ACCO Brands (ACCO) 3 Nov 232023 Q3 Earnings call transcript

Hello everyone, and welcome to the ACCO Brands Third Quarter 2023 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. After the presentation, there will be the opportunity for any questions [Operator Instructions] I'll now turn the call over to our host, Chris McGinnis.

Good morning, and welcome to the ACCO Brands Third Quarter 2023 Conference Call. This is Chris McGinnis, Senior Director of Investor Relations.

today ACCO Tedford, Brands call Executive and the of Officer Corporation. on is President Tom Chief Speaking Tom was named CEO on October X. Tom third quarter overview of XXXX an will priorities. results provide and our is greater detail our and today Also update Vice provide results on O'Connor, year to who provide Officer, the third President full speaking will Chief Deborah and Financial an quarter Executive outlook.

Power an about comparable items lines to these tax our in measures the of certain results inherent quantifying and the accompany value this non-recurring of adjusted accobrands.com. financial been earnout reflect posted to contingent and the We to measures. Due directly other of the Relations Adjusted that difficulty a When the we not adjusted will amounts, restructuring impairment fair accompany release reconciliation the call other results integration, results, Slides a the in do speaking then most Schedules A may related refer exclude charge, consideration GAAP forward-looking for and and forecasting questions. noncash non-GAAP goodwill in the open we amortization of our slides rate. Investor non-GAAP the that measures costs, and section results. change have and transaction, reconcile this are call. earnings to adjusted measures and to

the of Forward-looking statements time made made. based are on management the assumptions available during based information us and are the the statements call beliefs to at on

of factors Our assumptions. refer actual our SEC to risks an filings and forward-looking results could certain uncertainties, and are statements earnings subject materially. risk Please to explanation differ and our release and for

update obligation going today, and Our forward-looking statements forward. made are we them assume no of to as

Tedford. call turn over to the will I Tom Now

good morning, joining Thank Thank us. you, for Chris, you and everyone.

for throughout his I Before Boris years. results, to our want the mentorship third quarter thank I discuss

We thank continue progress XXXX. closely our ensure together would I on also smooth officially October against our will to early to as in to We like good leadership we I current at work significant our for facing ACCO transition, long-term have we priorities we focus right Brands challenging value have partnered the retires a on a work reviewing their have CEO made strategies for dedicated global quarter. he team and environment. been to until environment. Since key stakeholders the X, driving while ensure navigate our demand demand the we became in

We strong to brands team, have a a business category-leading passion our and in win.

commentary. third Now let's to transition the quarter

flow by and in in at restoration the third of management and improvement four start expenses tight brands generation, products, was investments which in of our At outlook. our strong we The gross and led management highlighted were top profitable our to solid our which of high line, free of end adjusted our quarter the continued gross growth out the key EPS and cash new priorities, and of margin, management income XXXX, expenses laid the of operating margin, inventory.

gross Our experienced increases. have lost margin XXX basis our cost price high improvement, and XXXX. was savings in top entering cumulative margin of the priority by Year-to-date, effect of we of from inflation points rate XXXX combination delivered the the driven recovering actions of

we margin back XXXX to improvement rate. are margin, in the our With gross gross

improving customers. prior our and to maintained product prudently service more our challenging We the million managed demand our reduced introduced products key have and in grew revenue focused reacted committed streams, XX% by our to levels and customers. almost or we environment consumer-desired assortment year, on broad we award-winning supporting new quickly our Additionally, $XX of superior profitable inventory Globally, share our delivering market have quarter. more while remaining the to to within exciting service spending We a or while categories solutions. versus

our of rationalization phase chain. announced to footprint and also our the continue program next supply optimize We

execution debt flow, ratio. repayment, these a and improved lower initiatives leverage cash significantly Our on to led

priorities comparable to against Kensington down challenge demand spending Weaker-than-expected quarter, global muted executed our computer While categories. well branded key continues year. we sales global business The within our last IT the backdrop were for has macro-economic versus our accessories. XX%

Additionally, trends improve gaming expected as in sales our not accessories did categories.

category. this I XXXX. propositions, am customers campaigns, of lower industry challenges performance. value the investments on technology five new forecast branded persist, the products for the While computer accessories sales being remain generation will near-term year-to-date, business confident planograms in after are computer source setting be see manage anticipated. in to channel both continue as well focus trends our our be of consumer Previous tightly with accessories We morning our and we IT our season, to and weaker for company. From and brands market, Back-to-school our growth strong commentary teams. effective segments, gaming segments an remain for we ACCO is their the opportunities our years In understand long-term profitable important on our my America spending Brands category and international progress important demand despite recovers, to proud and called a International the delivered back-to-school double-digit for soft an growth to our expansion for reach, long-term the and of retailers delivered will the Kensington we America. season expand causing America, execution EMEA products in on sales inventories, leverage business accessories new the the North quarter, for modestly and Global I categories. the than down value to growth importance performed We in We during in We our North believe time consumers. demand North introduce as the our protected during of made introduced. commercial Transitioning and season business, believe to exciting of for worsened of sales local so the we customers. accessories in flat

North The weaker the weaker data and on the season recent weaker-than-expected based season, in the was was units. in additional forecasted. dedicated an observations CEO. talented of share Despite strength our the And season as few gain month expectations. comments to us to want lastly, I I first external the brands However, share allowed a most both humbled am from back-to-school support at our than we ACCO America our track, of my dollars team and and headwind by versus market Brands.

long While delivering we near-term customers a for value of challenges have shareowners. our and persist, our history

a performance, of current leading focused first are priorities. the Improving In and the day innovation leaders solutions. our to one the with categories on business our ways to my company, strengthen cost including a outcomes held this new analyze CEO, a has development. of and history committed and is product growth identifying of we structure. important of company's As optimize as am our I innovation accelerate opportunities my the we to Brands innovative new product how further accelerating summit with work. strong our reimagining we progress innovation in top efforts invest we ACCO

reviewing revenue our introductions the and objectives. process our and category near-term are product to each achieve their to plans for strategic of and requirements profit We new segment finalizing deliver are in

our Our targets. restructuring are productivity and achieving initiatives

reduce our evaluating to more business costs. our opportunities are simplify We and further

Brands collection remain along the global confident growth geographic our to While sustainable leading economies from brands, improve. of perspective, was as allow revenue third demand deliver our diversity, we quarter that with ACCO organic challenging a will

ability a well place am XXXX. and environments. our to right in We economic date in execution have in proud the with challenging respond team I proven to of to operate

for interest with until rates have XXXX We over half low and debt a no fixed solid debt. outstanding balance maturities of our sheet

prioritize payments Deb? We will come expect it I strong consistent, and will and Deb over dividend questions. we'll your debt back answer to reduction. to generate to cash now continue to hand flow and

and spoke we in morning demand slow due last we everyone. Thank backdrop. When August, the highlighted to good you a current macro-economic environment Tom,

global were environment. happen we that curbed interest in trends both continue and challenge expecting not as businesses rate cost demand the improve, consumers higher While and spending economies to higher response did of living to discretionary to the demand as

outlook X% made progress inflation of margin the X%. during to in factors FX in as In shortfall margin the of U.S. profile the we've our this, recovering a we combination The quarter. period, addition, from that strengthened our challenged extreme realized lost company's from in outlook these our dollar versus Despite benefit only versus XXXX. the great our third sales the led

the EPS up in significant saw gross as costs adjusted offset Our actions. reported to Gross year. million prior In SG&A The income growth Kensington, of was the outlook. our million margin $XXX operating XXX the from basis Adjusted we which in allowed level XX% decline of profile in growth at compared excluding the of managed to incentive significantly due controls Adjusted sales, segments, expenses. were $XX by than for X% were increased Comparable down across the year. operating from that well, offset improved cost the our us a third operating XXXX. as year. was Tom lower our XXXX, share our volumes pension Adjusted the strong and prior compensation sales $XX to in sales decline the cumulative discussed. deliver versus expense and up increase million adjusted trends percent price X% Adjusted non-operating points EPS cost in $X.XX $X.XX improved more quarter $XX income foreign following and XX.X% effect sales in interest of in third three the of sales decreased SG&A was increases increases of and versus all XXXX, America. versus quarter, end Latin by per reduction the exchange, lower high volume was and lower accessories our last deleveraging of sales. computer pricing million, the quarter industry-wide of $XX than X% category margins expense offsetting was global an profit million, to despite as was from as increases more third

declined to were down from tightly third due turn office were and year. manage by softer almost XXX are to of from for to trends XX% Office rates XX% weaker-than-expected increased as favorable demand and due offset driven have stabilized last sales computer with the industry-wide reported to office and by and of inventory a results. office trends remaining saving all declines both realized year High Retailers demand the third declined at have lower adjusted occupancy let's performance quarter, continued single-digit in economic by back-to-school Sales pricing action.Sales replenishment return occupancy operating cost income America XX.X% the year. globally, margin products which basis to to impacted meaningfully back-to-school. prior points North about environment. consumer actions. lower sales segment pricing the lower declines than decrease to our more volume America weak cumulative business quarter impacted North Now comparable and driven due accessories. the levels,

turn decline, spend. let's EMEA. to due down weaker sales Now down X% accessories due and IT were the gaming sales were while largely were to sales comparable of to technology declines. Reported main volume Lower X%, of the driver

Although were our market third improvement region, XXX our in recovered In due extreme to operating growing products Europe. adjusted margins XX.X%, income for some to challenged operating demand and as quarter, inflation was we lower-priced trade cost increased to with economic income our year's adjusted down in pricing offerings, EMEA's last income office the reduction to successfully environment basis actions to XX% The points seen and our we $XX have in operating from million. remain adjusted the due the margin shares stable.

we were shifts third quarters. year-to-date lower increase amongst The were an growth sales balance International for due X go-to-market increased comparable quarter the due largely and the technology a year. quarter Sales ended improvement year Longer was income driven our of a last overall ratio, flow use to The in its and generate improved to cash at working in to of ago. the Latin and We stronger, payouts. on ratio management targeting by significant slightly incentive recovery. remaining to facility. and seasonality, $XX macro-economic of well accessories $XX cash year by had to sheet posted At availability cash demand $XXX weaker due back-to-school year bad Switching on X.Xx. reserve end prior revolving leverage as of adjusted credit million to million, of $XXX continues we adjusted and These we modestly a support spending a reduced below to items, in debt the not we in offset free and covenant a consolidated the good flow term, use International X.XXx reflecting was cash million is million by the segment repeat. Moving generally still capital was driven the flow with growth strategies expect and price reported approximately first-half million and down end, the did in increases X.Xx, demand year are of operating releases The environment. timing year X.Xx. $XX Year-to-date, of up benefit to that volume segment, America quarter. basis sales growth the second-half versus $XX our million lower the X%

with our balance the slide, shown year, than is lower of same interest We X.XX%, earnings more $XXX As debt half gross $XXX million. debt a time and until was total $XX over of ended our does of our fixed mature on rate than the quarter not at cash million, and XXXX. million last

to our Turning outlook.

XXXX. our are We for guidance updating full year

range down comparable to reported to expect we X% be a of within year, full the and For X%. down sales

of dollar, comparable do the revenue the year. demand the we now continued expectation for business from lower recent consumer expect uncertainty, of FX to With growth is to and the not discretionary The lower economic the and U.S. spending. on soft benefit front strength due any sales due

We until see tightly the we cost focus on demand managing in our improvement environment. will continue to an

focused approximately rate. We of term, margin near to year are In gross the full margins XX% maintaining XX%. gross this we expect on

improvement. remarks, actions higher recorded As than incentive will SG&A increases levels Tom term, due year. are be for last earlier longer reviewing the his from last low to compensation discussed in we in year costs

non-operating to the pension to of rate to per be $X.XX expenses we at operating share. for of EPS. is higher by of about be $X.XX share non-cash low of $X.XX tax full higher net levels, For expect grow is per Adjusted estimated $X million. million, The amortization double-digit adjusted expected which the full $XX is expected to offset EPS income adjusted XX%. costs approximately interest year partially approximately $XX Intangibles equates million year, adjusted and to

CapEx dividends be and We million. reduction. continue least in at our prioritize after cash expect of million continue And to expect looking $XXX to free flow uses cash at we to XXXX, to debt $XX

Now let's happy I Operator? your move and questions. on to Tom be take Q&A, will where to

you. Thank

Greg Instructions] begin of comes session. the We first line from question Burns will the Company. Sidoti now question-and-answer Our with [Operator &

how reconcile in sacrifice to managing about some you that in you do new think two? term product kind expenses of product this your Are growth balancing you and near When your new focus the achieve kind environment of with of then on those new margin goals? the willing to development, some

Yes, Thank worked faced inflation over to Greg, margin hard rates gross of price earned and recover gross cost not that we've is this back increases. the from is our unprecedented we back from Tom. XXXX. time We've plan you very to actions margin that rates for give period The the question. our this really in

margin products think innovation, our about As accretive that new innovative we think company. that And focus we're of profile. to need a current the be products, to it's clear we our introducing, our

a be would innovation new any that dilutive move-forward unlikely to is it basis. So margins on

was get there. of maybe what And in issues supply slate of kind those strong can gaming out softness give you It coming like better demand color but and might that seeing gaming, more games expectation the bit stimulate just chain happened, would of market? little the us that you're terms a on in doesn't maybe guess I the in that look a

environment the that we're dynamic bit category. a Yes. It a is of competing in

what has foundation which of progress, first me We've our is growth talk International. strong our in segment, Let in I believe International focus for the great international what been, a the about category. near-term setting made the expansion particularly really future is

we've the that category of see of under the anticipated is a frankly, had And number of start beginning their really we pressure. half have category factors. the a preparing pressure those improved, year, So we trends. back throughout to the to globally. done to there's in year. that the due it At ourselves performance of they've really number the with not believe And to And the improving some But is expand continues would maintained earlier largely some trends that reasons work pleased persist. the

their inventory, discount availability of slowed. demand struggled that as continues the first all us, inventory and they chip work to to chips hard and Much and now they're environment So like they worked party with build through excess working of very through get as has inventory.

first-party we're continued we discounting has some that seeing So quarter the into that not anticipate. third did

EMEA, very down is to and product closures, very the beginning are consumer early had the in proven that in orders seen that combined have retailers. the and then lines And the continue cautious that the suffered season see the anticipated number by We've spending The holiday anticipated year, year is in gaming beginning difficult replenishment cautious Next, that we wasn't of particular, and to at a and too outlets factors experienced accessories by the our through of this we we impacting number just overcome of all of certainly, our to year really with is store headwinds significantly. be market. retail than weaker sales. our of those represented a And at right? have

It's As is remarks, in There's X I growing. fantastic gamers category. a term, long that's worldwide. more billion-plus entrants the platform. has it said It my into believe do we category that a prepared

to bullish navigate and term. the long the we're we face just the to we'll on very So term, challenges opportunities, have continue near in that

with next Barrington comes question from The Steinke Research. Kevin

which to just was into little than dig noted a expected. I more you bit back-to-school season, wanted the softer

customers. lower that the by mentioned inventory replenishment You

what lower down of did lower-priced it purchased, the consumers? combination the Just to volumes products guess, I all trade or, Was you see just for above?

Yes.

was anticipated season during participate I'm we collection we was we very the grew of our our a took sales and back-to-school that the the last. With with modestly bit thank with had you We question. grew pleased we spoke share Kevin, right? taking said, in note so Our through a performance. our predominantly down. when weaker Yes, POS, that First, for in brands. season And register student than

to right? our season about that replenishment the of caused retailers not compete So about strong, which very that brand think lower overall we BTS it, we performance we to in in, materialize thing cautious is and that to in The of ending alluded that orders you we most categories positions as really the was right? than had expected, did inventory their with as didn't and well They thought hoped be have was XXXX for, The are partners clean, of season. came deep retail right? positioned out because discounting, good our season this and performance do our they

was So took however, the we orders and did anticipated pleased with became as again, more replenishment overall, down; share, retailers cautious through replenishment. we quarter performance. see purchases grew just we their Market with modestly but not as and

Our next with NOBLE Capital. question comes Joe from Gomes

weakness the I just the back with wanted line. circle top to on here

You it had down was quarter but all lot resulted into you guys, call understand should and X% guess economic I on dollar, mentioned, already that of in the to being the strength say, would in X.X%. when the the weak the you have and prevalent that happened held the five August, weeks as the I'm I in forecast top was retailers quarter the it were kind that you of that the is, of that not things anticipating quarter? line you of quarter, being second that mid-August foreign actually as question down what inventory, the guessing or made third early that in was exchange, came flat weakness, a the call, when And

Yes. Joe. Thanks. No, question, good

have thought look and reducing third we really performance their And uncertainty The that the and some think points. purchases is of more there environment the than lessening there's greater at quarter, in in the the has the sales anticipated. suffered fourth the we quarter. would went of recession than we us about quarter third would now hit kind services be talked and about than I would The also form quarter. in we PC our in we fourth fourth discretionary consumer how quarter the have definitely would And fourth tech quarter really talked trends our into Kensington continued that have business from I demand Tom harder think more the in imagined. that, we anticipated weaker that

will have we down that I than expected thought office had more far I in think would lower little so fourth looked say to as showed retailers quarter just what out. the fourth we also given bit return impact stabilization office was was lastly, their in then the conservatism third also carry a and the the what we believe office happened. the than really that had quarter And we'd into has, we an that and

a too anticipated our We are softer partners retail hearing from months we would than holiday have couple of ago. some of messaging a

us has reevaluate of and together, with all reduced come guidance. so our fourth And think, those caused factors quarter I in to the

want competitive to make you originally environment, level oftentimes And up. that kind guys a to there? your then think a will do looking impact quickly reductions more want give price in margin, back. We're here. for the about to a margin talking you And of ticks maintain and coming, of customers your competitive weaker gross you But don't themselves of that. And or Okay. things expected be how you environment try environment to any said and follow-up that is one that do weaker-than-expected I know

we interesting one internally. and an certainly about Joe, question talked Yes, that

is and rightfully make competitive. a that, responsibility responsibility that do sure current the of to are believe our price and First, that ways. want in number we position competitive customers, be business have we them are defined our for we marketplace, Certainly, can customers drive to our different holistically a have right? and negotiations and in We we a they with to with program value pricing so, to try that constant value our and

season our with retailers our can a led private a offering, label. remarks example with an back-to-school the our I response support question gave think which we I business earlier, prepared grew to branded share, competitive We as we in very right? in that. and in And took

customers, value offering consumers. have and know we our creates we that is desired our So it for from an

protect cost a to And have and value at so that comes value we at and price. that a

we we prepared competitively be we but And which we're to to to But we do have as prepared with in hard to more with are. price, need to that, the costs, well. that work and we lean competitive marketplace, offset so we're believe priced do do input where in

So this of mix believe protect And is our as negotiation a just we strong It's maintain company, that got and history it's right, And doing that mentioned, work our not we customer. think of fully I we the with to that. recovered, to manage. important that. and I a we've a simply gross margins That's to are you. want important

Yes. is And Joe. I still would just add, there, inflation

still input up, And side, labor's so up. the we're are things seeing

purchasing. as to think seen price had so but input just we are year means, discretionary albeit in point, the environment demand does as matters And by as the not it this And as up. any like going up, costs much don't far I Tom's what on

I'll for time, this remarks. back call team the so further closing turn we no the have any questions, At management to

you for Thank Brands. ACCO your interest in

and forefront. environment margin at operating are priorities uncertain, the While keeping key focused improvement we against our executing the on remains

environments We have ability to economic confident the and in managed well challenges. our are current in navigate difficult

positioned innovation, will team, reimagined and growth a approach by supported key we brands as deliver categories global well be of recover. economies effective the prioritization organic commercial global product With leading to growth to highly

will to performance our believe market With revenue structure, a we lower cost compelling actions previously our trends costs. be we As follow. structure, improving implementing mentioned, are lower cost we'll and and analyzing

couple we forward report look fourth of talking in results. quarter So on to you months our a to to

This you, lines. for Thank joining you today. disconnect concludes call, our your may everyone, us and now