Avery Dennison has announced that it will reduce its global work force by 10 percent, or 3,600 jobs. Described as a restructuring, the move is a reaction to revenue declines in all of the company’s divisions – pressure sensitive materials, retail information services, office and consumer products, and other specialty converting businesses – in combination with rising raw materials prices.

The company estimates that the reduction in personnel will cost $120 million, but that the restructuring will generate savings of $150 million a year over the next two years.

“Avery Dennison generated record free cash flow in 2008, despite increasingly challenging business conditions in the retail sector and the effects of the broader economic slowdown,” says Dean A. Scarborough, president of Avery Dennison. “We are responding to the challenges by continuing our efforts to reduce fixed costs, improve our financial flexibility, and accelerate our productivity improvements. We expect to generate solid cash flow in 2009. We are focused on increasing our operating leverage and developing new business opportunities to position the company for strong earnings recovery when market conditions improve.”

In the pressure sensitive materials segment, revenue from sales of roll materials declined in every region except Asia, Scarborough says, reflecting weaknesses in end-markets and decisions by customers of the graphics and reflective products division to defer purchases. “The decline in operating margin reflected reduced fixed-cost leverage and the effects of raw material inflation,” he says. “These factors outweighed the benefits of price increases, restructuring, and other productivity initiatives.”

Raw material costs in 2008 for Avery Dennison increased approximately $125 million, or 4 percent, and varied greatly by business and geography, according to Scarborough. “This increase was partially offset by the benefits of global sourcing strategies, raw material cost reduction initiatives, and price increases. At the end of 2008, however, the company’s price/inflation gap was still significant, and additional price increases were implemented in January 2009.”