ACCO Brands Corporation (NYSE:ACCO) is a leading global consumer, technology, and business branded products company, providing well-known brands and innovative product solutions used in schools, homes, and at work. The company has faced its fair share of challenges in the current macroeconomic environment, but its resilience and focus on innovation have positioned it for long-term success.
Financials
In the latest fiscal year, ACCO Brands reported annual net income of -$21.8 million, annual revenue of $1.832 billion, annual operating cash flow of $128.7 million, and annual free cash flow of $114.9 million. These figures demonstrate the company's ability to generate substantial cash flow, even in the face of a challenging market.
During the first quarter of 2024, the company reported a net loss of $6.3 million, with net sales declining 10.9% year-over-year to $358.9 million. The decrease was primarily due to reduced volumes resulting from softer global consumer and business demand for the company's office products and computer accessories, as well as the planned exit of lower-margin business in the U.S. and Canada. However, the company's gross margin increased by 120 basis points compared to the prior-year period, driven by moderating input costs and the impact of cost reduction actions and price increases.
Segmental Performance
ACCO Brands operates in two reportable segments: Americas and International.
The Americas segment, which includes the U.S., Canada, Brazil, Mexico, and Chile, reported a 14.3% decline in net sales during the first quarter of 2024, primarily due to lower volume. The segment's operating income margin decreased to 6.2% from 8.1% in the prior-year period, reflecting the impact of lower sales volume and negative fixed cost leverage, partially offset by moderating input costs and lower SG&A expenses.
The International segment, which includes EMEA, Australia, New Zealand, and Asia, saw a 6.3% decline in net sales during the first quarter of 2024, also due to lower volume. However, the segment's operating income margin increased by 40 basis points to 10.5%, driven by moderating input costs and the company's pricing and cost reduction actions.
Business Overview
ACCO Brands is a diversified company with a portfolio of well-known brands, including AT-A-GLANCE, Five Star, Kensington, Leitz, Mead, PowerA, Swingline, and Tilibra, among others. The company's products span a wide range of categories, including note-taking products, computer and gaming accessories, planners, workspace machines, tools and essentials, dry erase boards and accessories, filing and organization products, and writing and art products.
The company distributes its products through a variety of channels, including mass retailers, e-tailers, technology distributors, discount and grocery chains, warehouse clubs, hardware and specialty stores, independent office product dealers, office superstores, wholesalers, and contract stationers. The company also sells directly through e-commerce sites and its direct sales organization.
Navigating Headwinds and Positioning for Growth
ACCO Brands has faced persistent global headwinds, including softer consumer and business demand, as well as structural shifts in the workplace environment. The company has responded by implementing a multiyear cost restructuring initiative, targeting at least $60 million in cost savings. In the first quarter of 2024, the company realized $4 million in savings and expects more substantial savings throughout the year as these actions gain traction.
As part of the restructuring, the company has streamlined its management structure, moving from three business segments to two. This combination has brought the leadership teams closer to customers, enabling greater engagement and collaboration. The company is also exploring innovative new product solutions to address the challenges of the future of work, with a focus on areas such as ergonomics and wellness.
Despite the near-term challenges, ACCO Brands remains committed to investing in incremental growth opportunities. The company's global platform and diverse product portfolio provide multiple avenues to bring innovative, new, and refreshed products to market. The company's pipeline of new products is robust, and it has received recent awards for some of its new offerings.
Liquidity
ACCO Brands maintains a strong balance sheet, with no debt maturities until 2026 and low fixed interest rates on more than half of its debt. As of the end of the first quarter of 2024, the company had $124.6 million in cash on hand and $517.6 million in available borrowing capacity under its $600 million multi-currency revolving credit facility.
The company's consolidated leverage ratio at the end of the first quarter was approximately 3.49 to 1.00, well below its maximum covenant of 4.25 to 1.00. ACCO Brands remains committed to deploying cash to fund dividends, reduce debt, make acquisitions, and repurchase stock, while also investing in growth initiatives.
Outlook
For the full year 2024, ACCO Brands expects reported sales to be within a range of down 5% to down 7%, reflecting continued soft demand and the exit of lower-margin business. The company expects adjusted earnings per share to be in the range of $2.00 to $2.07 per share.
For the second quarter of 2024, the company expects reported sales to be down 7% to 9% and adjusted earnings per share to be in the range of $0.30 to $0.33 per share. The company remains confident in its ability to generate at least $120 million in free cash flow for the full year 2024.
Conclusion
ACCO Brands has faced its fair share of challenges in the current macroeconomic environment, but the company's resilience and focus on innovation have positioned it for long-term success. The company's diversified portfolio of well-known brands, global reach, and strong balance sheet provide a solid foundation for growth. While the near-term outlook remains cautious, ACCO Brands' strategic initiatives, including its cost restructuring program and focus on new product development, are expected to drive improved performance in the coming years.