ACCO Brands (ACCO) 3 May 242024 Q1 Earnings call transcript

Hello, and welcome to the ACCO Brands First Quarter 2024 Earnings Conference Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]I'd now like to hand over to Chris McGinnis, Senior Director of Investor Relations. The floor is yours. Please go ahead.

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

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

our a the and the release measures of difficulty inherent are that management directly the and statements to certain on in slides Due results, results and this the the items earnings annual amortization unusual rate based then accompany open adjusted earnings.Schedules results. information may call. we results and will charges Investor accompany made during and costs, us measures.Forward-looking the are assumptions to refer impairment exclude measures questions.Slides measures estimated forecasting reconciliation of that comparable the GAAP reflect most quantifying Adjusted these the adjusted this our goodwill other call the reconcile restructuring non-recurring Relations quarterly non-GAAP section tax time do in this We When and we line been items other accobrands.com. to not posted non-cash the on and amounts, statements available forward-looking to have and and of call on are non-GAAP for to financial about beliefs speaking adjustments based made. at to tax of

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

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

XXXX adjusted Chris. night, morning, of with within results $X.XX to and call. first everyone, Good range. you, welcome today's EPS Last outlook Thank quarter we reported our

anticipated actions our strategic a to flow margin pricing quarter as cost These enabled we in being healthy reset end for of improvement us with muted.Our the in While by end was ratio below regions, cash quarter our and planned of reminder, categories We to well versus the our managed year terms seasonally over and proactive, demand basis first of XXXX that us our million gross below last translated and effectively a be sales the into free with several combined enabled prior points. inventory the modestly covenant.As leverage QX $XX year remains rate the considerably is quarter, expand year. sales $XX at weaker with as recent of X.Xx a disciplined million the in debt a our and X.Xx, smallest our profitability. year of XXXX, ratio a last management, was than costs QX capital QX working down XXX would controlled

through of continue improvement relative balance we the We as to expect progress both in year. the

our down another from and XX% exit the the businesses and segment of and Sales with in basis, encouraged demand.On of the back-to-school end the of office season U.S. in of global half within from a headwinds remaining sales business for are products categories business consumer Brazil. pressured trends in creative X% Americas. products were approximately demand since sales our quarter and headwinds decline industry in our the sales most and than learning created planned lower-margin people X% technology with the comparable along the was as anticipated. have of the We at The improving office for Structural relating and how in office the will moderate persistent categories softer work shifts the decline in declined our represents by weaker believe accessories sales to the product quarter and second the pandemic. year.First the trends were that where softer sales rate the market in Canada

season declines down We important experts expect the compared these back-to-school future innovative U.S., to modestly industry and in for prior new exploring of sales work.For that continue to forecast are moderate sales solutions season the the challenges the solve to now the be year. product to of

year-over-year category. be label back-to-school products than greater broader private we lower-margin our to expect declines We exited the within the market as

We Mead gain upcoming brands back-to-school another Five with leading performance.The post-pandemic. year our offer value evidenced consumers season expect and the conditions market economic market have gains strong share underway our Star, category-leading as transcends our initiatives share by and pre- to brands for of

in the Canada environment While Brazil. demand the back-to-school weaker anticipated softer declines U.S. in expected good growth and the the products sales this for Despite and were season, we full quarter. in sales to had the weakness, than were due Brazil in season back-to-school for

concludes sell-through As year customer quarter.Based a good in in later was season and occurs reminder, on and customer levels are inventory first region. Brazil's in the feedback sell-in the healthy the back-to-school this year,

sales As a result, as we to move we expect throughout improve year. trends the

we products segment remained of sales are valued the activity. PowerA. faced Kensington, to top the stable expectations.Our current exceeding environment the with also shares our America.Our with in in the macroeconomic in opportunities due rest ensure leading key positioned highlight launches initial with demand closely pressures, like on introduced to QX year-over-year. the brands working Latin segment of the of challenging partners down economic the support also product declines several sales impact market segment Rapid, consumer across weaker well spending International categories capitalize The are segment The business on environment our in are and new We retail all line and Brazil Leitz, We to sales globally. within and with

cost margin controls, us allowing expand and in the operating discipline tight teams basis operating this price Our points. segment to maintained XX

for products, business pressures trends office sales computer core sales encouraging Kensington, our line significantly. businesses, we we our moderated Kensington While was improved seeing PowerA.QX our are accessories top declines and in global technology X as face across

wireless channel give leading work to a expansion. our remain We and that saw our market and international The anticipate choppy XX% Nintendo the are excess XXXX.PowerA, pipeline Japan. to anticipate through XXXX product We trends and of improving as we growth of navigate station, greater our move licensing and that growth dynamics inventory the through as solid their our in combination programs PowerA quarterly in us agreement the sales Our sales in return improve, of sales gaming of controllers driven the market quarter, and we will still excited about Kensington will remain innovative new licensing trends accessories by positions we inventory year-over-year uncertain global and supply video us agreements conditions opportunities launches we Epic in Sony brand Games, well. confidence in our with with as and with continue gaming Fortnite, grow gaming for of docking growth experienced both the largely category. maker and declines as behind XXXX partners

transition early the to feedback making long-term multiyear positive commercialization, company for still cost While me our days initiative receiving let against are partners.Now from we in profitable we the growth. we reposition restructuring our progress as an are update on the of

XXXX. year $XX first in this these program. X. our $XX are of structure, in moving quarter As teams we part million and series we savings substantial our cost brought of in actions savings the our expected have a We In enabling we leadership as closer are $X million our implemented to savings savings segments team to gain million from combination targeting business least has streamlined from traction.As multiyear savings of deliver a initiatives, at the in This customers, and on than track greater the quarter, collaboration. cost expect engagement to and reminder, successfully the throughout more X realized restructuring, more management

to program We global in encouraged even which with business profitability. having them more focus to to conversations area are ACCO additional our their the leverage our restructuring is position within to Brands our brands opportunities point as for assist are become scale by supplier to valued better achieving our strategic of the an we larger, improve we objectives.An customers,

step, assist and to opportunities better reviewing to productivity. we are processes use in technology initial tools to an harmonize As

our chain optimization supply Our service and is improving better delivering customer is enabling inventory work management. savings, cost on track and

to Importantly, market. to we product multiple investing products committed diverse platform new in to remain incremental opportunities.Our and growth Brands portfolio ACCO refreshed and innovative, bring global provide areas

enhance generation. early, with I'm foundation our reset to reposition structure, to long-term actions and execution of the are cash leading new a improve revenue management on we consistent are closing, our products. right our still for development solid of a pipeline focus have the moves product excited profitable new global the and about In taking cost free innovation flow the brands and growth.We company portfolio While strategic

Our reduce no our and strong near growth on flexibility as well initiatives balance fixed half debt provides sheet maturities until support invest debt of as dividend with interest debt to low in than more rates financial our XXXX and term.

experienced strategy. that leadership an successfully team have repositioning We will our execute

taking confident While Deb? actions come the we back and to over questions. term, will in now I challenges to the in am Deb near it answer are hand your remain in will XXXX.I

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

in continued as the muted. consumer demand and trend first remain expected, quarter As this business

These business, sales we a of and gross the improvements year outlook XXX versus due sales quarter XX% top our of sales impacted prior which the from sales moderating negatively accounted outlook.Offsetting reported margin the and line, led allowed in office by sales comparable the input back-to-school first However, benefiting season X% weaker of decline. lower-than-expected in improving categories combination Brazil, the the to costs year, within end-of-season and X% another back-to-school planned combination at our in for exit deliver basis adjusted points which shortfall end the range.Consolidated in of a and and in versus make versus our of actions. Brazil to XXXX EPS industry-wide cost product approximately progress our pricing prior which lower to continue trends softer lower-margin the rate, of decreased us to expanded

and declined in sales driven We declines due from comparable decrease the first overall Americas of was the exit the year prior lower in industry under of QX. full products to down Overall, by growth were a product which office we stronger moderating segment, for line continue trends.Gross was slightly XX%, sales. demand and season addition, In accessories.In business. was of of our offset X% $XXX global the products, of million see of soft SG&A in sales due trends gaming International. rates as versus timing our back-to-school the traditional X%. see operating $XX season sales by to In let's was and under of million, and addition, were the profit the reductions income purchases, for quarter expense Demand end the the in decline merit compared Americas to due by new up the million lower the lower-margin categories turn cost reporting reflected Adjusted lower accessories decline.Now The for Brazil to year This the was to our first Brazil for to quarter pressure. last X-segment our offset computer inflation. category quarter our industry-wide anticipated. volume earlier, first our structure segment demand results. the increases is million back-to-school are than $XX for did $XX we sales in in replenishment remains with

Tom Brazil in begins earlier, QX. QX season and ends back-to-school As in the in mentioned

improved versus first future Americas back-to-school the the season.The decline operating quarter this remain We expect XXXX, fixed would about rate income and in adjusted to for X.X% this from the International cost margin to rate.Now with our the cost the larger In Brazil segment. positive and expand quarters, forward expecting margin sales reduction our X.X% due volume our turn actions to in quarter in rate are year's let's lower was leverage. we going negative margin a

for the demand For and due the as remains X% soft volume quarter, our sales environment reported traditional to categories. declined first comparable declines

year. The the accessories flow and the margin was flow in and and rate segment increased income the the our in We to with significant first reduction our let's growth operating cash gaming modestly. quarter the items. decline adjusted of our of points in costs computer Historically, seasonality, and of are accessories. for we first down cash switch and cost pricing XX.X% income rate due adjusted basis across in generally second for half input International sheet operating to XX operating use the to cash our the to moderating adjusted actions.Now year balance margin half in seeing generate due improvement improvement income

the the resulted hard operating Our That's compared which this same working the of XXst. by the to seasonality the flow the flow driven last cash year. positive the in achieve working capital March of $XXX during $XX down very million quarter, million significantly historically capital. due total prior cash reduction year, improved prior been to as gross to has be Inventory first year, quarter of XX% from $XXX million. continues to time with debt We down than lower ended business.Free

the our $XXX we to Our cash million due dollars on In of similar fund Brazilian the and use year.At our to business balance quarter, credit availability revolving balance to largely million, quarter. our facility. had of in to Brazil quarter, end intend cash higher throughout $XXX was remaining the the last the of first million $XXX first those held We is year's collections. timing

our a rate leverage debt X.XX% last mature still targeting XXXX. XXXX. want does As Longer QX we on our more to covenant of than and X.Xx, of ratio our with a ratio from We and of is below X.Xx term, interest of until ratio. Xx down quarter not fixed for outlook slide, shown X.Xx half earnings a ratio well year I on you leverage consolidated ended of the the are X.Xx.Now update in at to our

we we to in shortfall see we tempering year are in full softer positive begin quarter sales our product demand office outlook the our until sales first category, Given some momentum. seeing trends the and the are

We second technology improvement economic throughout improves the as in expect especially continue half and year, environment to rebound. the the spend

year X% soft year, of X% continued for reported full exit the the the lower-margin to now We full demand year reflects modest down outlook anticipate also down increases to current in of season back-to-school sales within calls a Brazil.Our be in business. which for and range

per the For of range $X.XX expect we $X.XX full in the EPS to adjusted year, to be share.

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

Given the in to flow full our year, start million. confident the expectation $XXX strong we least flow free remain cash year that cash the for will be at

continue expect our down in certain I do to be our will of be in to debt exit at we end X%. Looking X.Xx.For to prioritize expect quarter, a dividends approximately want and we XXXX, highlight sales cash with uses of leverage to ratio down reported to most X% and Xx reduction the and expect consolidated top businesses to lower-margin in to line second second to quarter XXXX impactful that Americas our planned segment. the

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

Burns comes Instructions] with question [Operator First from Sidoti. Greg

to you've be In you've is to is that terms what done projecting Or of impact low-margin exiting, more the pruning done? be been much front? more to Or there more what business going of how -- there you're already just that the on go?

Greg, this Yes. is Tom.

question. let me So that address

Greg, exits, decisions QX is the we've it abates be and gross rates be QX the the a margin by pruning don't product biggest product of I portfolio, significant that the bit made what that's So we in we impacted moving optimized exits most anticipate this our on seasonally forward we've and But largest and quarter then or will after for part lock to felt. yet forward impact the our QX. moving business part, think year. business

range of And -- quarter, of it in of up does point Yes. an quarter in kind effect the up spike just spike quarter. the would to it the the talked Tom's we in first Greg, and does where year add, about end But X%. we second it the has I what X%, quarter, in second

core and make on view office Okay. Great. that core or have And on you a trends that anything in the it seeing going any positive demand going there? I more forward it your the office to the, are and trends, work trends new space view I front guess, function office Like there what's Or be just terms there? a is introductions? maybe guess, that -- make product might you're return seeing might the positive of you you then to improvement -- of

Greg. Yes,

than weaker was anticipated. QX we So

is is So use annual in came in we the the And the data excited a market our the forecast we to source anticipated that within office had which legacy which subscribe market weaker we're track. that U.S. in here than they some Circana, an we bigger some about. And have that share, We for There have. bit categories information categories. took data certainly spots a in QX of aggregation addition to that we bright

it's outperform thus why key we're well or are categories. be strong globally. we're really when We're outlook down.Our most categories share will think not to performing reason maintained as determined. bit gained in we market And positioned to rebounds, the markets We've our start of these year. categories a in the That's brands market the our our revenue to why outlook cautious being on exactly our think yet globally. brought we've for I rebound our sure

Noble Gomes turn Capital. to with We now Joe

soft. on Was just a or little back-to-school what malaise? make wondering there was of on color occurred anything get overall to so in last the there Brazil going maybe specific if more season I the part

Yes.

would that I few be color things helpful. Brazil, there the think happened in a So proper and are

our about as was years, Brazil up the really remarks we've Unfortunately, season, X years. in prepared back-to-school for talked season. back-to-school the It was is the X fiscal full season good in in year-over-year. So

back-to-school timing little And our a originally we anticipated. of was had the so different than

So a I the back certainly then that think driver the in that consumers. And market. of was pressuring big season. There's other half there's in persistent inflation the weaker things are certainly

grow partners season But market We share well we was and important a year Brazilian good season The next the cautious the in season than to back-to-school, we're overall, and different So late again. thus was felt we it positioned and little overall, very our had a QX. replenishment. we next go Brazilian into timing positioned retail anticipate our in for we're strong season. prepared business.So year's to continue as we the about fulfillment of shortfall to well moving think take really good. in demand were really that forward, the back-to-school environment we be in well little anticipated, think But

look Okay. Are distribution better of positives And supply you channels, than the the any at if you from getting any look other channels have? at distribution them? any are Or retailers office expected? you or the e-tailers performing the any or if big or box you your of

Yes.

QX the for quarter business. light So really seasonally is a

draw than we to important the believe so makes We to full of e-commerce to conclusions support to globally want want investments is and to the towards e-commerce to And perform our year and be our we're really going they're for looking across consumer. channels. hard that most them, to is We where all we believe our very sense it's distributed on do for But distorting and that channels be products. consumer us. better QX. But all equally continue continue retail

results, investments of and to distorted our through e-commerce our demand to that our own that's business partners. continue We driving get in most tend where is really see

if me, And Okay. for I may. one more

these cost you are you color from? that initiatives. talked can release additional else savings as come as provide at in facility anything savings You if some looking wondering add press looking at could you I additional just to cost where are where to the additional was about looking you rationalization? think Or you at,

pull really as Yes. cost at at Joe, long demand we out. evolve, structure where pulling and need to out we're you us good and as things and followed a time, our changes the looking

So tell this different make of now is at lot to and may reviews DNA, I we're sure some just in going looking through some you, a would we're ACCO's understanding we're where of come. But tight. that sort just of areas

the about careful to in we early growth. obviously to be year, investments it's protecting Joe, ensuring Yes, future drive and want we're our

drivers compromise I to think And future. so we'll you not and we'll to costs continue demand that's engross to manage the prudently elsewhere. and reinforce going innovation, to we're and to others important our And that invest in

Research. comes Our Kevin next Barrington question with from Steinke

people I -- much answer, to about the would a to any softer that again I can yes, I just don't the just demand in office way wanted changing the from? to macro you experiencing. if is how the you products way attribute wanted one you're softer to work there's softer apportion Might that demand but versus know ask environment? be coming tough where

it's Kevin, monitoring. Yes, and a one that our really good closely are teams marketing question

to So from there's shifts this brands to see are But there the opportunity believe need a we excited But And development occupancy to teams topic solutions I this that consumers a for thoughts for permanent. that teams. in product and can early in and don't are offer marketing solutions and our exploring catalyst I to our term. people in the forward. moving be are our really they do believe here I'm that support end in work in marketing that, that to think significantly products see users our office we are great us step changes work embedded environment. and these to and that stay, bring way on teams opportunities up our the near it's going changing

we're for revenue to reasons the a that one near of why balance it's the our being that on again, have year. in we And cautious to the for to just accelerate, see the term. going and bit Something don't outlook is change of

is said if I down expected slightly. I this, I'm Okay. reading And on too you cost talked, SG&A know to into the think but don't you savings, be much

down last saying quarter, to you were slightly. flat think I

savings? to So know Or cost on you're a is the bit if ahead about? million is still number don't $XX think that the I

Yes.

be $XX absolutely is we delivered is million XXXX. to believe in the So going the that number

We as to is that structure above manage revenue right, the will and we'll job cost sales sure that the in to we'll moves, the a that moving forward. that balance $XX our in of business. looking But And done support that means million. good slightly are come year, the prudently historically, of of likely for again, do make and continue we've

turn to now with Barclays. Hale We Holden

one script is just I summer. label, question. categories from had yours of in around Tom, you made your trade exiting U.S. would private seeing value back-to-school sort your brands down the the that label. to we're in And point carry private day other in away this in but what

I to there that risk wondering you was much guide was how the on were So or that around confident how assumption?

economic brand question. Yes, portfolio it's that for very is strongly The Star is It's supporting we're and value-enhanced have during Five diverse a it And financial brand. we we certain difficult a and our consumers serves obviously, about good great there very really robust customers, ACCO more and that back-to-school Brands categories seeing certainly, in are feel our Hale, time. down. thing one trade times our

of price a which value has quite is perform Mead, to well lower backdrop. brand consumers. the for Five we also macro at But proved So regardless offer Star a

share, label.So And I taking fourth that, you if fifth of in a kind was it's America. a promotions, of which year, with our market our important our think, market that our last job so market share. good in point competitors, that And our a important the do competing proxy, proposition. with marketplace. we North value sharp against combined bit of last brands on really year row our of year including as we're took of with all a the of sharp pricing we're And or private in think in we're It's

it's We've well be anticipate business, in our for that and well recipe partnerships work season. during years great different good that's to with and retailers over will no than this time. I got e-commerce, So perform year will a proven the previous

now [Operator Reuter with Bank Instructions] We of turn William to America.

here. question is couple you've first touched a a My times upon topic which of

You've improves. about talked the market when

for You've also -- being talked positioned and that.

see how office also to near term. the don't expectation is any really no occupancy You've about going there's you that talked improve -- in

the to to So the environment? kind what changes are or products types your least growth of could office of Like return what core that stabilize? cause drivers category at in

Yes, it's good question. a

really the we're So the of of to in needs the consumers the some I've alluded to address of work. work doing future that

is, we'll our a from that impact market. introducing into forward, moving expectation bigger, So have new larger on the we're revenue products

#X globally or is channels distributed in that categories we're sure making sharp, we proposition in moving share I of our a think that value making element critical across that is compete believe extremely all we big and important. and management the that's and our of is our sure #X organization, that team a focus are our That's growth the forward.Market that gains, matter brands also usually important.

making managing at component of piece growth.We're looking that business also that expansion. international driving our is of sure we're So a

So distributed others. got products distributed in that we've are strong strong aren't in that and certain brands markets

of So part that And in of kind of off balance at of that will this confident for it's better as macro for market the better moving price combination the there building of QX. the growth. markets. need trends, we looking we net occur, will sequentially, we're things forward. quarters believe positions are teams our along but the activities, those at with look we a Our leveraging to improving right? the certain tell, get When that that price, some And impact year, increases point then be the growth as ahead of business in strategy difficult

others? opportunity closely working more of certain of more like your some management to are your Got think there's those of different mentioned fill innovation, of for it in then it. some there that kind of sense. customers And product would you is You what their That of And sounds be? terms that kind makes innovation team categories the needs. than with

So there is are innovation? of what be needs customers from -- what addressed you could about some heard with that those have where

Yes.

needs to of of home, introduced. changing many that the coffee of little that a We've work.We're in professionals of So we're a working we're in there's hybrid gotten think So excited simply new categories, have that a working about not continue introducing. we've categories product going end at products anymore. users of on we more at something that They're in environment. that future sometimes at where the on also some shop, we some the recent out just right? about car, opportunities leaning is and as desk a been a talked they awards is work supporting across bit are They're work trend think wellness to their our they But grow.

area So have improve that wellness forward. we regardless the a in big when of of products that get an that's we're they don't opportunities and about into ergonomics a the we probably from tell opportunity in, the growing, about But excited we in doing until we're But future released. insights revenue it's where to of we past. work, pipeline, opportunities underinvested it. ton end We're users, typically robust and that think But the a and think been the moving today. our the are into can work really is after it's pipeline I intriguing you

then lastly for it. And Got just That me. sense. makes

a Americas. up And I in gaming there? late. Was of had the accessories little I what industry bit heard in soft kind that's driving to the the growth increase like correctly of -- I it was been is U.S.? a general, I think felt returned that of that guess, in

Yes.

business. to were growth up did So our PowerA globally. we XX% We return in

about We've We were the in year.Our Part driven well which in remarks. growth a of in also we the a last is to PowerA that talked prepared we bit It excited out that stock for the QX market we growth performed about. of share, brand that excited return is is stock in of products part grew some in, being expansion were positive marketplace. to see return our And it believe development. took by of to internationally. our U.S. a and And

year, but rest we're a start choppy the remains see we for bit market that the you're and will the that uncertain, to off However, for that and same the we PowerA. excited is we sales QX good seeing, think a be think things of

closing back hand concludes our now remarks. I'll This Tedford to Tom Q&A. for

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

for concluded. to has now your thank gentlemen, We'd today's and you like participation. Ladies call

now lines. may disconnect You your