each of its businesses. The company currently expects sales and earnings to decline in 2020 on lower demand, with the second quarter representing the trough. In the third quarter, the company anticipates a decline in sales before the impact of currency translation in the range of 5-7%, or 7-9% on an organic basis. The company reports that it has initiated cost control and cash management actions to partially offset the decline in demand for certain of its businesses.

Additional details are available at www.averydennison.com.