On Tuesday, Avery Dennison Corp (NYSE:AVY) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
John McNulty – Credit Suisse: To maybe flush out the cost cutting a little bit. You highlighted four major buckets where you expect the bulk of the savings to come from. Can you quantify how we should be thinking about each bucket in terms of what those savings might be roughly give or take a little bit in each of the segments?
Dean A. Scarborough – Chairman, President and CEO: This is Dean. I don’t think we want to do that at this time because we haven’t announced all the actions in terms of different parts of the company. I will tell you that about 80% of the actions we were taking they’ll impact SG&A versus the balance, obviously, coming above the gross profit line.
John McNulty – Credit Suisse: Then with regard to the timing of when they hit, I know you said you are hoping by the end of ’13 to be at a run rate of $100 million. How should we think about incrementally in ’13 versus ’12, what the cost saves should be looking out to 2013?
Dean A. Scarborough – Chairman, President and CEO: We want to get to the $100 million run rate savings by mid 2013, so a lot of the actions we’ll be taking between and the end of the year. I do expect some actions will take a little bit longer, and bleed over into the first quarter of 2013.
Mitchell R. Butier – SVP and CFO: So, of the $100 million we are expecting $15 million net to hit this year and the following $85 million to mostly hit 2013, a little bit blending in ’14 for things that are implemented in Q1.
John McNulty – Credit Suisse: Then just one last question just on your guidance for the full year. Looking at the two remaining core businesses; normally your first half of the year seems to be a little bit stronger in terms of earnings than the second half and your guidance isn’t really implying that, so I guess I’m wondering what you’re thinking starts to improve in the second half of the year, so that you kind of have a more even balance this year compared to normal years?
Mitchell R. Butier – SVP and CFO: I think, John, the biggest difference is last year in the second quarter, we basically reversed out our bonuses for the whole first half of the year. So, comps frankly just get a bit easier in the back half of the year, both on the top and the bottom line.
Restructuring in a Shaky Economic Environment
George Staphos – Bank of America Merrill Lynch: I just wanted to come back to the restructuring relative to the environment. If I was tallying correctly, I think, you mentioned an uncertain economic environment being the environment you’ve got around seven times or eight times on the call. So, did anything change over the course of the year that prompted these actions or where these actions, Dean and Mitch, that you had been more or less planning on once OCP was done and if you could provide a little bit more color on that that would be great.
Dean A. Scarborough – Chairman, President and CEO: Well, certainly the thinking about eliminating stranded costs after OCP that we took some actions in the back half of last year, but frankly as we look forward and realize that the economic environments probably in the near-term is not going to get much better. That we needed to take actions that would accelerate our earnings power now and not just simply wait for a rebound in the economy. On the corporate overhead part, one of the things that we have realized is that, we’ve added a lot of capability to the businesses and we can eliminate activities that formerly were done at the center that can now be done in the in the businesses. At the same time, the needs of the businesses are different, so that they can chose much better as to how to or what to invest in and at what levels. I think it’ll get us definitely in a better end result. There is one other factor here and that is for some – for example of our businesses, a good example is Graphics and Reflective Solutions, we had decided a couple of years ago after we had integrated the supply chains, that we would leave additional infrastructure in the front-end of the business to try to accelerate growth. We had set an internal milestone of 2012 being the key when we would be able to demonstrate our ability to grow faster in that business. Now the near-term prospects given the economy don’t look good, so we simply triggered milestone and decided to integrate that business and improve the returns immediately. So I think a number of factors are played into this, and I would attribute that to, frankly, just disciplined management and looking for opportunities for us to hit our commitments to shareholders as fast as we can, even given potentially uncertain economic environment.
Mitchell R. Butier – SVP and CFO: Goal with this – just to add to Dean’s points, as we both mentioned is, to ensure we can hit the earnings and free cash flow targets that we laid out in May, even if we come in a little bit on the low-end of the sales growth. These are – we’re always looking for opportunities to reduce costs and these things have been on our radar and we just – as what Dean said, we triggered a few milestones and we’re in the works of implementing these things and finalizing the planning Q2, we are now in a position to announce most of it.
George Staphos – Bank of America Merrill Lynch: I guess one question I had regarding the goal, in terms of hitting your goals, despite the environment; you are purely referring to what you’ve laid out for 2012. You weren’t putting any kind of stake in the ground for ‘13. i.e., you still expect to be able to grow earnings despite the environment because of the saving that you’re doing right here. Would that be fair that you’re only looking at ‘12 right now in terms of promising on your goals?
Dean A. Scarborough – Chairman, President and CEO: Well, we are committed to hitting 10% to 15% net income growth and 15% to 20% EPS growth. While we are not giving 2013 guidance here, and we certainly don’t have any insight at this point about what 2013 is going to look like. Again it just comes back to us achieving those targets even if the economy looks worse and let’s face it, if it doesn’t get worst or it get somewhat better there is upside for the business.
Mitchell R. Butier – SVP and CFO: George, those are the targets we discussed in May at the Investor Meeting.
George Staphos – Bank of America Merrill Lynch: I understand just was not sure whether you were laying it out for ’13 yet, doesn’t sound like you are but certainly…?
Mitchell R. Butier – SVP and CFO: No, we are not.
George Staphos – Bank of America Merrill Lynch: How much of the savings will be actual cash, will it all be cash the $100 million or will there be some non-cash expense that you avoid here (indiscernible)?
Mitchell R. Butier – SVP and CFO: Those are pre-tax cash savings.
George Staphos – Bank of America Merrill Lynch: Then the last thing as you are integrating the Labels and the Graphics and Reflectives businesses what are the obstacles, if any, to integrating. What thought have you put into that you can share here about areas that you may eliminate that are key points of connection between the two areas that if it is now eliminated might hamper your ability to integrate those groups. And more broadly are there any areas that you may be looking to eliminate that again are key focal points (you have the) organization communicates from one end to another that are challenges during the integration?
Dean A. Scarborough – Chairman, President and CEO: I’ll take a shot at your question, George. I am not sure I understand it 100%. I don’t see any challenges in integrating Graphics and Reflective Solutions into the business. We still had a separate sales teams going after specific markets in Reflective and in the Graphics business. What we’ve basically taken out of a lot of the overhead or we will take out the overhead in infrastructure and some of the G&A costs associated with that activity and we will continue to leverage the scale of the Label and Packaging Materials supply chain and procurement operations, if you are referring to linkages between let’s say RBIS and the materials businesses there really aren’t very many. So actually, potentially, I think what we have is dyssynergy trying to manage some things at the center that should be more appropriately managed in the businesses with a focus on what’s really driving value there. In other words RBIS obviously is a different business situation than label and packaging materials and therefore may choose not to invest in some things, at this point in their evolution.