Business Overview and History: ACCO Brands Corporation (ACCO) is a leading global consumer, technology, and business products company with a diverse portfolio of well-known brands that are used in schools, homes, and workplaces. The company has expanded into higher-growth product categories while increasing its sales mix to higher-growth channels, including retail, mass merchants, e-tailers, and technology specialists.
ACCO Brands has a rich history dating back to 1903 when it was founded as the American Clip Company, specializing in paper clips and office supplies. In the 1920s, the company expanded its product portfolio by acquiring Swingline, a well-known brand of staplers and other office tools. This acquisition solidified ACCO's presence in the office supplies market and established it as a recognized name among consumers and businesses.
Over the decades, ACCO Brands has grown through a series of strategic acquisitions, including the Mead Consumer and Office Products business in 2012, which significantly expanded the company's product offerings and geographic reach. The acquisition of Esselte in 2017 further expanded the company's presence in Europe.
In response to shifting consumer preferences and the move towards more technology-driven products, ACCO Brands has diversified its product portfolio and expanded into higher-growth categories, such as computer and gaming accessories. This strategic move has helped the company maintain its market share and adapt to the changing industry landscape.
Today, ACCO Brands operates two primary business segments: Americas and International. The Americas segment includes the U.S., Canada, Brazil, Mexico, and Chile, while the International segment covers EMEA, Australia, New Zealand, and Asia. Each segment designs, markets, sources, manufactures, and sells recognized consumer, technology, and business branded products used in schools, homes, and workplaces.
The company's product categories include gaming and computer accessories, storage and organization, notebooks, shredding, laminating and binding machines, stapling, punching, planners, dry erase boards and do-it-yourself tools, among others. ACCO Brands distributes its products through a wide variety of channels including mass retailers, e-tailers, technology distributors, discount, drug/grocery and variety 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.
Financial Performance and Ratios: For the fiscal year 2023, ACCO Brands reported net sales of $1.83 billion, a decrease of 6.1% compared to the prior year. The company's net income for the year was a loss of $21.8 million, compared to a loss of $13.2 million in 2022. ACCO Brands' operating cash flow for 2023 was $128.7 million, and its free cash flow was $114.9 million.
In the most recent quarter (Q3 2024), ACCO Brands reported revenue of $420.9 million, a decrease of 6.0% year-over-year. Net income for the quarter was $9.3 million, with operating cash flow of -$25.6 million and free cash flow of -$28.2 million. The revenue decrease was primarily due to lower back-to-school purchases in Latin America and North America, as well as softer global demand for certain office products. These declines were partially offset by growth in the technology accessories categories.
The company's key financial ratios as of September 30, 2024, include: - Debt-to-Equity Ratio: 1.62 - Current Ratio: 1.77 - Quick Ratio: 1.09 - Gross Profit Margin: 32.8% - Operating Profit Margin: 8.7% - Net Profit Margin: -1.2% - Return on Assets: -7.3% - Return on Equity: -23.5%
Liquidity: ACCO Brands has made progress in strengthening its balance sheet, with a consolidated leverage ratio of 3.5x at the end of the third quarter, down from 4.3x in the prior-year period. The company has no debt maturities until 2026 and has more than half of its debt at a fixed interest rate of 4.25%, which provides financial flexibility.
As of September 30, 2024, ACCO Brands had a cash balance of $102.0 million. The company has a $600 million multi-currency revolving credit facility, with $569 million available for borrowing after $22.5 million in borrowings and $8.5 million in letters of credit.
Navigating Market Challenges: ACCO Brands has faced several challenges in recent years, including softer global demand, particularly in its office product categories, and the impact of the COVID-19 pandemic on consumer and business spending. The company has responded by implementing cost-reduction initiatives, rationalizing its product portfolio, and focusing on higher-growth categories like technology accessories.
In the third quarter of 2024, ACCO Brands reported net sales of $420.9 million, a decrease of 6.0% compared to the same period in the prior year. The company attributed the decline to lower volume, particularly in Latin America and North America, as well as weaker global demand for certain office-related products. However, the company's gross margin improved by 20 basis points due to the impact of cost-reduction actions.
Outlook and Guidance: For the full-year 2024, ACCO Brands has updated its guidance: - Reported sales are expected to be within a range of down 8% to 9% - Adjusted earnings per share are expected to be in the range of $1.04 to $1.09 - Full-year gross margin is expected to improve compared to 2023 - SG&A costs are expected to be down year-over-year - The adjusted tax rate is expected to be approximately 30% - Intangible amortization for the full-year is estimated to be $45 million, equating to approximately $0.32 of adjusted EPS - Free cash flow is now expected to be approximately $130 million - The company expects to end 2024 with a consolidated leverage ratio of approximately 3x to 3.2x, a level not reached since 2019
For the third quarter of 2024, ACCO Brands expects: - Reported sales to be down 5% to 7% - Adjusted earnings per share to be in the range of $0.21 to $0.24 per share
The company noted that the impact of exiting lower-margin business will be significantly less in the second half of the year.
Business Segments: ACCO Brands operates two main business segments: ACCO Brands Americas and ACCO Brands International.
ACCO Brands Americas Segment: This segment includes operations in the United States, Canada, Brazil, Mexico, and Chile. Primary products include note-taking products, computer and gaming accessories, planners, workspace machines, tools and essentials, and dry erase boards and accessories. Key brands in this segment include Five Star, PowerA, Tilibra, AT-A-GLANCE, Kensington, Quartet, GBC, Mead, Swingline, Barrilito, Foroni, and Hilroy.
For Q3 2024, the ACCO Brands Americas segment reported: - Net sales of $259.1 million, down 8.9% compared to the prior year period - Segment operating income of $25.9 million, down 23.4% from the prior year
For the nine months ended September 30, 2024, the segment reported: - Net sales of $748.6 million, down 12.0% compared to the prior year period - Segment operating income of $76.7 million, significantly down from the prior year, primarily due to non-cash impairment charges of $165.2 million related to goodwill and an indefinite-lived trade name
ACCO Brands International Segment: This segment includes operations in EMEA (Europe, Middle East, and Africa), Australia, New Zealand, and Asia. Primary products include filing and organization products, workspace machines, tools and essentials, computer and gaming accessories, dry erase boards and accessories, and writing and art products. Key brands in this segment include Leitz, Rapid, Kensington, Esselte, Rexel, PowerA, GBC, NOBO, Franken, Derwent, Marbig, Artline, and Spirax.
For Q3 2024, the ACCO Brands International segment reported: - Net sales of $161.8 million, down 1.1% compared to the prior year period - Segment operating income of $9.5 million, up 1.1% from the prior year
For the nine months ended September 30, 2024, the segment reported: - Net sales of $469.5 million, down 4.8% compared to the prior year period - Segment operating income of $30.1 million, up 14.9% from the prior year
Short Reports and Challenges: ACCO Brands has faced some challenges in recent years, including a tax dispute in Brazil. In 2012, the company acquired the Mead Consumer and Office Products business, which included ACCO Brands Brasil Ltda. (ACCO Brazil). Shortly after the acquisition, the Brazilian tax authority issued assessments against ACCO Brazil, challenging the tax deduction of goodwill from ACCO Brazil's taxable income for the years 2007 through 2010.
ACCO Brands has been actively defending against these tax assessments, and the ultimate resolution of the dispute remains uncertain. As of September 30, 2024, the company's accrual for this contingency, including tax, penalties, and interest, was $20.0 million at current exchange rates. The company will continue to monitor the administrative and judicial proceedings and evaluate their impact on the legal assessment of the ultimate outcome.
Conclusion: ACCO Brands is a diversified consumer and business products company with a portfolio of iconic brands. The company has faced headwinds in recent years, including softer global demand and the impact of the COVID-19 pandemic. However, ACCO Brands has responded with cost-reduction initiatives, portfolio optimization, and a focus on higher-growth categories. The company's strong balance sheet and financial flexibility provide a solid foundation as it navigates the current market challenges. While the ongoing tax dispute in Brazil remains a risk, ACCO Brands is committed to defending its position and protecting shareholder value. Going forward, the company will need to continue executing its strategic plan to drive profitable growth and shareholder value in the face of challenging market conditions.