Avery Dennison Plans Job, Factory Cuts

Label and office products maker Avery Dennison Corp. of Pasadena said Tuesday that it will lay off 1,500 employees, or more than 9% of its work force, including 60 factory workers in Southern California, to cut costs, boost profit and eliminate overlap from its recent venture with a German company.

The restructuring will spell the end of a materials production plant in Rancho Cucamonga, which will be converted into a distribution center. Avery will also close an office products plant in Rochelle, Ill., and a materials plant in Germany.

The actions are expected to save between $15 million and $18 million this year, said Philip M. Neal, Avery Dennison president and chief executive. The Rancho Cucamonga facility is the company’s only Southern California plant.

Avery on Tuesday also reported record 1998 fourth-quarter and full-year earnings and revenue, despite a drop in earnings growth to 6.9% in the second half of the year, from 16.3% in the first half.

Analysts said Avery’s growth slowdown mirrors the rest of the manufacturing industry, but its proposed restructuring is expected to boost the rate back into double digits starting next year.

“The overall reason for doing this is, as we looked to 1999 and all the economic forecasts, [the forecasts] are consistently showing lower growth. And in response to that, we need to lower costs and improve productivity,” Neal said. “This is a sizable program to get more productivity and continue to grow earnings at a double-digit rate for the next five years.”

The restructuring will result in a one-time charge of $60 million to $65 million before taxes in the first quarter. Once the plant closings and the conversion are complete, which are expected by the end of 2000, the company hopes to save between $58 million and $62 million annually.

Investors cheered the move. Shares of Avery Dennison rose $2.38 to close at $43.06 on the New York Stock Exchange.

The move was described by some analysts as “proactive.”

“They’re trying to maintain a consistent growth track record, and I applaud that,” said Karen Lane Gilsenan of Merrill Lynch Global Securities in New York.

Analysts said a major impetus for the reductions stems from the company’s recent joint venture with Steinbeis Holding of Germany, in which it combined its office products business with Steinbeis’ Zweckform unit, one of Germany’s top office supply companies.

“They’re finding there are some redundancies and under-utilized capacities in the office products business line there,” said Bob Bartels, a Chicago analyst with William Blair & Co.

Avery said net income for its fiscal fourth-quarter ended Jan. 2 rose 2.8% to $55.9 million, or 54 cents a share, from $54.4 million, or 52 cents, in the year-earlier period. Per-share results matched analysts’ estimates.

Fourth-quarter sales grew 5.8% to a record $884.6 million, up from $836.4 million a year earlier. Excluding the impact of currency translations, sales grew 5.2%. For the full year, earnings per share increased 11.4%, to $2.15 from $1.93.