AVY
#Thanks, <UNK>
I'll provide additional color on the quarter and year, and then I'll walk you through our outlook for 2017. In Q4, adjusted earnings per share increased by 17% compared to the prior year above our expectation due to higher than expected organic sales growth of approximately 5%
Acquisitions lifted sales by 2.7% while currency represented a headwind of approximately 1%
Adjusted operating margin in the fourth quarter improved 70 basis points to 9.4%, driven by the impact of higher volume and productivity initiatives
Restructuring savings net of transition expenses were approximately $14 million in the quarter and $82 million for the year in line with our expectations
Our adjusted tax rate for the fourth quarter was 32% and approximately 33% for the full year in line with both our expectations and the prior year
Free cash flow was $139 million in the quarter
For the full year, free cash flow was $387 million driven by higher income and working capital productivity
As expected, we increased our combined spending on fixed and IT capital projects, and restructuring this year, as we continue to invest for profitable growth particularly in our high-value categories and in emerging markets
Our balance sheet remains strong and we had ample capacity to continue funding acquisitions as well as returning cash to shareholders
As <UNK> stated, we are committed to the disciplined return of cash to shareholders
We've repurchased 3.8 million shares in 2016 at a cost net of proceeds from stock options of $191 million and paid $143 million in dividends
Before I provide commentary on segment performance, I want to point out that we have provided a bridge for a previous segment to the new segment, for both the fourth quarter and full-year in Slide 7 and in Appendix A in our supplemental materials
Our Label and Graphic Materials segment is essentially what we previously referred to as PSM, less our performance tapes business, which is now included in Industrial and Healthcare Materials
As you can see, the growth in margin profile of this segment is relatively unchanged
We have moved our high-margin Fastener Solutions business from RBIS to IHM, reducing the margin base-line in RBIS by approximately 80 basis points
The adjusted operating margin improvement of 230 basis points since 2013 is unchanged for the segment
The Industrial and Healthcare Materials segment includes performance tapers Fastener Solutions and Vancive Medical Technologies which was previously a standalone segment
Today, the margins in these segments are similar to LGM, and once we move pass the headwind in the first half of the year, we would expect the sales growth to be similar as well
Now, turning to segment performance for the quarter, in Label and Graphic Materials sales increased approximately 7% on organic basis impart due to improved volumes and matured markets which increased mid-single digits in the quarter
We saw continued solid demand in Western Europe while volume in North America improved from the relatively soft conditions in Q3. We believe that we have recovered some of the market share we ceded in North America earlier this year
Broad-based strength in emerging markets continued with organic sales growth of low double-digits in the quarter
China grew mid-single digits, sustaining the improvements we saw in Q3, while growth in India moderated to a high-single digit growth rate due impart to the government demonetization campaign
From a product line perspective, sales in Label in Packaging Materials increased mid-single digits and the combined Graphics and the Reflective businesses increased low-double digits organically
LGM's adjusted operating margin increased by 70 basis points to 11.5% due to the impact of higher volume
As expected, margins were negatively impacted by nearly 50 basis points due to the Mactac integration
We expect this acquisition to contribute approximately $0.10 to 2017 ETF when we move pass the integration phase and margins come in line with the segment average
Turning to Retail Branding and Information Solutions, sales grew 5% on an organic basis driven mostly by growth of RFID which exceeded expectation increasing 20% for the quarter
We continue to expect this business to grow at a 20% plus rate going forward, and we’ll continue to invest in this important growth catalyst
Despite a challenging retail apparel environment, volume growth improved in the base business, and we continue to see signs that our efforts to transform the business model are gaining traction
From a regional perspective, we continue to see strong unit volume growth among European retailers and brand owners, partly driven by continued progress in expanding our share among fast fashion retailers
Unit volumes for core products were essentially flat in the U.S
consistent with what we saw last quarter, and this market remains challenged as demonstrated by macro indicators
Adjusted operating margins in this segment improved by 220 basis points to 10% as the net savings from the business model transformation and the benefit of higher volume were partly offset by higher employee related cost
This brought the full year margin expansion to a 110 basis points as we progress towards achieving our 2018 profitability target
The margin improvements objectives remain the same for this business and despite moving the high-margin Fastener Solutions business to IHM, we are confident in our ability to achieve a 10% operating margin in 2018. Industrial and Healthcare Materials sales declined by 8%, as growth in Industrial Materials were more than offset by the decline in the broader healthcare category, reflecting the program loss in personal care and the decline in Vancive we’ve discussed previously
Industrial categories were up high-single digits on an organic basis
Adjusted operating margin declined by 310 basis points to 9.7%, as the lower volume with only partly offset by productivity initiatives
As I previously mentioned, we expect this business to return to growth in the second half of 2017, and have an organic growth and margins similar to LGM
We look forward to share a more detail on our strategies and long-term goals for each of the segment during our Analyst Meeting next month
Now, turning back to the total company; our results in 2016 represent another year of progressions towards our long-term target
We are on track to deliver on our 2018 goal and have achieved a 17% return on total capital
Our net-debt-to-EBITDA ratio remains below our targeted range
Our balance sheet is healthy and we have ample capacity for investments
Turning now to our outlook for 2017, we anticipate adjusted earnings per share to be in the range of $4.30 to $4.50. We have outlined some of the key contributing factors to this guidance on Slide 12 of our supplemental presentation material
We estimate between 3% and 4.5% organic sales growth in line with the range we've experienced over the last few years
The impact of acquisition on sales is approximately 1.5% from close deals and approximately 2% including the impact of the announced Hanita deal
At recent exchange rates, currency translation represents a pretax earnings impact of approximately $22 million or roughly $0.17 per share
We estimate that incremental pretax savings from restructuring actions will contribute between $40 million and $50 million in 2017. About 40% of which represents the carryover benefit from actions taken in 2016. At the low end of our EPS guidance range, we would expect modest improvement in consolidated margins
At the high-end, we would expect approximately 50 basis points in our margin expansion
We expect the tax rate in a low 30s due to stronger income growth in lower tax jurisdictions
We estimate average shares outstanding assuming dilution of 88 million to 89 million shares, reflecting our continued return of tax to shareholders
We anticipate spending approximately $215 million on fixed capital and IT projects and approximately $22 million in cash restructuring, which combined is roughly flat to 2016 and consistent with our long-term capital allocation plans
We continue to expect free cash flow conversion of approximately 100% of net income
So, in summary, we are pleased with the strategic and financial progress we made against our 2018 goals this year
Our solid and consistent free cash flow and healthy balance sheet give us plenty of room to invest in the business and return cash to shareholders
And our profitable growth strategies combined with the high degree with capital efficiency reflect our commitments to deliver exceptional value over the long run
Now, we'll open up the call for your questions
Question-and-Answer Session
So, well, we had a really solid quarter with 5% organic growth which really exceeded our expectations, and we saw this both in the LGM and the RBIS particularly RFID that was strong in both divisions
So, from a margins perspective, we saw this coming in slightly better due to higher volumes and then the impact of our transformation efforts in RBIS
As we talked about the guidance for 2017, and while we assume was on the top line is, if you look at our sales growth over the last couple of years, we've delivered anywhere from the 3% to 4.5% organic growth
I mean, it really depends on what you see both from a retail apparel market as well as the broader economic market, and so that's why we gave the range of the 3 to 4.5. As far as on the margin side, what we believe on the margin for the guidance is that, we'll see productivity improvement in RBIS and it really depends on the degree as well as the volume flow through pickup
So, on the high end, we would expect to see more coming from top line growth from RBIS
Certainly on the high end of our guidance from a LGM perspective, we would expect to see a modest improvement in margins particularly coming up from really strong 2016.
Yes, as we mentioned, we have some carryover savings coming into '17, which we really that piece to be more frontloaded
For additional new actions that we're taking, we really see those being more back loaded about I would say roughly 75% of the savings will be flowing through SG&A, and the bulk of the vast majority of those are going to be related to RBIS
So, I think Q4 was really a good representation that when you get growth in this business, it flows through, it's a very high variable margin business
As we continue to accelerate our strategy, our business transformation, we would expect to see the contribution margin continue to hold up in this business despite a microenvironment with the retail piece to it
So, it's really about volume in this
When we look through this and look at our general rule of thumb, you do need a couple of points to have it start flowing through a top line growth
But in general really trying ---+ we're positioning this business to be able to achieve the profitability goals even in the low growth environment
So, on the pension expense side, we do see it going up about a $0.06 EPS impact in 2017 primarily due to foreign pension discount rates declining, which increases the pension expense
So that is a headwind for us in 2017. As far as the cash contributions, we did make the required '17 payment
We didn’t make that at the end of the 2016. It was offset by some favorability and cash taxes
So, from a free cash flow perspective that kind of washed out, but for '17, we would expect to make about a $50 million payment, normal payment that we would see for some of the foreign cash taxes foreign pensions
So, the Paxar piece to it, the amortization is roughly $8 million this year and about $7 million in '18. You would get over the next two years of at a point of favorability in RBIS from that amortization
Correct, yes
But I just want to emphasize that as you know this is still very early stages with not a lot of concrete, we're seeing very close to this obviously
But anything we did, be interchanged or reduced our tax liability we would change our guidance accordingly
Sure
So for the euro, we’re assuming around 1.045ish and the RMB was another piece to our currency basket is 0.1437.
