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Edited Transcript of ACCO earnings conference call or presentation 31-Jul-19 12:30pm GMT

Q2 2019 ACCO Brands Corp Earnings Call

LINCOLNSHIRE Oct 2, 2019 (Thomson StreetEvents) -- Edited Transcript of ACCO Brands Corp earnings conference call or presentation Wednesday, July 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Boris Y. Elisman

ACCO Brands Corporation - Chairman, President & CEO

* Christine Hanneman;Senior Director of Investor Relations

* Neal V. Fenwick

ACCO Brands Corporation - Executive VP & CFO

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Conference Call Participants

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* Bradley Bingham Thomas

KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst

* Christopher Paul McGinnis

Sidoti & Company, LLC - Special Situations Equity Analyst

* Hale Holden

Barclays Bank PLC, Research Division - MD

* Hamed Khorsand

BWS Financial Inc. - Principal & Research Analyst

* Joseph Anthony Gomes

NOBLE Capital Markets, Inc., Research Division - Senior Generalist Analyst

* Karru Martinson

Jefferies LLC, Research Division - Analyst

* Kevin Mark Steinke

Barrington Research Associates, Inc., Research Division - MD

* William Bates Chappell

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 ACCO Brand Corporation Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Christine Hanneman, Senior Director of Investor Relations. You may begin.

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Christine Hanneman;Senior Director of Investor Relations, [2]

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Good morning. This is Christine Hanneman, Senior Director of Investor Relations. Welcome to ACCO Brands Second Quarter 2019 Conference Call. Speaking on the call today are Boris Elisman, Chairman, President and Chief Executive officer of ACCO Brands Corporation; and Neal Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com.

When speaking about quarterly results, we may refer to adjusted results. Adjusted results exclude transaction, integration and restructuring costs and reflect an adjusted tax rate. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in today's earnings release and the slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking adjusted earnings per share, free cash flow, net leverage ratio or adjusted tax rate guidance.

Forward-looking statements made during the call are based on certain risks and uncertainties and our actual results could differ materially. Please refer to our press release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session.

Now I will turn the call over to Boris.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [3]

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Good morning. We reported record second quarter sales and adjusted EPS continuing our strong performance of the first quarter. Sales rose almost 7%, excluding currency translation, led by the strong back-to-school sell-in in North America. Profit growth was driven by sales and excellent control of expenses. I'm very pleased by our execution year-to-date and while we will always have areas to improve, our results show that our strategies are bearing fruit and delivering good revenue and profit growth.

Let me remind you of our strategic imperatives to drive profitable growth, the path we've been on for the last few years. We're diversifying our geographies and channels organically and with acquisitions to have a larger presence in faster-growing countries and channels and to have less dependency on any one customer. We are focusing more on the end consumer, investing more in consumer-centric brands and categories organically and through acquisitions and are choosing routes to market that are more closely aligned with where consumers want to shop. We're developing more products within users-driven innovation as demonstrated by our recent launches of TruSens air purifiers, Foton 30 automatic laminators, Kensington SD7000 Surface Pro docking stations and Rexel Momentum and Leitz IQ shredders. We're laser-focused on reducing unnecessary costs in the business and improving the productivity of our resources.

Our Lean Six Sigma-based productivity programs generate substantial savings every year that are either reinvested in the business or returned to shareholders. We're diligent about execution, always the most difficult part of any business, but something that we at ACCO Brands do well every quarter and especially this year. And lastly, we're prudent stewards of shareholder capital ensuring that we invest in areas with good shareholder return, and this include acquisitions, or returning capital to shareholders. We have been working on these strategic vectors over the last few years and have delivered good revenue, EPS and cash flow growth. Our record results this quarter are another confirmation that our strategies are working and that we are capable of generating profitable growth in a challenging environment.

Now let me turn the call over to Neal for a review of segments, guidance and other financial commentary, and then I'll join him in answering your questions. Neal?

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Neal V. Fenwick, ACCO Brands Corporation - Executive VP & CFO [4]

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Thank you, Boris. Good morning, everyone. We posted record sales in the quarter, up 4%, based on price increases across all segments and volume growth in North America driven by strong back-to-school sell-in. We also reported record second quarter adjusted net income of $36.3 million, or $0.36 per share, based on higher operating income offsetting a $0.02 negative impact from foreign exchange and the higher tax rate.

As shown on Slide 7, gross margin was 32%, down slightly due to unfavorable product mix in North America and International and one-off expenses in EMEA. SG&A expenses as a percent of sales were down in the quarter to 18.4% from 20% last year primarily because of good expense management and leverage from higher sales. Operating income increased to $61 million from $52 million and operating margin expanded to 11.8% from 10.4% last year. On an adjusted basis, operating income increased largely due to cost savings and higher net sales. Our adjusted tax rate was 29.7% in the quarter. We still expect our full year adjusted tax rate to be 30% to 31%.

Now let's turn to some details of our segment results. Net sales in North America rose 9% driven by pricing of 7.5% that was needed to offset input inflation and tariffs. Volume contributed 1.5%. We saw growth in almost all channels and back-to-school orders have been strong and sales growth continued with the Kensington brand from new products.

As we mentioned last quarter, in our second and third quarters the faster growing channels such as e-tail and mass merchants carry a higher proportion of sales due to back-to-school shipment. Our initial view on our North American back-to-school season was that sales growth would be consistent with last year when we grew back-to-school sales 2%. We now expect it to do better than that and anticipate higher growth than last year's 2%. North America operating margin increased to 19.6% from 18.8% driven by cost savings and price increases, which offset inflation and tariffs. For the full year, we now expect North America sales to be close to flat rather than down low single digits.

In our EMEA segment, sales decreased 9%. Currency reduced sales by approximately $9 million or 6%. Comparable sales decreased due to the timing of Easter, which had benefitted the first quarter, and higher sales last year ahead of our warehouse moves and from the European privacy law implementation, which led to strong sales of shredders. Year-to-date, comparable sales in EMEA are up slightly. EMEA adjusted operating income declined $3 million due to lower volume and one-off expenses. We expect European sales to be roughly flat for the year on a comparable basis.

International segment sales increased 9% due to the GOBA acquisition in Mexico, which added approximately $12 million in sales. Operating income rose significantly on both the reported and adjusted basis from the acquisition and cost savings. Results within the International segment were mixed. Mexico rebounded versus last year with strong back-to-school performance in both our legacy business and with the Barrilito-branded products we recently acquired with GOBA. We continued to see good results out of Brazil, but it is their seasonally smallest quarter.

Australia results were lower as the market continues to be difficult with a slowing economy, customer consolidation and lost placements as customers focused on lower price points. Going forward, we anticipate continuing strong performance in Mexico as well as in Brazil as it enters its back-to-school season in the fourth quarter. We also anticipate continuing challenges in Australia. Overall, including GOBA, we anticipate low double-digit growth in the International segment for the full year. The GOBA acquisition impact was all in the first half and therefore the rate of growth in the second half will be lower.

Let's move now to our balance sheet and cash flow. We were very pleased that our high inventory levels protected our back-to-school margins, but as we discussed last quarter, it shifted the seasonality of our cash flow. This will self-correct as we collect receivables in the third and fourth quarters without building up the inventory as we did last year. We have not changed our view on the full-year cash flow as we anticipate a significantly stronger second half cash flow than our historical pattern. We used $62 million of free cash flow in the quarter. The large cash outflow was as expected. In the quarter, we repurchased 3.4 million shares for a total of $27.4 million and paid $6 million in dividends. Year-to-date, we repurchased 4.7 million shares for a total of $38 million and paid $12 million in dividends.

Given our performance year-to-date and our forecast for the second half, we are increasing our outlook for 2019. We now estimate that sales will be at the top end of our original range, which is flat, and this includes a 2% adverse foreign exchange effect. We are raising the bottom of our EPS range and now expect EPS to be $1.15 to $1.20 per share including $0.03 negative impact of foreign exchange. We anticipate that back-to-school will continue to be strong in the third quarter. However, the North American channels we are growing in are not as significant in the fourth quarter.

In addition, in last year's fourth quarter we released incentive reserves of almost $7 million and given our performance this year, we will be accruing for incentive compensation. Therefore, our fourth quarter will be a very difficult comparison. The outlook for free cash flow remains unchanged at $165 million to $175 million. We anticipate year-end net leverage will be down from last year. As always, we have included certain assumptions in our slide deck on Page 13.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Bill Chappell with SunTrust.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Boris, just want to dig a little bit further into the North American performance and kind of what you're seeing. And maybe if you can break down what you're seeing out of the category. Do you expect back-to-school to be kind of, as a category, to be up year-over-year this year? Is it more share gains? And mainly, I mean I understand the pricing benefit, but just trying to understand the volume and then what you expect over the next -- as we move through back-to-school season.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [3]

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Sure, Bill. The growth that we saw in North America has been very broad across many categories and many channels. We saw growth in mass and OSS and in e-tail as well. We got bigger placement for Five Star, Hilroy, Kensington, GBC and Quartet brands. And we also gained a lot of private label business for back-to-school. And remember from a compare standpoint that's one of the things that we lost a year ago in back-to-school. So we're set up for a very good back-to-school and, as Neal mentioned in his prepared remarks, we expect the growth to be stronger than 2% that we experienced last year. Given our 9% growth in the second quarter, I certainly do believe that we took share. I don't think that that market is growing at that particular rate. But we're set up for back-to-school. Obviously, we'll have to see what happens during the season. The season is just starting so it's a little bit too early to comment on that.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [4]

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And is the thought or the hope that OSS is finally less -- not enough of a drag to offset kind of the gains you're seeing in the other channels and maybe we're through the multiyear consolidation impact?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [5]

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That certainly is the hope. And we have seen that especially in the second and third quarter when mass plays a much bigger role in our seasonality. We're seeing the pressures from OSS consolidation to be a lot smaller in those 2 quarters, and then in the first and fourth quarter they typically are larger. But certainly as other channels become a bigger part of our mix, the negative effects from OSS consolidation will be felt less. It is important to reinforce that we did see growth in OSS in this particular back-to-school sell-in, in this particular Q2. It wasn't across all customers and channels, but overall if I combine all the sales we did see growth in Q2.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [6]

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Got it. And then last one just back on Europe. Maybe a little more color and what's going on. And I can't remember the exact impact expected from Brexit, but as we look over the next few months, I know you have a meaningful U.K. business and how you're expecting that to affect the P&L.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [7]

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Sure. Europe had a difficult compare versus a year ago. We grew a lot a year ago. We had a couple of one-time things happening a year ago that boosted revenue. We moved a warehouse so we shipped ahead of that. There was the European privacy law, GDPR, that was launched in May of last year and then drove a lot of shredder sales in May -- in June. And also we had a, well, kind of a holiday shift that benefitted Q1 and took away from Q2. So that affected European sales. We are seeing a slowdown in the U.K., to your point. So we do expect that Brexit will affect sales to some effect. The good thing about our business in EMEA is that U.K. is now a much smaller percentage of our sales. It used to be around a third of our sales in Europe. Now it's down to 10%-12%. So we believe we can be flat for the year despite some of the challenges that we expect to be in the U.K. associated with Brexit.

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Operator [8]

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Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [9]

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Congrats on the nice quarter here. I wanted to ask a couple of follow-up questions on North America if I could. I guess just to ask it directly, do you feel like there were any timing nuances in terms of the timing of shipments that occurred? Because I know sometimes there can be some shifting between 2Q and 3Q in orders. And how is that playing out this year?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [10]

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Yes. That's a good question, Brad. We don't think that the shifting was significant. There's always shifting, as you mentioned, between Q2 and Q3, and some customers want it a little bit early, some customers want to be a little bit later. But whatever it was this year was not really significant to change our view that the back-to-school we think would be better than it was last year, the back-to-school growth will be better than it was last year.

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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [11]

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And then just putting it into context. I mean this is a very strong 2Q in terms of North America growth. Do you still believe you can grow sales in North America in the third quarter? Or do you think this may make a tough bar for posting growth in the third quarter specifically against what is a pretty easy comparison in the third quarter last year?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [12]

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No, we think back-to-school season will be good. So we always aspire to grow. We achieved our results in the first half in North America. It was an especially strong Q2. We believe we can grow in Q3. Q4 becomes more challenging; one, because we have a little bit less visibility in Q4 and, two, as I mentioned, that's where the more challenged customers become a bigger percentage of sales. So growing significantly becomes more difficult.

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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [13]

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Great. And then some of the new products clearly seem like they're having a strong launch and getting some traction out of the gate. I mean when you think about new product introductions, I mean are they big enough to kind of call out as a specific percentage of sales and worth calling out as how much they contributed here to this quarter? Or are they still more in their infancy at this point?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [14]

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It really depends. The products that I mentioned, if we look at shredders that were launched very early in the year, we achieved sales in the millions of dollars so certainly it has an impact on the first half revenue. Some of the other products that we talked about, such as TruSens, a Foton 30, those launched in the middle to end of Q1 so talk about $518 million in revenue, it doesn't really have a huge effect on it.

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Bradley Bingham Thomas, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [15]

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That's helpful. Congratulations.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [16]

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But the growth has been significant, Brad. The growth has been significant and the trend is up to the right and certainly we hope that at some point in time we'll be calling out the exact amounts that are delivered by those products. So yes.

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Operator [17]

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Our next question comes from the line of Chris McGinnis with Sidoti & Company.

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Christopher Paul McGinnis, Sidoti & Company, LLC - Special Situations Equity Analyst [18]

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Nice quarter. I was wondering if you could just maybe comment on the wholesale market that you serve into and how that's performing. And is that picking up? Or are you still seeing some kind of headwinds with the consolidation?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [19]

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Yes. If you remember last year we had a lot of inventory being taken out of the wholesalers, U.S. wholesalers. We've seen that normalize and we're seeing a normal operating performance out of our wholesale channels, actually on a global basis. So there's nothing unusual about the pattern that -- sales pattern that we're seeing with wholesalers.

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Christopher Paul McGinnis, Sidoti & Company, LLC - Special Situations Equity Analyst [20]

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Great. And then secondly just with the change with the credit facility. Any thoughts about changing to maybe a more consistent strategy on the share repurchase?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [21]

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Could you elaborate on that, Chris?

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Christopher Paul McGinnis, Sidoti & Company, LLC - Special Situations Equity Analyst [22]

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Just with the change in the credit facility. I mean obviously you've been pretty proactive with share repurchase, but you were [attacked] before. Now that opens you up or frees you from that. Is it maybe more consistent in the sense of you're going to dedicate a certain amount of free cash flow to share repurchase a year?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [23]

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Right. So just as a reminder, we refinanced our facility, as Chris mentioned. And from a practical standpoint, as long as our leverage stays below 3.25 we don't have any limitations on share repurchases. We expect in Q2 and Q3 to be above 3.25, which means we're limited to $75 million, but limitation to go away in Q4. And we don't believe we'll be buying $75 million in the first 3 quarters anyway. So we won't have a, from a practical standpoint, the limitation on our repurchases. And then from a strategy standpoint, we remain opportunistic when it comes to share repurchases. If the price is right, we will be buying more shares, and if the price gets high, we think that from a shareholder return perspective, we can probably deploy our money better somewhere else.

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Operator [24]

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Our next question comes from the line of Kevin Steinke with Barrington Research.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [25]

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I think when you initially gave your outlook for 2019 there as an assumption that there would be some degradation in sales volume just due to the significant price increases you were implementing. I mean it doesn't sound like that's been the case, but have you seen that at all in reaction to the price increases?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [26]

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Yes, you're correct, Kevin. We assumed pretty much a 1-to-1 offset between pricing and volume and we have not seen that. So the effect of the price increases has been -- the negative effect has been less than we anticipated.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [27]

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Okay. That's good to hear. And then Neal mentioned somewhat of a headwind in the fourth quarter from accrual of incentive compensation. Just how should we think about that in terms of a margin impact for the remainder of the year?

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Neal V. Fenwick, ACCO Brands Corporation - Executive VP & CFO [28]

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It was a $7 million, or close to $7 million release we had last year, which we won't have this year. So it's literally it's a $7 million impact on Q4 operating margin.

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Operator [29]

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Our next question comes from the line of Hamed Khorsand with BWS Financial.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [30]

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Just a few questions here. Could you just talk about on the back-to-school that you're seeing the volume increase for, is that coming in with a higher ASP than what you've usually been accustomed to as far as what your customers are buying? Or is this low ASP kind of business; it's just volume-driven kind of revenue?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [31]

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It's a combination of the 2. We have raised prices on those products that were affected by inflation and tariffs. So on those products, we are seeing a higher ASP. But we also won incremental private label business, which is typically more commodity, low ASP business. We haven't -- I don't think we've done analysis, Neal, of the overall portfolio ASP. But I believe it would be a combination of the 2.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [32]

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Okay. And is that commoditized business that you're opting for winning, is that purely just to run your manufacturing at an efficient rate? Or why are you going after that business?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [33]

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It's a profitable business. It gives us marginal profit dollars, good for our shareholders, yes. And I've talked about it before. We look at that business opportunistically. If it's accretive to our bottom line, we would do it. If not, we won't do it. It's not strategic for us in nature, but given the incremental revenue and profit dollars, when we can get it we want it.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [34]

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Then on the accounts receivable, is there any credit quality issues here? Or has there been net terms extensions? Just if you could just provide some color as far as the increase.

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Neal V. Fenwick, ACCO Brands Corporation - Executive VP & CFO [35]

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The increase is fundamentally driven by the higher sales. And so you've also got the acquisition of GOBA, which year-over-year makes an impact on the A/R balance. But the biggest issue is just high sales in the second quarter and the timing of those sales, which, as you would understand, with back-to-school being a big constituent part, they happen late in the quarter and so they will just end up on A/R at the end of the quarter.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [36]

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And DSO days are comparable to last year so we don't see any kind of incremental risk.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [37]

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Okay. And my last question is just on that product warranty comment that you made. Is this new products that you had issues with? And could you provide some aspect of what the impact was and if there was any manufacturing delays because of this product warranty issue?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [38]

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Yes. We had some quality issues in Europe on some of our products. So we had to -- some reserves associated with that. The products are fairly new. They were not launched this year, but they were a fairly new subset of a line. So we're working through that. We think from an impact to the end user standpoint as well as the financial reserve standpoint that's all already incorporated in our numbers, I mean, beyond this. But it did affect our results especially for EMEA second quarter.

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Operator [39]

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Our next question comes from the line William Reuter with Bank of America.

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Unidentified Analyst, [40]

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This is Mike on for Bill. Can you talk about the potential impact of a 25% tariff on the List 4 items?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [41]

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Which one are you talking about? There are so many of them. Are you talking about the $300 billion one that people are speculating about?

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Unidentified Analyst, [42]

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Yes.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [43]

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So obviously if tariffs are raised on the remaining Chinese imports, we would have to pass through those tariffs on to the consumer. Neither us nor we believe other manufacturers there can absorb a 25% cost increases, is what this would be. And we would have to pass it on. We don't think that it's likely that these $300 billion will be implemented, but if they are we will pass them on.

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Unidentified Analyst, [44]

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And is there any estimation about the dollar value of that?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [45]

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If you look at the tariff impact that is already in place, which is roughly the same amount, it's on the order of $28 million. So basically you would incur another $28 million in additional costs if the other $300 billion would come into play and we would have to recoup that $28 million in additional pricing.

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Neal V. Fenwick, ACCO Brands Corporation - Executive VP & CFO [46]

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The likelihood of it impacting this year, though, is getting low just given the way the calendar is working and how long it takes us to be able to implement price increases. So the effect is always at least a quarter out from whenever anything occurred.

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Unidentified Analyst, [47]

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Got you. And then lastly, could you talk about what you're seeing in the M&A pipeline and how you guys are looking at valuations right now?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [48]

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As I commented before, acquisitions are a core part of our strategy as we try to change the profile of our business towards faster growing categories, channels and geographies. We are very disciplined in our approach. There's lots of potential acquisitions out there, but we're disciplined in our approach and we only act if it makes sense from a return on invested capital perspective for our shareholders. Beyond that, I can't comment on any specifics.

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Operator [49]

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Our next question is coming from the line of Hale Holden with Barclays.

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Hale Holden, Barclays Bank PLC, Research Division - MD [50]

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I had 2 questions. In the slide deck, you called out enabling independent dealers to increase direct purchases to become more price competitive. I was wondering if you could give us some more color on what you're doing with the independent dealers in the U.S. and what the opportunity set was there.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [51]

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Yes. We launched a program a few months ago to enable independent dealers to buy directly from us in economic order quantities if they want to, and therefore they can avoid the wholesaler margin and be more competitive with e-tail. And the program has been very successful. We had a lot of adoption. Dealers still have a choice whether they want to buy through a wholesaler or directly from us. And a lot of them make those decisions based on not just pricing, but the credit availability and some of the other factors, warehouse space, et cetera. But we have seen a positive uptake on that program. We have more dealers buying direct from us, which allows them to compete more effectively with their competitors. And just as an aside, we have very successful independent dealer initiatives in EMEA where the majority of our sales actually do go directly to independent dealers and not through wholesalers. And as a result, our dealer business and overall business in EMEA is very healthy and robust. So what's happening in North America, in a way, is mimicking what we've done in EMEA over many, many years.

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Hale Holden, Barclays Bank PLC, Research Division - MD [52]

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You had also called out good sales flow through to the wholesalers or expectations of that in the back-to-school. So I assume that there's been sort of no blow-back to you from that channel.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [53]

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No. I mean obviously wholesalers want to have dealers buy directly from them. But our sales with wholesalers have been growing. Albeit, it's because they were taking inventories down last year so the compares are a little bit easier. But no, we haven't seen a lot of blow-back from wholesalers on that.

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Hale Holden, Barclays Bank PLC, Research Division - MD [54]

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Got it. And then my second question was, in Europe I think the office superstore is a pretty small component of what you're selling into, but we had seen headlines earlier in the week that one of them was -- had a factory that was not providing support to them. And I was wondering if that was an issue for you guys at all or not.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [55]

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Yes, the environment in Europe is very different, as you said. Superstores are a very small percent of the business in Europe and because they're such a small percent of the business in Europe, we effectively can offset some of the headwinds that we've seen from them over the last several years with growth through other channels. So yes, we're aware of all the happenings in Europe. We don't think it's going to have a material effect on our business there.

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Operator [56]

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Our next question comes from the line of Karru Martinson with Jefferies.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [57]

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Just following up on the wholesalers, has there been any change really with the Essendant being integrated or being assumed by Staples' parent?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [58]

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We haven't seen the effects of that combination yet in our business. We anticipate obviously that something will happen, but we have not seen it yet.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [59]

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Okay. And just with Staples and launching private label of a number of brands, how does that change the aspects? Is private label still kind of the category entry point that you always thought it was? Or has that changed?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [60]

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No, nothing has really changed. I mean Staples has had private label for many, many years. They just now branded it something different than Staples. But the strategy is not that much different. So we don't think it's going to have any different impact than it has had over the last many years in our business.

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Karru Martinson, Jefferies LLC, Research Division - Analyst [61]

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Okay. And just lastly, in terms of freight and shipping, kind of what's the outlook there?

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [62]

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Did you say, Karru, freight and shipping?

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Karru Martinson, Jefferies LLC, Research Division - Analyst [63]

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Exactly.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [64]

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We have seen rates rise. And that's a continuation of what we saw last year in the second half; similar issues in terms of shortage of truckers and digital metering, et cetera. So they are still at the elevated levels. They're not increasing at the same rate that we saw last year, but they certainly are not going down.

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Operator [65]

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Our next question comes from the line of Joe Gomes with NOBLE Capital.

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Joseph Anthony Gomes, NOBLE Capital Markets, Inc., Research Division - Senior Generalist Analyst [66]

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Most of my questions have already been asked. But one of the things you mentioned was that you're looking at doing some more insourcing to your existing plants. I wonder if you could give us a little more color on that. How much can you do? What type of products are you pulling back? Anything in there would be appreciated.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [67]

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Sure. So if you look at -- tariffs affect different categories unevenly. They're causing us to actually outsource in some categories because it's cheaper to buy a finished product than to import raw materials which are affected by tariffs and then build it in our factories. On the other hand, in a category like binders, it's now more effective to manufacture them in our facilities than to import finished goods from Asia, from China. So binders specifically, we'll look into insource more. But on some of the categories like glass boards we're actually manufacturing less and bringing more from Asia.

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Joseph Anthony Gomes, NOBLE Capital Markets, Inc., Research Division - Senior Generalist Analyst [68]

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Okay. Great. And then I don't know if you could give us the impact. I know last year we talked a little bit about the lost calendar placements. I was wondering if going into this period whether you regain those placements or not.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [69]

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Yes, we've seen the lost placements anniversary in Q1 of this year. It didn't really have an effect on our Q2 sales. And we're hoping for incremental placement and incremental share in the Q3 and Q4 time frame. So the negative effects are behind us and we're hoping for positive effects in the second half of the year.

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Operator [70]

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This concludes today's question-and-answer session. I would now like to turn the call back over to Boris Elisman, Chairman, President and CEO, for closing remarks.

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Boris Y. Elisman, ACCO Brands Corporation - Chairman, President & CEO [71]

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In closing, we're very pleased that the business has performed well in the first half driven by North America's strong back-to-school business and GOBA acquisition. We remain confident about our future. It continues to position the company for growth and strong returns for our shareholders. I look forward to speaking with you again after we report our third quarter earnings in a couple of months.

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Operator [72]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.