ACCO Brands (ACCO) 23 Feb 242023 Q4 Earnings call transcript

Thank you all for joining. I would like to welcome you all to the ACCO Brands Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Brika, and I will be your moderator for today. [Operator Instructions]I would now like to turn the conference over to your host, Chris McGinnis, Senior Director of Investor Relations, to begin.

So Chris, please go ahead.

to Conference Brands Call. welcome Full Quarter and XXXX Year morning, the Fourth ACCO and Good This Investor Relations. Chris is McGinnis, Senior Director of

XXXX on our Brands is, Executive Speaking fourth quarter an today President year our call Chief results full our and and and and results overview Tom of Officer who'll provide Officer, priorities. today Deb is, Financial year Tom outlook. Also Corporation. Tedford, ACCO quarter full O'Connor, and detail will XXXX first Chief fourth on speaking and and our provide Executive Vice of President the quarter greater

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

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

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

call we turn as obligation made no going update to Tedford. are statements the Tom forward.Now to assume I forward-looking today, them, of and will over Our

finish results flow our and XXXX full you, outlook. X.Xx, stronger team's Thank allowed and against we the full free laid year us priorities cash well of results to year ratio EPS quarter lower full strong end Last and improvement we of with X.Xx reported our exceeding an These to compared at Good a to beginning call. fourth leverage reported as XXXX. the our year the adjusted with sales year. and night, The of morning, everyone, reflect execution fourth consolidated net welcome as quarter Chris. out year last

to ending throughout Our a the challenged to XXXX top successfully rate XXXX XXX margins extreme cumulative gross and at priority of we actions, of improvement gross the were pricing in the inflation.Through our rates, year was point due XXXX. margin restored to which of our pre-pandemic XX.X%, levels, levels a our cost to compared effect restore basis

in accelerated actions, million Additionally, ahead in XXXX.Our assortment we to efforts demand productivity allowed savings environment $XX our and the value to especially target the price-conscious we of the back-to-school, slightly global of year. us of X of the remained broad offerings win restructuring We footprint, the in delivered set at facilities to as our start over our announcing course environment. a of the challenging, rationalize from closure cost premium

units. share market the season gained and U.S. we In during back-to-school both addition, dollars in

growth We brands and key market. by continue to in refreshed products invest brought supporting to and new our

development. quarter on we our new are mentioned and innovation call, As third I sharpening product our on focus

we SG&A managing As controlling prudently and on well, a these of part of in we as put track initiatives.Lastly, our inventory the remained charge expenses restructuring, records focused and laser I leaders our with have best headcount. managed costs

the year, prior almost $XX reduced year. million inventory XX% versus For the by or we

computer our demand prior global to many challenged year. also and impact the in accessories spend year, priorities, fourth continued IT the reflecting for factors. in XXXX discuss significant our Kensington was headwind Kensington our purchasing full from of on categories.Our the PC branded a for results comparable touching lower were let down were X.X% Globally, me sales and full technology quarter which soft X our by Before category-specific year, PowerA, businesses, the sales and of

Universal of largest One Station. categories our product is Docking

docking years market market led last of as has considerably, station the year, oversupply as X PC significant discounting. in consecutive changed disruption Over to product of the competitive the well an

and strong segment gamer for partnerships The Sony. base we opportunity revenue agreements be strengthen provide Epic and with the term.On we announced will they on console a recovery revenue Near gaming the finished Japan sell and are of small video in XXXX.Regarding due in growth segment to represents While a basis, we was market significant in efforts. to agreement for will a beginning docking lower PC we but these Japanese basis, growth our made expansion recovery uneven term, sales as a about remained manage considerable affected inflationary the with accessories long International in in a by America. and in category, X% competitive also throughout announced industry-specific will our international EMEA, back-to-school expected retailers are we year PowerA. demand sales we anticipate in PowerA macroeconomic the remain the XXXX, as late one Fortnite, XXXX recently to the we Nintendo down. In was of our to continue which licensing most the comparable We third-party addition, North reflecting gaming tightly Games, popular late progress Latin licensing stations this accessories in by excited to week, and demand XXXX pressures. on in agreements environment this demand with rebound maker the Earlier both the franchises, led that economic on with dynamics. game environment accessories XXXX, third-party America up opportunity.In full recovery for muted, expect the inventory was basis, recovery a POS, XXXX consumer and soft PowerA-branded partial revenue of and

taking expect to company for Our we growth. a the XX% levels material we quickly cost lack XX% de-layer like our expand I'd office of in profitable acting than the been reducing forward.Now will million. U.S. while not at of work. are and the in because implement tailwinds the growth occupancy rates program we white-collar $XX commercial role CEO simplify In and channel XXXX late-January, from operating have restructuring to in cost to for to a anticipated workers structure in in-office prospects. are costs. were sustainable, announced reset improvement as targeting multiyear our going reposition pre-pandemic the lower highlight structure stabilized sales rates, of the I X changes least The We do to occupancy company's program Office long-term, months, at a and returning actions we have

accelerated to program, we the facility. of announcing our announced goal of global our Sydney, with the rationalization facility our profitability of asset New York We footprint total closure closures work improving manufacturing our our utilization.Given footprint continue review identifying a on X and complexity, also In under leverage recently our XXXX, meet capabilities. customers' consolidated operate also supply and savings leader. leverage our better deliver one globally we cost sourcing best needs. to ways our This chain global We scale, chain practices, better supply to are reduce will and

will of on a allow while refreshed channel in incremental and activities. our provide ideation closer of resources more new execution and products will and with opportunities market growth. category-leading be business focus gain to invest expansion to will them leaders As our share, important program, key customers innovation, supporting our cost brands.Additionally, and engage drive to This actions to frequently commercial our result restructuring

market to profile. We growth the are market, we we sales our refreshed excited opportunities There a at reposition by help introductions. see improve our how potential long-term our the to company to will that Brands profitable reinvigorate is bring the I new will as product and of to confident turn improve pipeline emphasizing flows. are ACCO call and portfolio projects over looking I about.Before cadence our to Deb, I the am future we I profits growth which We our a of strengthen and to want about for new cash products sustainable growth. have to across close actions bring am opportunity products excited for

We premium unmatched with resonate service Our products points, XXX geographically sell value brands local over price products that customer and our consumers. countries.Our range from deliver portfolio diverse consumers. to needs strengthened in ACCO which in is Brands these key today's with a has sets, to made and This supplier. trusted customers relationships the which our important to allows seasonal assortment win vast retail iconic broad appeal of

also have we around key years, commercial channels markets, and our the dependence mature in the repositioned reduced Over on retailers. company have

significant While debt. flow cash remain of part consistent we for to prioritize strong dividend generating future reinvest payments continue we'll and commercial reduce been cash have to products, traditional expanded the a our portfolio growth.We and flow, always of portfolio, have an generator free they beyond important

of low debt. our debt maturities sheet balance rates with Our no on half until fixed and interest is over XXXX strong outstanding

and in Lastly, have we categories taking, position questions. your the team of are ACCO it deep and will relationships. strong actions long-term Brands hand sustainable Deb growth.I we on now the They I'm customer execute knowledge and to a leadership compete an have profitable will answer to deliver the experience come we confident experienced Deb? over to back we'll with to we successfully

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

we slightly While we report our foreign currency in from of able benefit quarter, this were favorable the ahead to did and outlook, continued fourth sales exchange.

XXXX. inflation that recovering in company's challenged make the We profile our continue the from great margin progress in to margin extreme lost

profile above on adjusted us gross the deliver more margin want year, well, improved reduction we detail to and and allowed significantly in cash full our EPS program. outlook.I Our costs and quarter provide to fourth cost which the manage flow

to program in fourth America annual largely at in expenditures Total $XX the of least earlier, the the restructuring we recognized quarter, be related expected is $XX completion late-XXXX. targeting our of program, at pretax the North cash million million charges discussed Tom are million As XXXX. $XX segment. in program in savings to the In

overall this million for to help savings we a company in realize program. will both inflation, specifically We challenging flows sales and These growth. expect XXXX positioning offset XXXX, the benefit a to over and savings expect profitability from greater profits while XXXX, environment.In of merit in cash $XX stabilizing and cost

moving segments to Americas We X the will of new under segment XXXX. are International X begin and operating and with also first from beginning quarter the reporting

impacted was sales more quarter. comparable trends significant North continued the loading incentive the lower-than-anticipated competition. and fourth of the in for less.Sales to accessories, demand acquisitions. amount and our full quarter, a Reported by of up for was category charge saw EPS moderating few a per the reported our a let's points to challenges SG&A environment, volume by sales the as that reduction was effect charge constricted our goodwill throughout level Much computer to past our $XX million. impairment replenishing fourth costs. than decline $XX declined sales. the were office by only market income is both America, the was share throughout POS. X.X% products segment, have year. results. will were to uneven income XX.X% our cumulative accessories North growth offering.Gross quarter improved income $X.XX in we consumer per year, pricing segment the operating was retailers increase lower accessories year actions North to segment. increases quarter a volumes category, over points price trend, which lower million especially global Adjusted cost the was pricing despite EMEA. offsetting nonoperating especially the from adjusted consumer noncash as up compensation expense by challenged was product despite the expenses.Now America challenging full The due due to the weaker throughout more and back XXX and the sales of spending and and in spending compared relating from increase of a for of XX% results highlight PCs. down gaming lower and XX.X% offset pricing as Outside profit Adjusted North of decreased operating versus accessories to basis XX% the the addition, to took adjusted was turn to International cost due impacted declines the as the with were somewhat sales was our year increased to million their share $XXX Sales computer increased increases XXX the It the in In Comparable our the in growth more similar sales $XX $X.XX manage to versus the of In in offering, our turning a related year. an XXXX year. last previous the with of and due business operating Strong decline of also were full of fourth million, the growing quarterly I years.Now return SG&A from America tightly, reflected of million, and cumulative X% the let's fourth of macroeconomic goodwill $XX actions. level for XXXX The lower $XXX course reflects year, our increased prior segment turn were declines sales carries year exchange, sales, decline basis decline. than offset to sales. pension in controls as X% Adjusted expense. our as more in the quarter largely were inventory to IT demand. in America computer income prior than trends In million The in and margin excluding of to foreign versus actions.Now for gross margin declines prior year a cumulative year EMEA the offset normalized and fourth percent Adjusted XX% full the from year. interest of reflects adjusted for input cost effect both The in was operating

environment. decline, technology the due year, For to commercial X% Demand products were driver due volume main sales IT in largely reduction X% our adjusted reported our declines. cost sales income were Lower with moderating to as full due well of the the to the and input XX% remained margin to spend. income declined of actions full weaker year gaming to down and comparable and due challenged basis operating adjusted for income XX.X%, growing improvement operating adjusted the sales The EMEA's accessories the economic for increased almost XXX full operating for costs. points pricing was as year.

Our lagged of most impact pricing year, segment. recovered but extreme our to we margins.Moving of the this successfully actions last inflation International have the year,

For the growth recovery. due sales in overall and to price in reflects its America technology and full comparable weaker and by increased back-to-school The offset Latin sales Asia. reported increased were increases These reduced growth in both year, volume economy demand Australia X%. accessories as demand X% for partially lower continued and

of sheet actions, and were segment an adjusted flow to For posted compensation.Looking the spending full year, and and million, and incentive increase the an of more cash XX%. go-to-market International increase of points operating XXX $XX due margin items. adjusted income costs increased basis balance operating offset than cost people of to which higher XX.X%, an improvements and The pricing

remaining prior $XX free of XXXX. The significant ended the driven had availability facility. we the targeting As lowered in of adjusted had payouts. a capital versus seasonality, from the million and first inventory lower to we working we have million the X.XXx we previously improved as covenant revolving management our end in by million $XXX still well XXXX, X.Xx.At generate below in Longer XX% We 'XX was second ratio cash X.Xx flow incentive discussed, generally use our we and with $XX quarter of of leverage X.Xx, [ year-end, consolidated half of due cash million improvement year our of $XXX X ] ratio the year and million a by cash to credit at flow ratio. term, are down $XXX on year. half In was the the

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

anticipating demand are economic the softer We of spending. sales indications business consumer muted of given and uncertainty

to down In be products addition, are back-to-school our expectations modestly. industry for

expectation Kensington pace. our about computer PowerA also continue accessories, we earlier in to an at spoke recovery recover slower extended will a that Tom While believe of choppier, branded our

of consoles remain to the channels. by in our were product segment. primarily in year, low-margin decisions These American as We gaming life portfolio North of distribution expect the we end optimize approach muted for the exiting cycle.At made beginning business and strategically certain to our accessories our demand reducing their actions product

actions outlook providing for of reported full an Our in a be as XXXX adjusted full trends reset to we we down within per implemented, expect Therefore, when year us of calls range EPS for longer-term year, are to are to demand to full XXXX position improve and guiding year. sales the be as technology environment the deliver year are better half the a rebounds. undertaking, to to growth.For X% we we comparable We of economic to second do to be and X% believe range the the $X.XX a XXXX $X.XX will to currently spend expect of down outlook improves share.

improve be year related to will our actions savings consistent the full as cost to for year, approximately The compared pressures XXXX. is by to prior adjusted gross down SG&A be is costs. Intangibles approximately equates estimated expect margins tax $X.XX expected to to other inflationary to slightly be modestly adjusted which $XX the somewhat from to be full are EPS. We and flat costs offset or million, labor amortization XX%. year rate of to

cash $XXX be CapEx We flow after million least million. $XX expect at free our to of

and portfolio uses also approximately with dividends is expect of There typical, leverage North the and to compared EPS America X.Xx.As the disproportionately quarters. in in to X% and lowest our quarter quarter debt of earlier expect consolidated XXXX XXXX, other discussed given to sales second cash first first quarter. be ratio has reported prioritize reduction timing to will impact we at X.X% optimization sales level and to the The Xx the a that for quarters. continue second we back-to-school. sales Looking to of end in to more I and first first shipments in Therefore, expect variability the down down the

changed our In incentive versus will half year. of our phasing first the addition, to the of XXXX in due a compensation prior expense, higher SG&A be

EPS, reduce made the be the While in will half of this will first half up back change difference the year. entirely

Tom on Our for Operator? $X.XX happy be let's EPS move adjusted to of questions. per take a first where to to is range quarter I share.Now outlook your Q&A, will in to $X.XX be and

have from Burns Greg & first question We Instructions] Sidoti our of [Operator Co.

Good morning.

impairment, With to in the any acquisition the acquisitions it across you've portfolio particular? goodwill was tied of broad-based one that just Or done? was

interest No, that's look we forecasting right, basis cash that you review. once things It warranted And given joining. it, Greg. segment the the broad-based. a it's Deb. It's some that, but at that across Really, WACC had higher was of we've given goodwill for board. the and like rates was our get unfortunately, and just on Thanks flows, into challenges

what it seeing rebound year? view? as of look when stabilize confidence for we anything Okay. or And confidence half either you outlook into this that you then the Are you you in back you the that at technology see go that gives gives spending, in particular

this Greg, Tom. is Yes,

you insights a points give may address that question. insights me that or Let of help couple of

parts our some we technology signs to yes, accessories all, are of first see So of life business. of starting within

X% dip industry PC industry, So kind and dip historically The fairly historically of first we right? business, cycling saw in Number through X% for to CAGR a that's reason significant significantly. consistent has right, optimism. a the we're a pretty that laptop two, been

Windows different require rebound.In to you return the a you you in that deployments AI -- of have going and PCs XX, developments have Computing, of number new near tell term. it addition, would other we history that will So that are

confidence it number of us give So different that will a return. factors

it our we being cautious And likely before think story is view. a spend. into We more get are we in late-XXXX robust

give business that down can is percentage-wise? absolute maybe, it in the much peak How from if dollars, or you

to are Greg? accessories you And computer Yes. speaking specifically, the

Yes, yes, Kensington.

over digit year. last a good that double down in the we're category Yes,

Okay.

partnership And just at then PowerA, America-specific? it more then potential And of the your Is coming that the with agreement? Okay. activity the Epic? some there's Nintendo starting with of the you give on look licensing global us maybe a when of the some past few replacement there Can to what's side, North how also for ] nature from of Is and it think, pandemic you there? details gaming we're years new much Is switch pandemic switch? those business growth -- out happened about years bubble a I that X now. that a [ cycle a ago? levered we're potential is

Sure.

We So first, it. me take is a license. Fortnite It question. announced let just global the

commercializing in the So launches. to compete cyclical, and of markets Xbox fairly early it in. to And in tied and in of Nintendo. the tied disproportionately is general, business we're terms which is in we and it in And it stages Nintendo, our Microsoft gaming then, is console

heard not new will have We when the releases console hit definitively market.

do -- difficult rebounds nice for when rebounds it's specifically. see introduced. comment us new So we to But attach are consoles rates in

that to an opportunity is for the definitely so, us hit consoles expand when And sales market. those

close excited eye insights definitively Xbox keep a about any drop when We consoles. we're that. on new Nintendo the to and as but we will don't have it, So

now We NOBLE of Joe Capital. have Gomes

see what little Just wanted a quarter bit detail top into line? more if better-than-expected drove the could to dive in fourth you

Sure.

the quarter think And I we're fourth little the a of continues. the moderating to in saw future, hopefully demand as organization. we that throughout bit think, I look we

first like the longer being quarter kind about talked reflecting pressured, second quarter. the a of little that term bit we fourth As in but more more and year,

significant you to any seen from material or have Okay. products generic switch the And branded?

is Tom. this Joe,

or across We our thank shares significant the we question. any trend seen of share. in shifts closely, So in haven't key for and quite market categories all material you watch market

a economic our in it's specifically, answer -- each in XXXX market haven't candidly, ours trend in of take question is to the these But a And focus something shares beyond very attention seen in So and and categories. to change uncertain market times. that in is big close pay of we we it's to. shift material share or

well. held quite up Our brands have

the back talk exiting exiting? last about if one color are again, get you specifically what I for on more give queue. wonder you In me, one And low-margin And businesses. a I'll in could us release, little Great. Okay. you

Yes.

you. Another question, Joe, and solid thank

concentration of and globally, in business, business predominantly predominantly it's our around back-to-school is there we the And a predominantly exits the I'll those are private-label about moment. talk and But season. that have U.S. range exited So a that in business. it's

So it's earlier.While, way. and And half in the Deb gross team disproportionately frankly, frees team our to our mentioned impacting more it exiting capacity us a the impact of first year, sales positive focus margin those our on businesses, we're as frankly, of marketing it's in to up, streams. value-added revenue going

that just even wellness number the a decision, unsustainable So we believe was of the tough price that exits, market a positive the pandemic, saw a so global does category really that competitors, decision we mostly products points our term.And from specifically development and where by a we view net the certain as us, Asia short the it we come in to and certain were globally. category. product the have believe into exit line then in wellness business that categories to but the was within though space into for drive And the category we made top we exited impacted impact right down really

better primary think the and piece that conversation, drivers of long So both term. they those are X us we that the position impact

We have of Bank William America. of now Reuter

the on are Is your yours? Or new who competing products products with there? in manufacturers are are own? going So you additional that are it accessories. somehow terms mentioned branded gaming entrants What's firstly, with competition competition that some increased producing in making of

Yes, Bill, for thank the question. you

is more customers certain channels certain certain markets. bit of both. with So, the into They're markets. as new new is certain competitors expanded globally, entered in a their into into category entrants efforts. existing it's It they've some they've a in aggressive -- countries it and And new bit but getting not some

a in both that of the of factors at those dealing we it's category so, And with combination the moment. are

products they have are new the more the either to yourself. guys, trying strategy? What that is like introducing prices? any they not but introduce greater Are that being are Are Or is branded Are -- functionality? list lower more necessarily their promotional? they competition

actions promotions Yes. We're some globally in It's to space not pricing really on the competitive PEG seeing entrants retail. and into set. driven take new

trying differently in are we they the some a inventory cycle declining through likely of gain competitors excess However, seeing to as move and market act are share category.

term products experience. good with plans We our of in our add think retail consumers have think to we're long We more we gaming who a choose value value we're the We partners. place. for think positioned the So, all well PowerA. better

historically the So term. some we're are we what than things bit well that long think different But we XX we've little a have positioned seen seen in last months.

talk Okay. inventory And that or compare? those How sell-in the could your to actually are how those if accessories, then working inventory is on such slowing sell-through? traditional reduce businesses. are about X fourth their below in sales, retail, POS were computer How And the you the quarter? Office products levels in they do categories at due to

Yes. Okay. question, It's Bill. a good

of that POS, see business in inventory we in pretty a fairly current did information We category, sales I us. encouraging And improvement Deb categories for track U.S. number POS the POS reflected mentioned here trends our particularly We customers. development was depending our are is closely, typically our supply key an QX, year-over-year. positions which in think a of in consistent with moderated earlier, inconsistent of which bit But for what key being weeks mixed kind The down the see. reflected on our saw as that was isn't with and in So performance. in business, the we

as However, they are POS with POS are to well. buying purchases down being down, obviously,

with follow on later. Chris it and Great. I'll up pass

have Hale next question We of the from Holden Barclays.

of innovation. full-throated pretty of embrace kind a was that Tom,

us So focused categories thought I on were products much move was new some guys wondering needle? or if that you could could how give the you you

Brands we than at leadership historically have portfolio. it growth team development new entire really in big and Hale, product We into more innovation. heavily ACCO emphasis senior for our leaning Yes, a of in opportunities the is see product

headwinds. secular bit to going Now about to market we're going gains. It's be categories share are in going deploy a that some the have different be strategies to that

we follow can example, believe resources gaming, What disproportionately form reside. share?And computer will better and to categories, market accessories, We'll what introduce but the the lean them not going take obviously, changes; so across and to developments and in same, us factor where for can and console then we to each And to follow we certain we position highest growth in do? will opportunities distort right? investments of we're

lean be we've consumers the marketplace, categories. the some to businesses.That in to the growth other others. term, and provide investments focused long-term in mean businesses provide categories will us compared on absolutely in starved. with opportunities opportunities in So clearly invest rest Those distorted for accessories. the near options X computer will the accessories those us seen for reset We'll and the portfolio product that we're of gaming But get doesn't and with

you, shifts stock-based dollar terms that Great. And comp swing? I give half and a is of guess, coming in the between can the then, Deb, of comp incentive comp, second first cash SG&A on half us on sense that's or

any a historically I the it's swing. we mean Yes, that we year more. plan having half had Sure. aren't

into couple way. companies comp do us And And the to of kind takes most second. cents of whole back it's the of a it, half of looking how shift which is way probably out pro first so, rata our at incentive the

Appreciate it, Great. guys.

had final like to for Thank you. no hand would to questions. Tom I it any have remarks. back Instructions] We [Operator further

to talking We our in couple results. forward your quarter months you on to you interest to first in for a Thank of report Brands. look ACCO

Fourth Call. I confirm does for conclude Quarter today's XXXX all, Conference can and that you, joining. Full Brands ACCO Earnings Year Thank

the disconnect may lines day. rest enjoy You now and your your please of