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Avery Is Devising Sophisticated Tasks for the Once-Simple Label

Acquisitions lift sales in '02, but now it will focus on innovation to fuel growth.

January 29, 2003|Debora Vrana | Times Staff Writer

Avery Dennison Corp., the maker of self-adhesive postage stamps and labels for hundreds of mundane products, reported Tuesday that it crossed the $4-billion mark in sales last year.

Now, to keep the growth going, the Pasadena-based company is envisioning a whole new generation of labels that do a lot more than just stick.

Avery technicians are creating a tag that could be attached to plastic bags to tell when meat has spoiled. They're getting ready another label that could be placed in a basket of fruit -- say, raspberries -- that would help stop mold from forming.

And in a project that has been Avery's top priority for several years, dozens of researchers are working on a radio-frequency identification tag that has at least one notable application: tracking where and when automobile tires are made, in case of recalls.

For The Record
Los Angeles Times Tuesday February 04, 2003 Home Edition Main News Part A Page 2 National Desk 6 inches; 236 words Type of Material: Correction
Avery Dennison -- An article in Wednesday's Business section about Avery Dennison Corp. misspelled the first name of the company's chairman and chief executive. He is Philip M. Neal, not Phillip.

Racing to beat a leading competitor, 3M Co., and a host of small start-ups that also are pursuing this potentially lucrative market, Avery has hired scientists from around the globe and has partnered with an unidentified automotive company to develop this product.

"We've been waiting 10 years for this. Nobody has been able to crack it yet," said Robert Malchione, head of technology for Avery. "We hope this will be the year."

Although the company's focus is on future innovations, Avery is coming off a strong 2002, thanks partly to acquisitions that have lifted sales in the face of a struggling global economy.

On Tuesday, Avery reported that fourth-quarter earnings dropped slightly to $55.5 million from $58.1 million, reflecting a charge for job cutbacks and a write-down of assets. Revenue for the period jumped 21% to $1.1 billion, from $912.6 million a year earlier.

For the full year, profit rose to $257.2 million from $243.2 million in 2001. Sales were up 11% to $4.2 billion.

Although Avery Dennison's products are hardly glitzy, Wall Street has found the company more lucrative than boring. Avery stock rose 3% in 2001 and 8% in 2002, even as the broader market plunged.

Its shares slid 27 cents Tuesday to close at $59.15 each in New York Stock Exchange trading, leaving Avery stock down 3.2% year to date while the S&P is down 2.4%. Nonetheless, one analyst called the company a "bright spot" in a lackluster economy.

"Labels and office binders isn't a sexy business, compared to what high-tech once was, but these guys are performing very well," said Ghansham Panjabi, with Lehman Bros. in New York. "They've got a strong management team and have made some smart acquisitions."

Avery's acquisitions last year included RVL, a Westlake Village-based company that provides woven tags and other items to garment makers, and L&E, a Greensboro, N.C., firm that was RVL's printing partner. The purchases gave Avery a big toehold in the apparel sector, which is expected to generate annual sales for the company of more than $500 million.

Besides that, the company said it would focus on such existing businesses as office supplies, retail labels, specialty tape and reflective products. Avery's first-quarter forecast calls for sales growth of as much as 26% and sharply higher earnings.

"We're going to continue to focus on our knitting and build on these terrific businesses," said Phillip M. Neal, the company's 62-year-old chief executive and chairman who started with the company nearly 30 years ago as a controller.

Analysts say Avery Dennison also has made some smart moves overseas. The company is building plants in China to make labels for consumer and office products, graphics for trucks and factories, and tickets and tags for clothing. These new factories will add to production from the company's existing plants in Shanghai and Hong Kong.

At the same time, Avery expects to lay off a total of 675 workers this year and the first quarter of next year. The company currently employs 20,500 people worldwide and more than 1,000 in Southern California.

Smart investments will keep this company growing, analysts said. So will its innovations, which include products that are meant to go well beyond some of Avery Dennison's more sophisticated labels today, such as its strips on Duracell batteries that tell users how much cell life is left.

The company is expected to spend $80 million to $85 million on research and development this year. Much of that will go toward developing the radio-frequency tags, which have a tiny computer chip embedded in them and until recently were too expensive to be mass-produced.

In addition to having an effect in the automotive market, these tags could improve companies' inventory practices by helping them track their goods. Gillette Co. and Procter & Gamble Co. are among those looking at ways to put the tags on their products -- just the sort of clients Avery wants to entice.

The Massachusetts Institute of Technology's Auto-ID research center, which has been working to define the radio-frequency identification system, has embarked on a trial project with Avery and other partners such as Johnson & Johnson, Home Depot Inc. and Target Corp., an Avery spokesman said.

Avery executives were reluctant to speculate about the potential for this line of business. But analysts say it's likely to play a big role in the company's growth. "One of the key drivers for these guys," said Panjabi, "is penetrating new markets."

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