Label maker and retail information specialist Avery Dennison Corporation (NYSE: AVY) touted its recent $1.34 billion acquisition of Paxar as an example of competitive synergies and cost-saving efficiencies. Well, that remains to be seen. Avery Dennison used its Paxar acquisition, and related costs of integration, to explain just about everything in its recent 3Q 2007 earnings release.

Net sales increased 19% to $1.68 billion, the entire increase due to Paxar acquisition. EPS would have been $0.99 except for costs related to Paxar acquisition. So EPS was actually $0.58. Avery will eventually realize $115-$125 million in cost savings from Paxar acquisition but hasn't realized anything yet. CEO Dean Scarborough stated Avery Dennison is trying to "find operational efficiencies" and is "on track to achieve targeted cost synergies," but can't find the efficiencies just yet and apparently missed the synergistic target due to the fact that the company is "experiencing some current headwinds." Wonder if his speech writer gets paid by the cliche?

Avery Dennison used some creative financing to acquire Paxar and needs to show some bang for its billion bucks, soon. In the pressure-sensitive label segment, sales were up 5%, but organic growth accounted for just 1%. In the retail information services segment, Avery posted 136% sales increase, 135% of which was due to Paxar acquisition and 1% due to organic growth. The office and consumer products segment reported a 5% decline in sales. CEO Scarborough blamed the decline on a slow back-to-school season, whatever that might mean.

Investors should not look for clarity in next quarter's earnings reports either. The company is already hedging its FY 2007 to exclude Paxar integration costs. The stock closed on Oct. 24 at $57.95, down $1.35.

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