Avery Dennison Corp. said Tuesday that its third-quarter earnings increased 7 percent as stronger sales offset higher expenses and weaker profit margins. But the company lowered its earnings forecast for the year because of the slowing U.S. economy.

The Pasadena maker of adhesive labels and packaging products said net income for the three months ended Sept. 27 climbed to $62.7 million (63 cents per share) compared with $58.8 million (59 cents) a year ago. Excluding one-time items, the company earned 81 cents per share compared with $1.01 a year ago. Analysts polled by Thomson Reuters on average had expected adjusted earnings of 74 cents.

Avery said sales grew 3 percent to $1.72 billion, slightly above analysts' expectations of $1.7 billion in revenue.

The company reduced its fiscal 2008 outlook to a range of $3.15 to $3.35 per share from a prior $3.75 to $3.95. Analysts had been expecting $3.48 on average.

Chief Executive Dean Scarborough said the company was taking measures to offset the impacts of the economic slowdown.

"We are lowering operating costs and accelerating productivity improvement, further trimming capital expenditures, and are planning additional cost-reduction actions," Scarborough said in a statement. The company plans to increase prices on Jan. 1.

Avery shares closed down $3.04, or 8 percent, to $33.38 on the New York Stock Exchange.

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