{ "docId": "019dd923-622c-750b-8b98-ff42cd6c571b", "docSlug": "09bbf36d82e5", "documentTitle": "Avery Dennison Corporation (AVY)", "authorId": "54_Spruce_Point_Capital", "authorName": "Ben Axler", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2020-11-10 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 6, "pageCount": 89, "prevPage": 5, "nextPage": 7, "slideType": "executive_summary", "function": "diagnose_problem", "density": "overcrowded", "nDataPoints": 2, "notes": "The slide uses a classic activist short-seller structure: thesis statement, governance critique, and a list of 'headwinds' to justify the valuation downside.", "elementsJson": [ "headline_text", "paragraph", "bullet_list", "callout_box" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-ff42cd6c571b/6", "deckHref": "/decks/019dd923-622c-750b-8b98-ff42cd6c571b", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-ff42cd6c571b.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-ff42cd6c571b#slide-6", "components": [ { "bbox": null, "kind": "callout", "text": "“It’s Just A Label” According To A Former Employee We Spoke With. This Sums Up Our View That Avery’s Best Days Are Behind It", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-e6ec-7186-b7d8-df4b06ff5cd8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.28, "w": 0.94, "x": 0.03, "y": 0.68 }, "kind": "list", "text": "Pressure to move towards more sustainable solutions: Involves R&D costs to Avery, with no discernable tangible benefit to earnings. Avery stopped disclosing revenues from new product introductions, and in FY 2020 recently stopped disclosing R&D expenses\nContinued growth of shrink sleeves: Now almost 20% of market share for label technology, growing at the expense of pressure sensitive labels\nContinued shift toward flexible packaging from rigid packaging: Flexible packages (pouches) don’t require labeling and are resealable\nConsolidation Among Converters (Avery’s Customers): Private equity rolling up customers, increasing their bargaining power\nRigid packaging printing technology: As technology improves to print direct on hard surfaces, it could further displace labels on cans and glasses\nInsourcing of laminate and coating machines: Larger Avery customers are backward integrating with their own laminate machines\nApparel Sales Slowing: Shrinking retail footprint and work from home trend hurting Avery’s apparel business\nRefillable Food and Beverage Plastics Solutions: Supermarkets experimenting with refill solutions, a negative for bottles, cans and boxes\nTemporary and Long-Term Cost Cutting And Restructuring: Extreme cost cutting measures made during COVID-19 will look to leave Avery poorly positioned to earnings leverage when global economies recover\nUnwind of Beneficial Tax Schemes: Aggressive tax schemes now being audited by foreign jurisdictions, which could materially impact EPS", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "37fddc77-9db4-4885-80bf-2d828ea1f91e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.94, "x": 0.03, "y": 0.5 }, "kind": "list", "text": "Avery invented the pressure sensitive label category more than 80yrs ago, and our research shows it is a very difficult product to innovate and expand margins. In the case of Avery, a global competitor in labels and adhesives, we find it reports growing Adjusted operating income margins when key competitors report margins are under pressure\nWe believe Avery’s financial reporting defies reality by painting a false sense of a stable / growing business vs. one under multiple pressures. Through the course of our forensic research processes, which included speaking with numerous former senior employees, customers and industry consultants, we identified a number of large headwinds facing Avery, and many classic red flag actions taken in response", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "aa7d245a-6d7c-485c-b1c2-4f94819b124f", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "downside: 35% - 55%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd952-e6ec-7186-b7d8-e71fc2fce8b2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.28, "w": 0.94, "x": 0.03, "y": 0.16 }, "kind": "paragraph", "text": "Avery Dennison (“AVY” or “the Company”) is an S&P 500 company known for its products and solutions in pressure sensitive labels, adhesives, reflective materials and tapes, and retail branding and information solutions such as RFID tags. Whereas Avery presents itself as a recession resistant and stable Company with growing Adjusted Operating Margins, EBITDA, EPS, and Free Cash Flow, Spruce Point believes its organic financial condition has been inflecting negative for years as its core product loses share to competing technologies and changes in consumer packaging preferences. We believe it has resorted to reducing key financial disclosures, and more brazen maneuvers to cover-up its weakening performance including understating debts. Notably, Avery has recorded ~$1 bn of restructuring and impairment charges in the past 20 yrs. Recent programs implemented during COVID-19 will expose it, not only to lower earnings leverage when global markets recover, but to financial restatement and SEC investigation risk. We find irrefutable evidence that Avery has inaccurately portrayed its restructuring accounts to inflate results and unjustly benefit insiders through inflated bonuses. Spruce Point has limited confidence in the current Audit Committee under Peter K. Barker’s leadership. We find an alarming pattern that Avery has concealed his connections to multiple companies and individuals that the SEC has investigated related to recognition of impairment charges. Therefore, Spruce Point calls on Avery to form an independent committee and hire an independent investigator to evaluate our findings.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9605968a-dd9b-44c7-9726-bc64aab108b1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.94, "x": 0.03, "y": 0.46 }, "kind": "paragraph", "text": "“It’s Just A Label” According To A Former Employee We Spoke With. This Sums Up Our View That Avery’s Best Days Are Behind It", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a08efaca-8938-4bf4-aee2-86df6203b9ea", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "“It’s Just A Label” — Former Employee", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-e6ec-7186-b7d8-e12cd18d130e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.68, "x": 0.28, "y": 0.03 }, "kind": "title", "text": "Spruce Point Estimates 35% - 55% Downside ($68.00 - $99.00/share) For Avery Dennison (AVY)", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c568dc93-98cb-480c-8f0a-88cb8cbbec38", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.94, "x": 0.03, "y": 0.64 }, "kind": "title", "text": "Spruce Point Has Identified 10 Headwinds Downplayed, Ignored, Or Never Disclosed By Avery And Its Stock Promoters", "attrs": null, "subkind": "subtitle", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c8489983-3e7f-4e47-9ca4-229e02ac5764", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 15, "from": 5, "beatId": "7e7e3897-bd4b-48a1-bc38-57b53dd43d45", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Problem", "beatSlug": "problem-agitate-solution-problem-identify-pain", "evidence": "The deck identifies significant business challenges and financial strain facing Avery Dennison", "position": 0, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }