AVY
#Good morning.
We are making filings in a couple of jurisdictions, call it Germany specifically.
Normal customary filings that we usually go through.
This is a highly competitive space, and we see that the acquisition that we're making is going to even increase the level of innovation in this space, so I think that the regulators will look at that favorably.
They invested in restructuring that business over the past year and a half, streamlining the organization.
Yes.
I think, look, we're in a record cycle from a margin perspective, and we're really kind of at the peak for PSM, so I would anticipate we're going to have margin compression in the back half of the year.
We talked about this before.
In the last couple quarters we've seen some modest benefit from deflation at a price, and so it'd be reasonable to assume that the business cycle would see offsets of this gain.
Additionally, we're seeing some signs of modest inflation in the commodities markets, and as I mentioned earlier, we are seeing some ---+ the 1% change for performance tapes with the customers' program that's exiting, and that was a margin that was a little bit higher, higher margins than above average in the business as well, so it's a little bit of an impact to the second half, as well.
I think what we're going to talk about is right now we're at a record ---+ .
Q1 is really a record quarter for PSM from a margin perspective, so less about year over year and more about we are at a peak right now.
Most of that came from price ---+ or from volume, sorry.
And then about 3% of that actually came out of the emerging markets.
Yes, so as far as your first question, the performance on the margins within PSM, so yes, it was basically the margin beat in PSM was what caused us to beat our own expectations of the total Company.
Essentially the mix came in a little better and we continue to drive growth within the high-value segment, so that was a key contributor to that factor.
Within emerging markets, we did see within China, we just saw some modest growth as China, the level of growth, as we've been talking about for four out of the last five quarters or so, has moderated from what we had seen traditionally.
So it was in low-single digits.
However, that's been offset by pretty phenomenal growth in Ausian, as well as in India.
That's what's going on with the growth trajectory and the margins.
One of the other things that came in a little better than we expected, we were expecting essentially neutral benefit on the net impact of price and raw material inflation, it came in a couple million dollars better than our expectation, so that was a positive contributor, as well.
Remind me <UNK>, what was the second question.
We're not going to reset targets.
We established those targets for 2018.
As we've always said, this business is an extremely high-return business even at those levels, and we've never seen them as a ceiling or a cap and we're continuing to test our limits and continue to push this business both on the top and bottom line, and that's something we'll continue to do.
We think it would be at this point after a few, five, six quarters of out performance to just change the long-term trajectory or long-term targets is not the right time to do it.
Yes, so in the core products we are ---+ actually, I think what I commented on is we're starting to see early progress from the actions we've been taking.
Now the revenue is actually down modestly, but recall we said we were going to be more aggressive on the pricing front with certain ---+ in certain categories and we've done that.
And so the volumes are actually up with value, and that's if I am excluding RFID right now.
They're significantly up if you include our RFID.
Volumes in our core products are up, and so we think we're seeing good signs.
It's been consistent the last few quarters from volume growth perspective, good trajectory there.
In the contemporary or the department stores, we are still seeing volumes down, and a lot of it has to do with some of the challenges that a number of the department stores are seeing in their own marketplace today.
As far as what customers are telling us, it's hard to give you an average.
If you look at it, there's a number of customers that are doing quite well, a number of retailers and brands, and there's a number that are having their own challenges as they work through things.
Overall, we're coming off of a winter season that was a little lackluster from a retail sales perspective, and so a number of the retailers have more inventory than they want to be having right now, and that is factoring into their thinking.
On a broad base, if I had to characterize it, I'd say cautious optimism is what the retailers and brands are looking at, and those that are even struggling, everybody's looking to get more productivity out of their existing retail footprint, and it's something that we can help them achieve that, particularly with RFID, and that's the focus of the conversations.
In general on our working capital we ---+ part of ---+ a big part of the change is that we had some planned investments in inventory, primarily in the RFID space to support the accelerated growth that we've seen in that business.
So over time we expect that, that will even out.
But we did plan on making those investments to make sure that we made our customer commitments.
Just quick on the receivables, specifically there's a regional impact as far as regional mix.
The higher growth in some of the emerging markets where we have slightly longer terms has an impact on that.
I'd say overall I think we can do a little more here on the working capital perspective.
We saw some deterioration.
Part of that is just due to mix and some strategic decisions that <UNK> comments on in inventory.
We think we can do more here.
In general, we're going to see over each quarter there's a little bit of variance that goes on with the corporate expenses.
You should expect it to be anywhere from $20 million to $25 million a quarter.
It's within that variance that we see just based on timing of some of the expenses.
As far as SG&A, as we've talked about, we've had a significant restructuring program, especially in RBIS, where a majority of their savings are coming through the SG&A line.
When you look at SG&A savings, the productivity, primarily at the restructuring, is driving the improvement overall.
We also have some favorable---+ sorry, we also have some favorable in currency, as with the currency change that also was favorable, but there was offsets with higher employee costs.
The EBIT margins are above the RBIS average.
The order patterns are consistent with the guidance we're giving overall, but just the real test is not entering the quarter.
It's really how long the peak lasts throughout Q2, so if it ends a few weeks early, that obviously has a big negative impact to us.
It's consistent right now, but it's really not an early read.
As we've said we have limited forward visibility.
Last year the season actually ended relatively early and that was one of the reasons we had the decline last year in Q2.
So consistent, but I'd say it's too early to give you any color on how that will play out.
Yes, so we have ample capacity through both cash and our current credit lines.
We're ---+ we have plenty of capacity available in our credit lines that we can fund this transaction, and we'll look at long term what this means for us from a financing perspective.
But we generally, we have a CP program and we've got some other credit available for us that we can use.
There's very ---+ as I mentioned in my comments, there's very little that we've got into the number for next year for synergies.
We really will have some from the procurement side.
But the Mactac team has done a phenomenal job of investing in the business and really streamlining it.
So what we're getting is a business that's really complementary to our graphics business in Europe.
Chris, this is <UNK>.
The answer is there.
The answer is no.
So only the US Department of Justice was looking at anticompetitive practices.
There was a ---+ in Europe there was also an investigation of the industry that happened around the same time, but the two weren't linked in terms of an antitrust linkage, so to speak.
They were independent investigations.
Sure.
As far as the assets that is we're acquiring, it was eight coating lines and they have capabilities across all different primary adhesive categories, emulsion, hot melt and solvent.
That's what we're acquiring.
As far as what the Company's gone through over the last year and a half is that they basically restructured down to a single manufacturing facility.
They used to have more than one and that's been the area of focus.
As far as the top line, this business is ---+ Mactac has an extremely respected, well-respected brand in the graphic space and tape spaces.
This business used to have some other unprofitable categories, specifically bulk roll label materials, that they've exited over the last year and a half as well that were unprofitable and pretty low end.
The trajectory for the overall business isn't really indicative of what was going on in the underlying core.
Yes, we know them as ---+ from what we've seen in the due diligence and also competitors that they're well respected within the market, and it's a platform that we expect to be able to leverage and continue to grow profitably.
You've got a good memory, Chris.
The Jackstadt acquisition, we did have filings in multiple jurisdictions around the world.
You're correct also in that about 80% of Jackstadt's sales were in the bulk roll label category, although they did have a decent-sized graphics business as well.
We went through a second round of process with some of the regulatory authorities in Europe, specifically in Germany.
So it took them, I think, four or five months and then we got the approval.
Mactac's business is primarily a graphic's business, by and large, with a little bit of tape.
It's a nice add on to what we're doing.
These are both categories where we have relatively low market shares respectively.
I don't want to project how regulatory agencies will react, but suffice it to say that we wouldn't have done the deal unless we had some level of confidence that it would go through.
Yes, Chris, so overall I think the way you've characterized it is right and then I'll answer your question.
We continue to drive growth and looking to have outsized growth in the high-value segments that obviously improves mix, and we've also been talking about instilling more discipline in our less differentiated segments with how we grow and ensuring that it is profitable growth there.
Our productivity initiatives, that is a core strength of ours we continue to execute on and have consistently done that and will continue to do that.
As far as if you look at where the margins are in Q1, <UNK>'s comments were comping from Q1 where we're expecting it to go forward.
You normally have a seasonal reduction in those margins in the second half late in the year, so we just want to highlight that there's some seasonal adjustments.
We've got the impact of lower ---+ the tapes decline of one customer which will have an impact.
From a ---+ just purely from the purchase prices we have for raw materials and the selling prices, it was a modest benefit.
There was definitely some deflation in North America and as we talked about last time, we've actually been adjusting our own prices to our customers and those segments that are impacted the most.
It's ---+ we're at peak levels.
You don't want to lock down each time you get to a new level and say this is something you should baseline your models on and how you're thinking about it.
I will tell you our focus here is about growing this business and growing it profitably and continuing to see opportunities for how we can further expand margins, which also ---+ this is a great business and a great platform.
It links right into why we're trying to penetrate these spaces even more aggressively with acquisitions like Mactac.
Thanks, Pama.
Well, I'd just like to say I'm excited about the Company's future, probably more excited than when I joined more than 33 years ago.
I'd also like to say that the course that we set in late 2011 and then committed to the longer-term targets in 2012, it's working, and ---+ but there's more to come.
I'm proud to have been part of making Avery Dennison the leading company that it is.
I want to thank the leadership team, our employees, our customers, and our suppliers for their creativity and commitment to our success.
I have enjoyed engaging with investors and financial analysts over the years, and I really appreciate the relationships that we've built.
Thank you.
