- Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen hello and welcome to the ACCO Brands Q3, 2022 Earnings Conference Call. My name is [Maxin] and I will be coordinating today's call. [Operator Instructions] I will now hand over to Chris McGinnis, Senior Director of Investor Relations to begin. Chris please go ahead when you are ready.

Chris McGinnis

Good morning, and welcome to ACCO Brands third quarter 2022 conference call. Senior Investor McGinnis, Chris is Director Relations. of This

Financial of are Chairman Brands call and on and and the Executive have Elisman, today in call Chief our charge President costs Vice ACCO the earn-out Adjusted measures in Speaking financial been the items Chief posted results contingent adjusted accompany consideration Boris other Officer O'Connor, reflect non-GAAP to related value other and Investor to a adjusted Executive transaction, Slides to the Officer. results fair and the of that Deb and and about this PowerA Corporation; reconciliation integration, tax section in and and in refer may forecasting reconcile amortization of Schedules accobrands.com. quantifying of do we Relations rate. restructuring non-cash, exclude measures comparable impairment goodwill release to this change speaking our and non-recurring measures. When measures earnings results, forward-looking adjusted accompany that at we directly and results. and difficulty Due slides GAAP to inherent non-GAAP not call. are the certain amounts, the the most these

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

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

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

hold remarks, prepared will we session. Q&A our Following a

call will turn the Elisman. I Boris Now, to over

Boris Elisman

Last quarter fact the the to more in press issued unchanged. year mid In outlook, third quarter us. highlighting guidance release end midpoint given and replenishment the at sales results, quarter cautious our adjusted joining we that reflecting for Europe, full retailers. you outlook Thank year and with we everyone. challenging, environment, high of updating at third by our our full morning, the a more proved economic our be and night, issued EPS third inventory Good especially the October,

past start to the intact. And we the solid to centric America. positives revenue few to and XXXX. by of and There diverse, and market transformative had consumer Let the in actions maintain our economy team saying The years fundamentals helped weather school geographically once improves. a in me growth the over throw organic sustainable the believe deliver have us strategy in more right be economic style North We we've solid the share back many a we business taken were quarter. has challenges are global

Our five of star and brands grew especially North share benefited the from sales commercial market dollars high. overall products Sales have school continue occupancy office to improve where America, in the rates office and outperform reached and to our in have in and pandemic return recently to market post back trend, season units. a

and brands in Kensington double computer quarter accessories digits Our category the year-to-date. the globally and third grew

These consumer Europe. U.S. operating as and education North grew successes from as energy in segment reduced on more dollar Brazil cautious environment replenishment sales were anticipated over comparable high well of challenging stance crisis to in why quarter a income retailers the America current in gaming shortfalls. sentiment sales in adjusted as have international Mexico. Ukraine in and significant stronger profit third than leading in almost inventory weighed reduced accessories at demand person a double EMEA, inflation In Our and the in XX% by returned from offset more the than sales

on the we inflation the January increases In facilities. of XX implementing in addition, in last price high of has over sales manufacturing lower region, costs the round our counter resulted in our be month volume stranded will fixed fourth X, To XXXX. rate

costs labor to discretionary variable are In to and implemented reduction looking be cost in we initiatives XXXX. demand have response at in spending reduced and structural lower addition,

environment in quarter computer and the in and low trajectories double quarter was and combined accessories challenging growth sales that EMEA, were third digits strong gaming both up in percent market While comparable year-to-date. the accessories sales continued

margin XXXX As to goods, quarter we declines American to back inbound to school, by our inventory volume third was cautious still and sales look impacted on more but EMEA related retailers costs gaming more rate transportation. to offset higher continued and outbound initiatives out will are profile. strength track and trends in to North negatively strengthen finished we're elevated, freight America, from with the accessories gaming currently expand to These growth by accessories. of lower The beginning expense In moderate. than North deleveraging to return and replenishment the in inflation office are

We P&L expect freight to costs flow commodities the through in quarter. and higher the fourth

and peaked, we has America the in While near that product that believe are in medium will overall levels term. there North the stay commodities at higher inflation certain

to and segments. and continue in growth in our Regarding growth opportunities, we'll our growth will expand we accelerate and believe term product game video our long EMEA category, assortment our as which accessories organic increase its rate international

sequentially quarter still high the down up sales but from pandemic prior are Third year. improved,

market accessories inhibit XX% end powerA The to the of year, share of and We availability market full down and production share is lack be Highlighting at assortment, in lower which expect accessories. chips, the in of relating the We challenged XXXX. market the accessories our the Beginning be in demand midst a which the high is a hold previous brand. expectations. the by of strength product and the placements, market continue market some gaming semiconductor for the to the continues have increased normalization new third from to approximately party console position of gaming pandemic. to now leading position controller gaming our

prevent term longer growth industry growth is trends, to expectation sales historically low return category final this at to digit for were Our double which in any rates.

navigate economic current an to these pricing and environment, We've the our immune right actions. cost challenges. we with not been aggressive to is have management brands strategy and team the ACCO While experienced

While our development market product invest continuing to go in to and initiatives.

other currently reduction to in our rationalization on more these being evaluating February. on the initiatives quality footprint, and our expect share hope including challenging you facility cost We We quarter fourth details and projects. with environment our initiatives, are geographic

transformation and all remain debt to sustainable confident well XXXX, in growth we fixed interest outstanding our no debt half low Additionally, revenue costs. until organic our maturities for of with drive and interest are rates annual capitalized the

protect cash profitability We have discretionary hiring, inventory, taken curtailing and to and spending free flow by reducing and capital expenditures. limiting actions

debt to greater with flexibility, amended generation prioritize a we was Importantly, which to and our flow and payments successfully your reduction. our allow and now covenants company's flow provide we'll combined bank answer current quarter dividend debt economic significant Deb? back to third navigate cash We're environment. come ACCO to strong generation cash will it brands also over I hand questions. to Deb the

Deb O'Connor

good morning, And Boris. you, everyone. Thank

charge income $X.XX from decreased less XXXX. million was and to amount $X.XX XXXX quarter a in compared This balance. offsetting decline acquisitions, compared of sheet last the was X% net GDC took our currency third was operating a Adjusted volumes million. lower of EPS EMEA sales the the balance million sales XX% need, versus goodwill such third $XX $XX income reported significant goodwill $XX In had million down charge to adjusted in $XX X%. in in goodwill Our our as and on we a segments. and represents quarter, almost was year. foreign The headwind growth XXXX million our $XX strong was X% North [indiscernible]. Comparable of We segments previous Adjusted impairment with than in international due non-cash as overall were quarter. America

anticipated, price, segment, charges in of which Given our our of our carries gross the margin and North America goodwill. was is which were our than why had decline. capitalization we of company's triggered is income review low, a a stock significant more a goodwill. our total our Inflation market headwind operating declined sales The more significant reflected than which portion previously

sales down, impact P&L inflationary as are our progress overall, to of in will experiencing gross fixed facilities, landing to the we effects our should through in Given XXXX. deleveraging the are their end to but improve a come continue their year, cost while profit costs beginning you lower

lower XXXX. million, percent investment in adjusted savings sales. quarter positive lower as accruals $XX incentive $XXX to by and as with compensation XX.X% million was go expenses last a continued cost a due and the Adjusted XX.X% Primarily of program. were offset result expense in Third our SG&A partially to benefit compared market above year's of FX of SG&A sales

of However, year-to-date percentage XX SG&A points. basis as sales was a adjusted down

SG&A remained term near Our at XX.X%. target

accessories. gaming our retailers inventory was to the turn results in to and due $XXX segment sales America XX% lower let's net North quarter. by Tangible replenishment for declines million. volume The in decrease decreased to Now

quarter, As in in well was not third to typical sales with income school U.S. previously and to availability. North approximately to sell by offset ensure higher transportation inbound in were product commodity discussed, growth decreased school performed retailers back purchased increases. year specific adequately We X% higher operating and retailers inventory than the price was comparable through less Back margin goods market season significantly outbound earlier Beginning adjusted the of replenishment up freight of America to due growth. that outpacing XX% than cost X%. anticipated. costs finished and the materials

X price EMEA another will XXXX. round like North of America Just January be implementing increases on of

inflation reflecting Net $XXX lower challenging accelerated adverse and remain The review manufacturing increases utilization fixed sales current offsetting winter to margin not and and XX% are Boris is a enough Comparable large of inflation to crisis energy therefore price Europe, In undertaking and down deleveraging through now. sourced the and raw crisis EMEA. our we which lower to into of turn increases. to costs. expect mainly locally more led primarily consumer energy have offset some demand effects. worsen end let's our footprint, of created especially sales Price sentiment were EMEA posted referred to of environment. materials. expected been to to the volume, were year million, this X% to million, to for low we which generally, income due $XXX have under significant volume declines, sales XXXX. down this our from manufacturing the operating facilities, Now

price accept January their cost mitigate increases. price However, progress and the inflationary sequential we these differentials, of to increases on impact the overall we cost are meaningfully making

customer more changes, frequent for renegotiating price to In several we allow are contracts. addition

were Moving to especially in to volume to demand and Latin and Net Mexico increase. sales Year-to-date, higher These a in by the quarter, $XX to contributing to price improved operating XX% use schools balance person sheet $XX flow posted had America, in notetaking and million were cash We leverage. international we driven third driven businesses reflects quarter the was volume. margin In than growth of due was work. comparable million second to Brazil. improvements adjusted the cash flow, and from and This more and increased generated XX%. rebound seasonality. items. sales income which than adjusted result improved high adjusted to expense International in Switching of at segment adjusted the our return lower and inflation expected flow. Sequentially free we operating free continue found quarter, and a products million $XX education as segment. cash rose but by encouraged see high remained sales the in sales inventory

much the payments goods quarter payable relatively as purchased accounts those our Our earlier of in by are for was end. inventory made low, are and year, balances

to for balance. our increase for down, headroom increases leverage then leverage of other greater beginning maximum leverage X.X the and inventory amendment the agreement, quarter financial fourth covenant bring economic XXXX we We ratio these a we normal times. payables with flexibility during The shift The interest announced in bank several a times rate items. which an of grid. challenging the and consolidated quarter the We As up into more is consolidated and the our should favorably with matching times. pricing allows to consolidated amendment company ended ratio five credit

million. at we X.X targeting times. We are CapEx to expect was term, be times X.X to end. still approximately X Longer year to $XX year-to-date ratio that X.X

million repurchased of $XX At for facility. dividends second of revolving $XXX X.X the of credit year-to-date pay $XX availability on also quarter in stock remaining million million end, we We million $XXX and shares our had quarter million.

rate not As our until debt slides XXXX. and more and half our maturity increases, by than fixed earnings have shown we interest of no is impacted on

our to Turning outlook.

cash are flow. in October earnings share We sales, free and adjusted for presented our guidance adjusted reaffirming per

For the X%. comparable sales full be year to our outlook to up is flat

I think period. really the resilience progress and shift of this the demonstrates transformation company the in and portfolio tough of economic a

range impact a the to sales, impact impacts on X% headwind of We is on expected year also amortization expect XX%. million, in to EPS. to which $XX rate adjusted for full is negative to is EPS. $X.XX to remain approximately to equates with EPS be adjusted tax be adjusted $X.XX. to of be a currency $X.XX expected adjusted X% year Intangibles estimated and foreign The $X.XX negative the Full approximately

cash free million. adjusted range of $XX $XXX CapEx our expect of to flow million within We be million after $XX to a

Looking we debt prioritize reduction. expect of at XXXX cash dividends for remainder continue and uses the to to

chasing been months. have for We inflation last XX the

their reflect to to with inventory sequential margin expect increases magnitude further in gross We This quarter, approach and prior adjusted margins in the savings with gross inflation. our will replenishment. persistence price to gross backing adjusted term long down versus along our is XX%. in challenge get us year. ongoing retailers the cautious an but January, continued due initiatives margin of be Sales improvement cost to fourth of significant will The the additional October is

Given be of of trend, continues, EPS and it we business to likelihood outlook. our expect the the tracking adjusted XXXX we our this that sales and certain Even areas will decline. market now current state, to achieve of will maintain the or increase expect our continues XXXX, the our growth to macro share. we and environment overall in in If many brands volumes midpoint

this However, perspective than look XXXX should resellers expected XXXX with or be partially conservative their XXXX offset to cadence were inventory. by is a differently and from to fully similar more when price. decline

effects at of to we a than XXXX $XX fact, first around impact quarter. adverse comparable half negative million In of expect approximately less sales levels XXXX be

expect your expand our and XX.X% remain margins rate to at in We gross to SG&A through XXXX. for

more cycle. year working by flow compared full expect a XXXX normal cash the free to We to grow profitability, driven capital improved and

additional February in when provide our will We annual we report details results.

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

Operator

comes Please Joe Thank you. Joe. Gomes ahead, [Operator question go Capital. Instructions] first from Noble Our from

Your line is now open.

Joe Gomes

taking for Thanks morning. Good questions. the

Boris Elisman

morning, Good Joe.

Joe Gomes

just these international the into outperformance parts all the rebound dive to are performing? just So and little the the Or wanted deeper the to get international Brazil? related this maybe Is of Mexico a in how other segment segment. of

Boris Elisman

macro those school to driven we years those difficult. policies mid week had performance But Offices in has It's being a small Brazil. Brazil the due strong couple half open. sales It's very is digits is many for those quarter. a They the two tough to COVID year the still Mexico in led growth very seeing in Japan. back And of we and both in but Schools Australia In part in as are we're of still seeing of have from business. open. just a small are Australia, very first a Asia and of countries rebounded in by recovering. COVID. strong of some QX. of decline Asia to in cases office school business by then back weaknesses with business And grown zero our outside in COVID has Mexico, look just for a and and of just lot high It in at countries preparation to well. of If single Chile done in countries, are

Deb O'Connor

very next offset the And as done in inflation well price the passing segment mixing well. to

Joe Gomes

Okay. that. inventories. And for Thanks on

to third You a anticipation. somewhat guys you come think be of come the built it the to to levels? you've be bit talked how like got terms more there little about down much They've How you'd do they inventory you've where came quarter. in in in down

Boris Elisman

to We still have ways go.

we inventory wish it the a sales, we supply this could in bit with volumes by lot last and by started high. We doing chain that down year. half that second year more difficulties, made done earlier a the picking build low year. slower through was We pleased have progress we've QX We in are the of pregnant still little

of to chain the there's So come year. a normalized fourth as we'll normal with and inventory this capital capital hold go come end we're early the be need still year, behind in XXXX. working anticipation my end to the more And this pretty reason make in we'll cycle next year cycle in supply much than to we progress that so significant once of really we'll able normal working a of quarter issues of be not

Deb O'Connor

you that's just on those is inventory also XX% you balances Yes, the Joe forget XX%, right, just if think inflation level. don't high about

Joe Gomes

right. Right,

more A if about Okay. may. I hiring environment. And one have of lot the talked companies difficulty in and the retention

finding that retain? people wondering Just want you to how you are ability retain people hire and/or to guys your you're

Boris Elisman

any the issues. year very But difficulties even with a it's has we're saw a flat. And having with competitive attrition bit little people. and in been attrition 'XX had of We hiring this still not year haven't running last a summer, We or market. pretty pickup

Joe Gomes

Great. Thank queue. into I'll get you. back

Boris Elisman

Joe. you, Thank

Operator

Thank you.

question ahead, Burns Our now is comes Please line open. your go Sidoti. next from Greg from

Greg Burns

morning. Good

With to times. the do foresee amendment, current think of about you and should you like from going Do five that here you're level flexibility rise to EBITDA foresee new with you covenant the leverage going how going the to What peaking down work forward? do feel leverage we Or given outlook? like kind there? where

Deb O'Connor

Yes.

So, fourth ratio, X.X. and Greg, as we're I kind this going XX, in talked XX be new about that of the to that quarter year

a differential. looking year you're not kind more headroom point we worse spread. be And but what highest to. really Yes. that work of that's this a of point would it kind point into kind we out, XX, than of go we XX lowest So got point, basis for differential or to as as basis the lowest XX next point, get uncertainty, If

Boris Elisman

leverage uncertainty the school. and we back five expect – headroom inventory as for we the expect get now environment. to don't we QX in flexibility don't to we to our given Typically, So peaks build and to [indiscernible] don't

that XX at be expect So as below to Deb points said, Xx. XX, least we

Deb O'Connor

thing one really seasonality and seasonality Boris that that is nice in have that going spoke first forward, second higher for and quarters so banks the too the Greg, supportive that were ratio we'll And, on the to.

Greg Burns

Okay, great. going inventories a stronger year. play the inventories, with the America, inventories the impacts, how that Can see you year side you about that gave the But And replenish about the of in talk How little in talk early Can inventories, you of part historically selling channel first currently standing? impact year next Where of inventories? half out? currently do it's to how channel you then a color to North does on retail those next business. standing. just just

Boris Elisman

on Yes, pretty the the doesn't will inventories lower. all on how will now be are the through and a right that depending retailers certain the to they way It all half hand, the It conservative in go year. number next first we sell is of with low weeks But channel. get through of expect able mean inventory, depends to sell is. retailers what on be through

remarks, both So they in the in the given because economic this more going that's Deb supply easing only what's to purchases mentioned early We chain, chasing to year. school. try chase chain inventory QX. inventory. prepare back for of bring they and They next be year, bought prepared think issues sales will with the happen challenges, not that additional will then and what's as to of necessary, in think supply to We

what XXXX. So happened we and think that in that's

they as think we more will inventory in QX likely in they with through half. it's is the And will bring be then first So in. conservative what's retailers sell inventory

Greg Burns

pre-pandemic how And Okay. think levels, is back business still? get pre-pandemic below that to do far side you commercial there? North And America, then levels of you'd the on

Boris Elisman

about. we're Yes,

it that. or of We lost, commercial at about pandemic, during you the thirds XX% up if So on side. we so made look call let's the two

offices, our So way down that's going are And back and about back we driving to and POS. yes, X%. people clawing we're are

up be we that able to in XXXX. it think they So make will

Greg Burns

Okay, your Or other that? The from strategy business North kind reset investments made? just needs do Do on in normalization think bubble? is of to And there fully be place that globally? the that that happen need and to what's of the you more pandemic expand footprint businesses to Or on is additional then America? lastly, kind powerA. kind of in to there pulling that status

Boris Elisman

Sure.

that comfortable The And and the still we do So been internationally. footprint growth. expand both well. globally, it's business invest feel my it's But globally XXXX. and very through Xbox affect both America, in has that to partially we'll very, do continue by going that normalizing also in of to just the There in ability X EMEA expectation in our will very that's chips And then to QX and is buy growing that that. day In we chain sales North PlayStation as some to PS-Xs of by issues. driven semiconductor the still the so as lack steel accessories. well and is wires shortages series continue supply chip people's

So playing people as games. demand that's normalization impacting and staying well availability of were home

that games. traveling going going out and powerA the growth that's still the business and playing they're But in do XXXX rebound in Now and recover to we QX. case we expect I be to and in XXXX. And think expect less in

Greg Burns

Great.

coming Just from America? mostly you to to Europe drilling North be outlook, to kind going is that that coming be of world the or from can North think America going and of Do or grow to is mostly Asia? rest growth the on that

Boris Elisman

it but expect in we would do We be America. grow. expect will to be than growth Europe But in and North much America, internationally America do higher North rates North growth

Greg Burns

Thank right. you. all Okay,

Boris Elisman

Thanks, Greg.

Operator

you. Thank

Please from from Barrington next Kevin Steinke go ahead. Our question comes Research.

Your line now is open.

Kevin Steinke

Good morning.

Boris Elisman

morning. Good

Kevin Steinke

Good morning Boris.

thoughts much how about of Just fairly you're But curve. is inflation cost the and progression? gradual some accomplished. January don't wanted But in by of price improvement light any and think still some maybe we to margin on the margin, know I progression. trying And a maybe gross just target, I in sense kind on of noted would assume should expect start and margin get you I gross gross below be implementing XXXX you off think still can that meaningfully to asking you that know, increases, reductions. X, of XX% wild

Deb O'Connor

and think a you're still but and cost be the gradual right. are going growth I improvement Yes. we we a exactly to lead fighting, here I'm expansion price, And started we third just in sit It's in board the to haven't add as gotten and quarter. still on, margin. the out now differential,

So XX%, X%, price. inflation, we've X% got XX%,

So on that's take it. up we've to got increase that we're price going that. still lagging, catch do do to and And January the to

gradual, be it's year. going right, And throughout is bit to be is, to the I you're the going it's think away. little XX% So a

Boris Elisman

I we're going Yes. to be But progress. in certainly until expecting throughout up be going XXXX. that catching think QX XXXX. get fully I We're we're making I'm to don't agree after going to XXXX. progress and in to that XX% number still

Kevin Steinke

Right.

Okay. Makes sense. Yes.

a catch meaningful be how little an your in mentioned in modifying are comments up price customers your contracts isolated get in a fairly to that sense can like increases, allow maybe broad to a You to some that and to few that that this. of of prepared to how for initiative as more was inflation maybe is terms ability to Trying quickly. more sounded

Boris Elisman

normal that's price We a more to do But EMEA. year. year, have enough. XX% when environment couldn't inflation That's And that's a frequent not really than specific okay. increases a twice you

develop. And, sure complain with to keep to the It's increases up to do decreases. works increases but modify contracts so are us the teams decreases, our will by ways. frequent nobody nevertheless, both with price it frequent more we I'm more So can working to way, allows about us the price customers interaction allow and both inflation.

Kevin Steinke

taking for the you thank Well, questions. great. Okay,

Deb O'Connor

Kevin. Thanks

Operator

question go [Operator Financial.please next BWS you. Our ahead. Khorsand from comes Hamid Instructions] from Thank

open. Your now is line

Hamed Khorsand

good Hi, morning.

from the stocking is order levels was, question first in lower the retailers? So intervals resulting shorter

Boris Elisman

Meaning you is what frequent orders and smaller more that mean? Hamed

Hamed Khorsand

Yes.

Deb O'Connor

is X correct. Yes, resulting it that. is That

Hamed Khorsand

you to efficient Are of structure? kind be that able in operating

Boris Elisman

quantity. minimum Well we have do order

below certain the So outbound a to They amount. included outbound and for amount. freight in it's pay price free is above have The freight. we charge certain

there financial happens for go in economical not it for a we wholesalers to keep certain small reality from orders incentive is to can really because and built we So won't, it's in to at what get is us. a them orders level

incentive there to built us. orders, is So frequent not make to even in is lower there for though it economic dollar more shifting inefficient

Hamed Khorsand

warehouses? and won’t Okay, and product to inventory how's changed in to relate retailers greatly how four that your the mix stock, years have the to does you what

Boris Elisman

B It look I really stock and the hasn't and [indiscernible] an from seeing recession. away and [indiscernible] offer they at within last, the and year, X, learning on mix changed and has continued changed driving being at accessories economic stock basis. economic And organization. skews, needed A seeing is items to and if I typically XX they kind individual being products just [indiscernible] over the the computer But years, want their forecasting is on and and if these really inventory becoming very in this skews of still this just replenishment is these as items much What's soft that in break very, are they to look that retail how it's retailers brought conservative certainly time. skews a outlook with given

Hamed Khorsand

Thank you. great. Okay,

Boris Elisman

Hamed. Thanks

Operator

concludes session today. This you. our Thank Q&A for

back closing Boris the to hand remarks. I'll for So Elisman call

Boris Elisman

continue talking is right ability organic economy environments report we performance our also thank are recovering. compelling as Previously, look quarter deliver in a to and We'll results. well everybody in market Thanks, believe ACCO our improved and brands. sales confidence months you. Maxine, to interest and we to well-positioned the growth, couple to and financial strategy We're the of Thank economic on we're global have you forward have to you current managed fourth challenges. difficult confident navigate for your results to in in

Operator

joining. gentlemen, Thank for today's you concludes and you. Ladies call. Thank this

lines. disconnect now may You your

ACCO Brands (ACCO) 8 Nov 222022 Q3 Earnings call transcript