Executive Summary / Key Takeaways

• ACCO Brands is strategically leveraging aggressive cost reduction and targeted innovation to counter soft global demand and challenging market dynamics, including the impact of hybrid work and new tariffs.
• The company has significantly strengthened its balance sheet through consistent free cash flow generation and debt reduction, achieving a leverage ratio of 3.65x in Q1 2025, well below covenants and nearing its long-term target range.
• Despite a Q1 2025 net sales decline of 11.6% year-over-year, driven by volume weakness and adverse FX, gross margins expanded by 60 basis points, demonstrating the positive impact of cost savings and favorable mix.
• ACCO is actively adapting its supply chain and implementing price increases in response to new US tariffs, aiming to protect margins and maintain competitive positioning, while also pursuing synergistic tuck-in M&A opportunities.
• Key areas to watch include the effectiveness of new product introductions (especially in technology accessories and hybrid work solutions), the impact of pricing actions and sourcing changes on tariff mitigation, and the trajectory of consumer and business spending.

A Legacy Adapting to a New Reality

ACCO Brands Corporation, a long-standing player in consumer, technology, and business branded products, finds itself at a pivotal juncture. With roots tracing back nearly a century through brands like Swingline, the company has built a global footprint across the Americas and International segments, offering a diverse portfolio from notebooks and binders to computer accessories and workspace machines. Historically, ACCO thrived on consistent demand in traditional office and school settings, augmented by strategic acquisitions like the Mead COP business in 2012, which expanded its international reach.

However, the landscape has fundamentally shifted. The rise of hybrid work, accelerated digitalization, and persistent macroeconomic uncertainty have muted demand in core categories. ACCO's strategic response is clear: a dual focus on aggressively optimizing its cost structure while simultaneously pivoting its product portfolio and distribution to align with evolving consumer needs and purchasing behaviors. This is not merely a reaction to headwinds but a proactive effort to reset the foundation for future profitable growth.

Competing in a Fragmented World

The competitive environment for ACCO is multifaceted, encompassing large, diversified players and more focused niche competitors. Direct rivals like Newell Brands (NWL), 3M Company (MMM), and Avery Dennison (AVY) operate across overlapping product categories, bringing varying strengths to the table.

Newell Brands, with its broad portfolio and established brands, competes directly in areas like writing instruments and storage. While Newell has faced its own growth challenges, its larger scale and R&D budget often translate to faster product development cycles than ACCO. ACCO, however, leverages its distribution efficiency and cost leadership, particularly in price-sensitive segments and through its e-commerce platform, enabling broader customer reach in budget categories. ACCO's gross margins (32.82% TTM) are comparable to Newell's (34% 2024), but its net margin (-6.68% TTM) reflects recent impairment charges and volatility, lagging Newell's ( -3% 2024). ACCO's debt-to-equity ratio (0.21 TTM) appears significantly better than Newell's (1.86 2024), suggesting a stronger balance sheet position.

3M Company, a giant in materials science, competes in areas like adhesives and laminating. 3M's competitive edge lies in its deep technological expertise and robust R&D, leading to products with superior performance metrics. ACCO competes here primarily on affordability and broad distribution. 3M's margins (Gross: 41% 2024, Net: 17% 2024) are substantially higher than ACCO's, indicative of its premium positioning and operational efficiency.

Avery Dennison is a strong competitor in labels and binders, known for technology integration and customization capabilities. Avery's growth rate (4% 2024) has outpaced ACCO's recent trends (-1% 5-year average revenue growth), and its profitability metrics (Gross: 29% 2024, Net: 8% 2024) are generally solid.

Indirect competition from digital alternatives (e.g., cloud storage, online collaboration tools) poses a secular challenge, potentially reducing demand for physical products. ACCO's reliance on these traditional categories makes it more vulnerable than competitors with more diversified technology portfolios like 3M.

ACCO's competitive advantages lie in its established brand portfolio, cost leadership in certain manufacturing and sourcing, and efficient distribution channels. However, it faces disadvantages in innovation speed compared to larger, more R&D-intensive rivals and is exposed to cash flow seasonality. The company's strategy is to defend its strong market shares, particularly in categories where it holds leading positions (80% of brands are #1 in market share), while selectively pursuing growth in adjacent areas and optimizing its operational cost base to remain competitive on price and profitability.

Innovation and Adaptation in a Changing World

While ACCO may not possess a single, groundbreaking material science technology like some industrial peers, its technological differentiation lies in product innovation tailored to evolving user needs, particularly in the hybrid work environment. The company's R&D efforts are focused on developing solutions that address new pain points arising from flexible work arrangements and changing consumer preferences.

Recent initiatives highlight this pivot. The Kensington brand, a key player in computer accessories, has seen a return to growth, driven by new product launches and an improving demand environment. ACCO is expanding its ergonomics line, a category showing promise, particularly in the International segment, and is evaluating broader introductions. The company is also launching new products supporting the anticipated Nintendo Switch 2 console launch in June 2025, an effort to drive growth in its PowerA gaming accessories business, which has faced headwinds from aging consoles.

Specific product developments mentioned include:

• Kensington EQ line: Focused on sustainable products.
• PowerA Beyond Console Initiative: Developing products adjacent to traditional gaming controllers.
• Swingline Optima Electric Staplers: A refreshed lineup for workspace tools.
• New ergonomic and business machine products: Launched in the International segment.

While specific quantifiable benefits like percentage efficiency gains or cost reductions for these new products are not detailed, management emphasizes that these innovations are designed to meet changing consumer needs, expand market opportunities (TAMs), and improve performance, ultimately contributing to better revenue outcomes and competitive positioning. The Kensington brand receiving three Red Dot awards for design and innovation serves as a qualitative indicator of the company's capability in product design and relevance.

For investors, the "so what" of this innovation strategy is its potential to offset declines in traditional categories and capture growth in areas aligned with future work and lifestyle trends. Success here is crucial for ACCO to improve its top-line trajectory and leverage its optimized cost structure for profit expansion, especially as it competes with rivals who may have more established innovation engines. The ability to translate R&D into commercially successful products that resonate with customers in new or evolving categories is a key factor to monitor.

Financial Performance: Cost Discipline Meets Demand Headwinds

ACCO's recent financial performance reflects the challenging demand environment juxtaposed with the positive impact of its cost reduction initiatives. In the first quarter of 2025, net sales declined by 11.6% year-over-year to $317.4 million (a comparable sales decrease of 8.3%), primarily driven by lower volume across office products and gaming accessories, exacerbated by adverse foreign exchange impacts. This follows a full year 2024 where revenue was $1.67 billion, down from $1.83 billion in 2023.

Despite the top-line pressure, profitability showed signs of resilience. Gross profit in Q1 2025 decreased by a lesser 9.8% to $99.6 million, resulting in a 60 basis point expansion in gross profit margin to 31.4%. This improvement was attributed to a favorable sales mix and savings realized from the global cost reduction program. For the full year 2024, the gross margin rate expanded by 70 basis points compared to 2023, reaching 33.2%. Selling, general, and administrative expenses decreased by 1.6% in Q1 2025, reflecting cost reduction actions offset by higher people costs.

The impact of lower volume and higher restructuring expenses led to an operating loss of $6.7 million in Q1 2025, compared to operating income of $5.9 million in the prior year period. However, the company's cost discipline is evident in the full year 2024 results, where adjusted operating income margin improved despite sales declines. Interest expense decreased in Q1 2025 due to lower variable interest rates and debt balances.

The company's multi-year restructuring and cost savings program, initiated in January 2024 with an initial target of $60 million in annualized pre-tax savings, has been expanded to target $100 million by the end of 2026. $25 million in savings were realized in 2024, with an additional $7 million realized in Q1 2025. These savings are expected to be split between cost of goods sold and SG&A, providing a crucial lever for margin protection and expansion in a soft demand environment.

Strengthening the Balance Sheet and Capital Allocation

A key highlight of ACCO's recent performance is the significant strengthening of its balance sheet, driven by strong free cash flow generation. The company generated $132 million in free cash flow in 2024, aided by cost actions and improved working capital management, including a 17% reduction in inventory levels. This allowed for a $94 million reduction in net debt during 2024.

As of March 31, 2025, ACCO had cash and cash equivalents of $134.6 million and $235.9 million available under its revolving credit facility. The consolidated leverage ratio stood at approximately 3.65 to 1.00, comfortably below the maximum covenant of 4.50 to 1.00. The company successfully refinanced its credit facilities in late 2024, extending maturities to 2029 and rightsizing the revolver, providing enhanced financial flexibility. More than half of the company's debt is at a fixed interest rate of 4.25% and matures in 2029, mitigating interest rate risk on a significant portion of its borrowings.

With an improved balance sheet, ACCO has adopted a more balanced capital allocation strategy. Priorities include investing in brands and innovation, supporting the quarterly dividend ($6.8 million paid in Q1 2025), continuing debt reduction towards a long-term target of 2 to 2.5 times leverage, opportunistically repurchasing shares ($15.0 million repurchased in Q1 2025), and evaluating strategic, synergistic tuck-in M&A opportunities. The recent acquisition of Buro Seating in Australia/New Zealand for $10.1 million in Q1 2025 exemplifies this approach, expanding the product portfolio in a new category within an existing segment.

Outlook and Key Considerations

The near-term outlook for ACCO is marked by significant uncertainty, particularly regarding the impact of recently announced US tariffs. Due to this dynamic environment, management is not providing full-year 2025 guidance. The outlook for the second quarter of 2025 anticipates reported sales to be down 8% to 12%, with adjusted EPS in the range of $0.28 to $0.32. This guidance reflects assumptions of muted consumer and business demand, changes in back-to-school buying patterns (with some pull-forward into Q1), and potential order delays or cancellations as customers await clarity on tariffs and demand.

Prior to the latest tariff developments, the company had provided a full-year 2025 outlook anticipating comparable sales to decline 1% to 5%, with adjusted EPS in the range of $1.00 to $1.05, free cash flow between $105 million and $115 million, and ending leverage of approximately 3 to 3.3 times. While this prior guidance is now subject to revision based on the evolving tariff situation, it reflected management's expectation for sales trends to improve throughout the year, driven by cost savings, pricing actions, and innovation.

ACCO is actively responding to the tariff situation by accelerating sourcing changes to move US-bound production out of China to lower-tariff countries like Vietnam and Malaysia, or utilizing its own manufacturing facilities. They are also implementing price increases in North America, with more anticipated in response to reciprocal tariffs, aiming to protect gross margins. SKU rationalization and offering item substitutions for high-cost products are also part of the mitigation strategy.

Key risks for investors to monitor include the ultimate impact of tariffs on costs, pricing, and demand elasticity; the persistence of soft consumer and business spending; potential supply chain disruptions; and adverse foreign currency movements. The ongoing Brazil tax assessments also represent a potential material adverse effect on cash flow if the company does not prevail in its judicial appeals, with a reserve of $19.3 million currently held.

Conclusion

ACCO Brands is navigating a complex operating environment characterized by shifting demand patterns and new trade challenges. The company's strategic emphasis on aggressive cost optimization, targeted product innovation, and strengthening its balance sheet through robust free cash flow generation provides a foundation for resilience. While recent financial results reflect top-line pressure, particularly in traditional categories, margin expansion demonstrates the tangible benefits of cost reduction efforts.

The lack of full-year guidance underscores the near-term uncertainty, primarily driven by the unpredictable impact of tariffs. However, ACCO's proactive measures to adapt its supply chain, implement pricing adjustments, and leverage its improved financial flexibility for strategic investments and shareholder returns are critical steps in positioning the company for the future. Investors should closely monitor the effectiveness of these initiatives in mitigating tariff impacts, the trajectory of demand recovery, and the contribution of new product introductions and M&A to future growth as ACCO works to optimize its performance in a dynamically changing market.