Avery Dennison 2Q Net Dives 57%; Halves Dividend

Avery Dennison Corp. (AVY) posted a 57% plunge in second-quarter profit amid restructuring and other charges, but earnings topped analysts' expectations.

The office-supply and label manufacturer also slashed its dividend in half as the company sees demand woes continuing beyond 2009.

Chief Executive Dean A. Scarborough called the payout cut to 20 cents a share a "precautionary action" sparked by the "possibility of continued poor market conditions beyond 2009, along with increased pension funding requirements."

The cut also reflects Avery's near-term debt-reduction target and its slumping earnings. "When our outlook improves, we expect to raise the dividend in line with this target," said Scarborough.

Office-supply companies have seen demand weaken during the recession as business customers delay replacing old office-supply products, leading some companies in the sector to cut costs by closing underperforming stores and reducing new store openings.

In May, Moody's Investors Service lowered its debt ratings on Avery closer to junk, citing an expected rise in raw material costs and declining sales across most of its operations. To deal with the woes, Avery cut some 10% of its work force.

Its second-quarter earnings fell to $39.8 million, or 38 cents a share, from $92.4 million, or 93 cents a share, a year earlier. Excluding restructuring and other costs, earnings fell to 56 cents from $1.03. Net sales fell 20% to $1.46 billion.

Analysts polled by Thomson Reuters expected earnings of 36 cents a share on revenue of $1.54 billion.

Gross margin was flat at 26.8%.

The pressure-sensitive materials business, the company's largest segment that provides Fasson-brand roll labels and reflective highway safety products, saw profit fall 39% as revenue dipped 19%.

Shares closed Wednesday at $29.81 and were inactive premarket.

-By Mike Barris, Dow Jones Newswires; 212-416-2330; [e-mail];