Q4 2019 Earnings Call

[music].

Ladies and gentlemen, thank you for standing by welcome to the for Q and full year 2019, ACCO brands core earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised.

As of today's conference is being recorded if you require any further assistance please press star than zero.

I would now like the hand, the conference over to your speaker today Ms. Christine Hanneman. Thank you. Please go ahead.

Good morning. This is Christine Hanneman senior director of Investor Relations welcome to ACCO Brands' fourth quarter and full year 2019 conference call.

Looking on the call today, our board Jellison, Chairman, President and Chief Executive Officer of ACCO Brands Corporation, and Neil Sanuk Executive Vice President and Chief Financial Officer.

Slides that accompany this call had been posted to the Investor Relations section of ACCO brands Dotcom.

When speaking about our 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 the earnings release and slides that accompany this call 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 earnings 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 acuity session now I will turn the call over to Boris Elisman.

Good morning, everyone. Thank you for joining us.

We'll spend the next few minutes reviewing the highlights of the 2019 results and commenting on the progress were making against subtle our strategic imperatives.

Neil will follow me with more color and details on the full year and fourth quarter and then we'll take your questions.

I'm very pleased to say that were reported a record year in 2019 for net sales, which rose 1% to 1.96 billion.

Our adjusted earnings per share were also a record rising 5% to $1.20.

And free cash flow increased 11 million to 172 million, our second highest ever.

Allowing us to return 89 million to our shareholders.

<unk> five from share repurchase program, and 24 and dividend payments.

In addition, we reduced our debt 71 million and brought out net leverage ratio down to 2.7 times.

Much of our success in 2019 was due to the strength and resilience of our geographically balanced business.

And now nimble responses to rapidly changing market conditions as we faced inflation from input costs multiple rounds of tariffs and changing circumstances with channels and customers.

We address the higher cost of commodities logistics and tariffs and a few different ways.

First.

We pre bought some of the 2019 inventory in the fourth quarter of 2018.

That inventory was already priced for 2019 back to school shipments to our customers.

We leveraged our balance sheet to avoid some of the impacts from tariffs and successfully brought down those high inventory levels as we sold through the goods in the second and third quarters of 2019.

We also took several price increases throughout the year to offset inflation and tariffs.

Our pricing glad the cost increases by approximately one quarter, but we successfully implemented what we needed to offset the higher costs.

Finally, we work during the year to move a sizable part of our supply chain out of China and into Vietnam and Taiwan.

It is very difficult to operate on the continually changing external circumstances, such as the ones we faced in 2019.

And I would like to thank all of our employees.

Whose hard work and diligence allowed us to overcome these challenges and post excellent results.

To further strengthen our business last August we purchased ferrone.

A leading provider of branding notebooks and school and office products in Brazil.

Marrone is the second largest player in the market.

The to Libra, which we already own.

As a result, we're now a very significant participant in this growing product area in Brazil.

The fourth quarter is the largest and most important quarter for us in Brazil, but.

Because it accomplish this shipments for the back to school season, as well as calendars and other data products.

Both businesses in Brazil performed well with the Libra growing at 5% in the fourth quarter and ferrone delivering better than expected profitability.

Peroni is our fourth strategic acquisition in four years as we continue to focus on rebalancing our portfolio of brands channels and geographies.

To achieve faster and more profitable growth.

We will look for additional acquisitions that will provide profitable growth and geographic or category expansion at a reasonable price.

In other critical component of our success in 2019.

It was our outstanding back to school performance in the U.S.

Our five star brand led the way, allowing us to grow mid single digits and take share in a flat market.

The new product ranges introduced in 2019.

Such as true sense Air Purifiers, GBC automatic laminator.

At Kensington docking station for the Microsoft surface Pro.

And a full line of lights, and the Excel manual shredders <unk>.

Continues to perform very well as the year progressed.

We will continue to focus on growing these lines and enhancing them in other categories with additional innovations in twentytwenty.

Moving to our productivity initiative.

We'll continue to generate substantial savings from our programs.

Each year, we target approximately 30 million in productivity improvements.

In 2019, we achieved more than a 40 million in productivity and integration savings.

We have reinvested much of that into our business.

I expect another year of solid productivity improvement in Twentytwenty.

Overall, I'm very happy with our results.

Our full year performance manifest the fact that our strategy of focusing on growing channels strong brands.

Innovative products and productivity improvements.

Complemented by accretive acquisitions and excellent execution is working.

Looking at 2020.

Our guidance reflects the fact that we expect environment to continue to be challenging but were looking for improved profitability and strong free cash flow.

With that I will turn the call over to Neil for review of segments, our outlook and other financial commentary and then I'll join them in answering your questions Neil.

Thank you Boris good morning, everyone I'm going to focus lottery on our full year results.

For 2019 comparable sales increased almost 1% based on solid performance in North America as Bart mentioned it was critical that we raised prices throughout the year, well set high input costs, including several rounds of tariff increases on Chinese imports.

We were successful in doing so and that is reflected in posting an increase for the full year in both reported net sales and comparable sales. This is the best growth in comparable sales that we have had in a decade.

Adjusted net income of 122 million was even with 2000, a day team adjusted EPS was onetwenty versus 114 in 2018, having deployed 65 million about free cash flow to share repurchases, we benefited from fewer shares outstanding.

Our gross margin was 32.4% a bit above 2018 is level.

Yes, you in a expenses as a percentage of sales decreased slightly to 19.9% from 20.2%.

We incurred 5.6 million of higher annual incentive expenses based on our performance in 2019.

In 2018, Great limited incentives.

Reported operating income increased to 196 million from 187 million, an operating margin rose to 10% from 9.6% in 2000, a day team.

On a reported and adjusted basis operating income increased due to acquisitions by a net pricing and cost savings, partially offset by higher incentive accruals.

Our adjusted tax rate of 30.5% was higher than we estimated as the various impacts from U.S. tax reform and in particular the areas related to the impact of all foreign earnings.

Moving more difficult to forecast and those non U.S. earnings are triggered higher U.S. taxes.

But twentytwenty, we expect our adjusted tax rate to be similar to the 2019 rate.

Now, let's turn to some details of all segment results.

Net sales in North America rose, 3% with higher prices offsetting higher input costs, including tariffs and low volume.

Our back to school season was strong with growth in note, taking and ring binders.

Both also continued in the Kensington brand on the strength of new products in the notebook docking and security areas.

Office supplies in Canada items declined.

We saw growth in the independent and wholesale channels, which offset some declines dollar and other regional retail stores.

North America operating margin increased to 13.5% from 12.4% driven by pricing luxury catching up through the cost inflation cycle that began in mid 2018.

Pricing along with cost reductions were only partially offset by lower volumes and higher incentive accruals.

For the first quarter of Twentytwenty, We expect North America sales to continue to benefit from some of last year's price increases, but our pricing will follow changes in tariffs. For example, we will reflect tariff reductions to list foray items through may onward.

For the full year, we anticipate North America sales to be down slightly.

Now, let's turn to EMEA.

Full year sales decreased 6% almost all of which was related to currency translation.

Comparable sales were roughly flat.

As we saw sequential demand improvement in the fourth quarter from the slower second and third quarters, primarily from gains the lever our trials do it yourself tools and computer accessories.

As you have mentioned EMEA had a very strong 2018 because of the new privacy law the increased demand for shredders. So the comparisons for 2019, particularly by quarter were difficult.

We were very pleased that we almost matched 2018 sales by replacing onetime shredded demand from the previously low with ongoing demand from share gains and new products.

EMEA gross profit in gross profit margin were negatively impacted by adverse foreign exchange and low volume.

Emeas 2019, adjusted operating income of 61 million declined 10% due to lower sales adverse foreign exchange and higher input costs.

The cost increase was largely due to weakness in the euro and UK pound, which increased the local currency cost of U.S. dollar sourced products that we purchase in Asia, but sell in local currency.

Looking at Twentytwenty on a comparable basis, we expect to me as sales to be approximately flat for the year.

Moving to the international segment.

Full year comparable sales decreased almost 3% because of low volume, partially offset by higher pricing.

The Ghoba and ferrone acquisitions added approximately 54 million to sales in 2019.

Adverse foreign currency reduced sales approximately 19 million.

Australia continues to be a difficult market, we've lost placements and an unfavorable mix, although we saw a slower rate of decline in the fourth quarter.

In Asia, we're seeing the effects of exiting low margin product lines.

The year sales in Mexico, excluding the Gober acquisition were down slightly.

Moving on Brazil had strong sales during its back to school selling as far as mentioned the fourth quarter is the largest quarter seasonally for both to LIBOR and for only and both performed well.

Keep in mind that because both Brazilian businesses are heavily skewed to the fourth quarter almost all of the profits that generated in the second half.

As a result in Twentytwenty, we expect full year ownership of for only to add approximately 30 million to sales, but had minimal incremental S.

Full year reported international operating income declined slightly because of higher restructuring and acquisition related costs.

Adjusted operating income of 53 million rose, 4% because of the acquisitions, partially offset by continuing difficulties in Australia and Asia, along with adverse foreign exchange.

But twentytwenty international sales are expected to be up high single digits with the benefit of full year for only growth in general in Brazil, and Mexico and less of a drag from foreign exchange Asia and Australia.

Let's move now to our balance sheet and cash flow.

In 2019, we generated 204 million in net cash from operating activities and free cash flow of 172 million.

We repurchased 8.3 million shares for net 65 million and we also paid dividends of approximately 24 million returning 89 million to shareholders.

During the fourth quarter, we repurchased 800000 shares for a net 7 million and paid 6 million in dividends.

We also repaid 116 million the seasonal borrowings at quarter end on net leverage ratio was 2.7 times.

Now, let's turn to our initial outlook for Twentytwenty.

We estimate that sales, we will be in the range of negative 1% to positive, 1%, including approximately 20 million from adverse foreign currency exchange and 30 million benefit from having full year for only results.

Our outlook for adjusted EPS for the year is in the range of 120 to 130, which includes three cents negative impact from foreign exchange and minimal incremental impact from full year for only results.

We anticipate normalization of incentives and our guidance includes a 14 million headwind as a result.

In 2019, our sales seasonality for back to school was skewed towards the second quarter.

In Twentytwenty, we expect back to school to be more balanced between the second and third quarter's similar to what we saw in 2018.

Yes outlook for free free cash flow is 165 to 175 million.

We do not expect repeated the large cash outflow in the first quarter of Twentytwenty that we experienced in 2019, because we have not pre bought any inventory.

The second quarter, therefore, we'll see a larger more normal cash outflow as we build back to school inventory.

Subject to any new acquisitions, we anticipate yearend net bank leverage will be at or below 2.5 times.

We have included certain modeling assumptions in our slide deck on page 16.

Now, let's move onto Q, and I were burst and I will be happy to take your questions.

Operator.

Thank you as a reminder to ask a question you will need to press Star then one on your Touchtone telephone to withdraw your question press the pound key.

Please standby, while we compile the culinary roster.

Our first question comes from Brad Thomas with Keybanc capital markets. Your line is now open.

Hi, good morning, or worse than me on congratulations on a strong fourth quarter and strong year.

Thank you Brad.

I wanted to ask a couple of questions.

First I was hoping.

Maybe for a little bit more color as we think about some of these margin puts and takes when I recognize it's no easy to figure them all out across your different channels and countries that your end, but it has your thinking about.

Pricing and tariff spanning behind us as well some of the cost opportunities that you still have ahead.

How are you thinking about some of those margin puts and takes for 2020 as we think about it on an annual basis.

If you look at the gross margins are they should be up a little bit.

Just due to the tariff and a inflation.

Pressures largely behind US we will have some inflationary pressures from currency because the U.S. dollar is definitely stronger now that was on average in 2019.

We have.

Increased prices in our international regions on January Onest.

So hopefully will we will mitigate or the in the a dollar weakness but.

It has been getting stronger dollar strength. It has been getting stronger so there will be that additional inflationary pressure, but with all of that I do expect gross margins to be a higher.

In the 2020.

And SNA should be a little bit higher as well because as Neal mentioned, we have $14 million in a incremental incentives to to absorb so even though we do have a restructuring program in place and we will continue to drive on productivity, it probably will be a little bit higher as well.

So if I look from a.

Operating margin standpoint, it should be roughly similar to what we saw in 2019, but we do expect a less interest.

Significantly less interest or in 2020, like 2019, and we expect a.

Fewer outstanding shares as well so that will drive EPS accretion in 2020.

[noise], it's very helpful Boris and if I can follow up on.

How are you all are thinking about the U.S. channel. It it seems to me that E. U S. Consumer is relatively healthy clearly some of the retailers that you're partnering with on the mass side. It has had some nice momentum.

You know on the other hand that at a office superstores continue to shrink.

How are you feeling about the set up here for 2020 in the U.S.

I know, it's likely to follow a similar pattern and Brad you know we've seen that now.

For several years and that's why our Q1 in Q4 are relatively weak because were more dependent on those challenge channels.

In Q2 in Q3 at relatively strong.

As long as we perform well them back to school, which we've done over the last a few years. So you know things are kind of going the same way I'm very confident in our team I'm very confident or ability to manage all this puts and takes about the situation on the ground. This I don't think that any different.

That's very helpful and if I could squeeze in one more on sort of a topic does your.

As you all access some of the sourcing that you do from China can you give us an upgrade on if you're seeing any issues are expecting issues [laughter] given the crown the virus.

Well as as I'm sure you'll recognize it's a very dynamic situation, there's new information that comes in a daily and weekly we don't sell in China. So the the virus outbreak will have no impact on the sale sell side for us.

But as you mentioned something about products I mean factored in China, we have not having supply disruptions to date.

Due to the Corona virus.

Typically we pre buy additional inventory ahead of the Chinese new year.

And what which lasted through the period of normal factory shutdowns.

This year, the shutdowns were one week longer than usual.

But now the factories have opened and workers that coming back to work.

However, we believe the ramp up period.

To get to the a normal production output will take longer than usual.

Oh, Luckily were entering our slow selling season.

From now through April.

And where expedited expediting some shipments out of China to make sure that we continue to stay in stock.

Our north American sales start ramping up for back to school in May.

Oh about 20% of our.

You asbestos school product so many stature in China.

Based on all the information we have today.

And our projections for.

Customer needs and the ramp ups et cetera, we expect to have good supply for Bts.

But as I said at the very beginning in the situation is dynamic and this may change.

Thanks, so much and congratulations again.

Thank you Brad.

Thank you. Our next question comes from Kevin Stacie with Barrington Research. Your line is now open.

Good morning.

Good morning, Kevin.

Hey, I'm wondering if you touched a little bit more on the new product introductions that that's you mentioned.

In terms of the shredders and other the other things you're you're a expanding into I think.

<unk> can you give us sense for the size of those in terms of revenue.

In 2019, and you know what what's the outlook for new product introductions and 2020. It will you accelerate their pace or will it won't stay about a about the same.

Hi, Thanks, Thanks for the question Kevin Yeah, we've launched a several very exciting product lines. In 2019 are the ones I mentioned on the Halo products are the ones that are off significant value add and that's true sense a that's the G.

D.C. photons 30.

That's the Kensington notebook dock.

And the line of a manual shredders under the lights on work so brands a they were launched throughout 2019 very successful we.

Recognize revenue around $13 million from.

Those products.

Through the partial year of 2019, many of them I still ramping up because we're introducing them on a on a global basis, they're nice margin products. So we're very very pleased with where the our innovations.

This will continue to expand and 2020, we introduce thousands of new products every year and most of them are a seasonal they're out either for back to school back to business.

But we will continue to introduce these halo products and I expect a certainly.

All of the foreign lines I mentioned in terms of air Purifiers slot automatic Laminator shredders and notebook dogs continued to expand in in 2020.

Okay that sounds great and.

You know you continue to be really consistent with the productivity improvements from year to year.

Sounds like you're targeting more productivity gains in 2020 can you just trying to give us a sense or it's too some of the areas, where you expect to get those productivity gains and you know maybe is it still 30 million kind of the ballpark range to think about for for this year.

Yeah, I think 30 million is a good number to think about this this last year, we delivered about 40.

Some of that was driven.

There last year the last four here of the integration initiatives within ACCO brands and the cell day.

That that explains the.

The additional incremental roughly $10 million a this year, we're shooting for around 30, or so and its thousands of projects.

That targeting.

Both cost of goods logistics distribution.

Distribution centers.

As well as all of the.

General and administrative functions.

We are also rolling out a or a consolidating on it on a single ERP in.

North America in a in April.

And that should enable some additional.

Productivity improvements and the second half of the Yeah, We don't expect something in the in the in the summer, but as that ramps up we should get incremental productivity improvements in the in the in the second half you know. This says this is something that we live with and do every year, it's Oh focus of every organs.

The nation or you know we are a little girls business. So for us a really squeezing efficiency out of our operations is really important in order to drive improved profitability. So we're very focused on that.

Okay, Great you mentioned the ERP implementation I do you haven't called anything out about it before but is there any any meaningful incremental implementation cost and 19.

From from that effort.

Well wait until the last of the last few years, we've been our capital spend has been in the.

30, due to $34 million range, which is up from around 25, or so or that we were spending before the last couple of years that incremental capital.

Has gone into our ERP planning and development.

You know, we've we've talked several times won't when we'll give guidance we're gonna be at around $35 million. We should include all.

Capital needs, so that that was part of it.

The guidance that we provided today.

Includes what we are planning to spend on the ERP.

As we get closer to it when I give you guys an update.

After Q1, I'll have more visibility about it quarterly impacts because I do anticipate there maybe some shifts from.

Q2 into Q1.

But right now it's just it's too early to tell so.

We don't give quarterly guidance will give annual guidance it doesn't change our outlook for the here.

But there could be called out within quarters that we will provide you a when we speak to you in a in April.

Okay. Good and then lastly, maybe an update on Australia in terms of other headwinds from.

Customer consolidation that you've been experiencing there are we maybe getting towards the end of that or you know it was that a kind of expected to be a continued.

Ah headwind a is removed through 2020.

You know I certainly expect sales pressures to continue there's a large customer that's consolidating a I do expect us to do a less business and with that customer and given that they're fairly large it's difficult for Australia to grow if that customer shrinking.

We are managing Australia for improved profitability, Australia has taken a few restructuring actions at last year and we have a good plan.

And not in 2020 to improve profitability, So I expect Australia to have a.

Uh Huh battery here in 2020, but about a year for me is slightly lower sales and improve profitability.

Okay. Thanks for taking all the questions [noise].

Thank you Kevin.

Thank you and our next question comes from Joe Gomes with Noble capital. Your line is now open.

Good morning.

Good morning, Joe.

Okay real quick on North America, I know the overall year works [noise].

Really good.

Above four corner sales were down a after two really good strong quarters into the second and third I was just wondering if you provide a little more detail on color.

What was going on in North America, not fourth quarter, and how do you guys were responding to that.

I am sure. Joe This is something that we expect every year I as I mentioned on my previous answer.

North America is really driven by Q2 in Q3, because the healthier channels, which are the mass and etail channels on more prevalent.

And represents a higher mix in the second and third quarters in you want in Q4, its last back to school and it's more about the business.

And there the share of that business that is driven by more challenged resellers is higher. So therefore, it has an impact on our business again. This is something that's normal we'll plan for that.

You know overall.

North America was up 3%, which is great, but it's really driven by the success in Oh Q2 in Q3 in our increased share during back to school.

Okay, Thanks for that color and I'm not [noise].

Your remarks you.

When you're talking about channels you you noted that the dollar store channel it declined and I know a while back you guys had some.

Positive hope for that channel I'm, just wondering what what's going on there and where do you see that channel going.

You know we continue to experiment with the the the dollar channel and so we were pretty aggressive with them in 2018, or so incremental sales, but on acceptable profitability for us. So we pulled back in 2019 to to try to strike a balance between revenue growth and profitability.

And we saw last.

The last revenue, but certainly improved profitability in 2019. Its it continues to be an important channel for us what we have to get it right would have to <unk>.

Be able to drive profitable sales.

Through through that channel, you know I think where where have a better view on how to do that.

I expect that we will have incremental sales through the dollar.

Stores in 2020, but you know, it's not going to be huge huge share of our business. It's a nice complement to overall portfolio, but striking that balance between sales and profitability. It is important to us.

Okay.

Thanks on that and then you also mentioned that.

You guys are taking some price increases in the international markets.

And just wondering and doing the strength of other dollar.

How does that price your guys products versus some of your competitors and there's that delta getting.

You know two way, a oh level, where there might be some additional trade off in product.

You know we compete against local competition all the time, so certainly the competitive environment is part of our consideration well look at pricing.

We.

Past pricing on products that are manufactured in Asia and cost sit in us dollars that affects most of our competitors as well so they have to do a similar pricing to us.

All of our locally produced products we.

Priced differently, because we don't have the same currency a inflation going through them. So it's certainly as part of the consideration and our teams are local teams review that to make sure that in the market at the end of the day.

In a competitive we can sell we have a good value proposition to both our customers and the consumer So I you know I feel I feel.

Comfortable where we are throughout the year, if we need to adjust things either up or down we do that both based on cost of inflation as well as well as market conditions.

Okay. Thanks for the insight on that one one last one for me.

Real quick what is the remaining authorization of the stock buyback program.

Neil do you have that a number of my head, it's north of 100 million.

I don't remember off stuff my exact number two well that's my job we have we have enough enough certainly for this year.

Right. Okay, great. Thanks, guys appreciate it.

Thank you Joe.

Thank you. Our next question comes from Bill Chappelle with Suntrust. Your line is now open.

Thanks, Good morning.

Good morning about <unk>.

They are just.

Starting on the topline outlook for North America, and then for Europe.

On North America, I think you said it possibly go backwards is that all on I mean, it could be flat to down is that all on just the roll off on price or do you expect volume to be flat to down.

I, certainly expect volume to be down price should be up a little bit overall overall I mean, we had a great great year.

In a 2019 with.

North America, not you know I expect the back to school to be roughly similar but then in Q1 in Q4 I do expect some fall off again, driven by a decline in more and more challenge with most challenged resellers. So I just you know expect.

To be we expect it to be slightly down versus our son superbly Europe 2019.

And then on Europe is it <unk> currency is included in that or do you expect a field to be just flat as is and then currency.

I guess anything you can give us on would be helpful.

No that's right comparable sales to be roughly flat and then currency will certainly taken down a little bit.

Okay and.

And then last one I don't I guess I help me understand a the 14 million of increased normalized comp in 2020, just coming off of what you are saying is a very good year ill I.

I didn't realize or didn't understand maybe where if accrual stops sometime in 2019 and why they weren't fully paid out and then why there's such a big jump because I guess, it's about 10 cents EPS headwind on variable copper on normalized comp in 2020, so maybe a little more color there would be helpful.

Yeah. It's a you know unfortunate dilemma [laughter], Phil we did have a great year, but some of our.

Incented objectives were not net during 2019, so so hands.

We did not earn.

Our our target bonus.

So for 2020 as we plan 2020, we're assuming we're going to earn out in 2020, and that's the $14 million. Most of that is driven by annual incentives that were not man for 2019. So you know it's unfortunate but you know that's all.

Facts. So that's what we are.

Well I guess Im just trying to understand I mean, you had a.

One person overall growth or almost 1% organic growth in 19, you're looking for flat to that you know roughly that in 2020, maybe help me understand where you would have mr. where were you fell below your expectations.

Well if you looked at if you look at the year Bill. It was it was a fairly uneven between regions right. So the the overall company as the consolidation of all the regions North America, certainly did better.

Than international or yeah. So he me in international have not met.

Many of their objectives for.

2019, which rolls into.

Into the enterprise.

And then the other one what that we missed you know even though we certainly met our free cash flow objectives that that that is not a metric in our annual plan Oh annual incentives I based on working capital efficiency.

And we set ourselves up pretty high goal.

In 2019.

And we haven't met that as an enterprise as well and that's about 20% of out of our total annual incentive so as a company. We haven't met that either so you know it's you know it's more of a I think a goal setting issue other than a company performance issue because I think we can all recognize that we did as an enterprise very well.

In 2019, but you know yeah, well setting is a challenge.

We do that early in the air when we don't have visibility to the full year I and Unfortunately, we haven't met.

Some of our short term targets in 2019 that hopefully we will get a chance to me than 2020.

Okay I'll leave it at that thanks, so much [laughter].

Thank you Bill.

Thank you. Our next question comes from William Reuter with Bank of America. Your line is now open.

Good morning.

Me about previous Hey, previously you had said that the impact off tariffs and 2020 was going to be Sevenmillion is that still the the number that you expect or has a list for in and for a a decrease in percentage lowered that number.

It's going to be a little bit lower than that because of exactly because the.

Or be is no longer there and forays down from 15% to 75% they'll be a little bit lower than that.

Okay, and then earlier you mentioned that you expect it a little bit of gross margin expansion based upon some price increases or more than offset the tariffs will this be evenly spread throughout the year are based upon the timing of implementation of those and Ah Ah tariffs will we see a little pressure on them be any other here that we offset by expansion later on.

Yeah. The the gross margin expansion is driven.

Really by a international.

And productivity, there's not going to be so much due to a two tariffs anniversary and you know I don't want to provide any color by bike water bill because it's so difficult to predict so I think overall for the here, we're looking at a little done an expansion, but exactly whereas going.

Throughout the year that it's hard to tell.

Okay, and just lastly, your your near your target leverage ratio.

I guess as you look at the M&A pipeline at this point, how do you view. It do you think you'll be active during 2020 do you think valuations are attractive at this point.

Bill. It's it's you know anything has to do with acquisitions is very difficult to predict I can't really.

And anything more specifically acquisitions are core to our strategy, we like what we've done and we like the incremental results that we've delivered to our shareholders due to acquisitions.

But we are you know patient and prudent buyers, we want to make sure that we don't overpay, you know, whether it's up something's going to happen in 2020, I I don't know I can't tell you that.

Alright, Thank you very much.

Thank you Bill.

Thank you. Our next question comes from Hale Holden with Barclays. Your line is now open.

Hi, Thanks for taking my call.

I was wondering just a follow up on bills tariff question the.

[laughter] commentary that.

For it when you step down.

And I guess my second quarter for pricing.

When you give up back or just by fair with your customers.

Is that sort of one to one on margins or is there a lot of time on the on how that works.

And it sounds like in a sort of how for sort of just the 20% from Toronto, So relatively small [laughter] topline number so I'm not sure however, the thinking correctly.

Yeah, I think you have to understand I'm first of all the actual tariff reduction didn't happen until February and then we have to work it through a purchase inventory cycle and so that's the like Tonight and we do that in the same way when we raise prices when tariffs go out we didn't raise prices straight away. There's a three month lag and so we try and.

Such all cost without selling price that's fundamentally we're trying to do.

It would be margin neutral.

Okay, great. Thank you and then I'm the only other question I had was.

I just wanted to wondering if you'd give a sort of a an update on what you're saying in EMEA.

One of a few reasons you haven't talked about Mccorry out.

Phil.

You know EMEA had a overall a a good here in 2019. It came on the back of a record year in in 2018, we had a really a phenomenon here. So you know as Neal mentioned we had.

Similar sales.

Comparable sales to 2018.

We were hurt by currency in EMEA sales in actual U.S. dollars were down 6% because of currency.

And then EMEA.

Had a kind of unusual year, we had a strong Q1 relatively weak Q2 in Q3, and then a strong Q4.

Though you know we expect a flat business in EMEA, we have a very strong business there by the economies. They are slowing down a little bit Oh. So we don't have you know expectations for it or significant girls the enemy and 2020.

There's no there's no shredder impact 19 to 20 like there was an 18 to 19 right.

That's right the shred it the privacy laws in Europe came out in the second quarter of 18. So you source surgeon sales in Q2 in Q3, and that's what my such a difficult comp in 19.

Great. Thank you so much appreciate it.

Thank you.

Thank you. Our next question comes from Karru Martinson with Jefferies. Your line is now open.

Good morning, just on for back to school U.S.. So superstores continue to shrink and consolidate your where do you see that U.S. consumer going where are the channels or growth that you're seeing.

You know superstores are very very small for back to school back to school is really made by three primary players and that's Walmart target an Amazon and that's really has been the case for lost a couple of years or and I expect that to continue to be the case, Oh, we have very strong.

Along with all three of them they drive back to school.

You know that's the reason why we were successful last few years and they get my expectations out that this will continue superstores are a big a player in and on the business side you know in Q1 in Q4, but really you know marginal for back to school.

Okay and then on on the business side are you seeing expansion from other players or is it still being dominated by Staples and office depot.

You know I look back to business side, or Amazon is certainly, making inroads, especially with small and medium business and independents are doing a great job. So you know over the last few years I've, we've seen independence I take share.

For a on the business side, a they're focused on that on that small and medium customer and they do a great job servicing those customers. So you know one of the reasons, we did well.

In 2019 in a in North America is because independents have done well.

In in North America in 2019, so there's a that channel is certainly something that we support and pay attention to and we expect a further girl from.

Okay. Thank you very much appreciate it guys.

Thank you grow.

Thank you and our next question comes from how about of course on with VW S. financial Your line is now open.

Hi, Good morning. So first question I had was what are your capital allocation plans for 2020, because your presentation slides assumes very small almost zero share buybacks.

Yeah, we don't we don't really forecast share buybacks in our future plans how that so.

You know you know the history, we purchase $75 million in 2018 and $65 million 2019.

We certainly have the free cash flow.

To do more in 2020 by exactly how when and when we don't we don't give guidance on that.

Okay and then.

Is there anything.

Good indication that you're going to do more of the store brands <unk> sales this year.

Can you elaborate a little bit what do you mean by store brand.

Probably late last year, you got it yeah. The private label got it you know private label is about six or 7% of our sales.

We will continue to do a private label I expect that to be a little bit less in 2020 that in 2019, a in 2019, we won some incremental.

Private label business seasonal private label business for for back to school, which I don't expect to repeat.

But other than that the steady state now private label business I expected us to continued to participate but it will be in that you know.

6%, Oh arrange it shouldn't be you know higher or significantly lower than that.

And are you assuming the some of your input costs stay the same even though there's been some deflationary pressures lately.

Oh, three and we certainly work very.

We certainly worked very hard on that too.

Capture all of the savings from lower input costs.

And you know what else can achieve and consolidate a we will take into either incremental profit or into our.

Demand generation programs, you know as I mentioned in my prepared remarks, the $40 million of productivity.

That we achieved in 2019 most of that we reinvest back in the business.

To drive to drive demand I mean, it's really a you know important for us to continue to feature all brands continued to continue to feature our products. So.

We will we will capture the lower input costs.

But a lot of that will go back and drive demand.

You remember another thing okay. The end of 2018, we football an awful lot of inventory to avoid tariff cost increases that obviously can't be done again its own twentytwenty, what we've had to do with all the work on Resourcing those items two different areas well, we will be receiving cost increases.

Okay. That's helpful. Thank you.

Okay got it.

Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Boris Elisman for any closing remarks.

Thank you Jimmy a in closing to summarize were very pleased with how the business performed in 2019 remain confident about our future and continue to position the company for growth and strong returns to our shareholders I look forward to speaking with you again after the report <unk> first quarter earnings. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.

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Ladies and gentlemen, thank you for standing by welcome Joe for Q and full year 2019, Eco brass core earnings conference call. At this time, all participants are going to listen only mode.

Speaker presentation, there will be a question answer session.

Good question during the session you will need to press star one on your telephone.

Be advised that this conference is being recorded if you require any further assistance please press star than zero.

The hand, the conference over to your Speaker today, that's Christine Hanneman. Thank you. Please go ahead.

Good morning. This is Christine Hanneman senior director of Investor Relations welcome to ACCO Brands' fourth quarter and full year 2019 conference call.

Speaking on the call today, our board fell asleep, Chairman, President and Chief Executive Officer of ACCO Brands Corporation, and Neil Static Executive Vice President and Chief Financial Officer.

Slides that accompany this call have been posted to the Investor Relations section of the ACCO brands Dotcom.

Speaking about our result, 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 the earnings release and slides that accompany this call 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 earnings release, and FCC filings for an explanation of certain of these risk factors and assumptions.

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

Following our prepared remarks, we will hold acuity session now I will turn the call over divorce Allison.

Good morning, everyone. Thank you for joining us I will stem. The next few minutes reviewing the highlights of the 2019 results.

Commenting on the progress were making against double our strategic imperatives.

Neil will follow me with more color and details on the full year and fourth quarter and then we'll take your questions.

I'm very pleased to say that we reported a record year in 2019 for net sales.

Which rose 1% to 1.96 billion.

Our adjusted earnings per share, we're all saw record rising 5% to $1.20.

And free cash flow increased 11 million to 172 million, how second highest ever allowing us to return 89 million to our shareholders 65 from share repurchase program and 24 and dividend payments.

In addition, we reduced our debt 71 million and brought out net leverage ratio down to 2.7 times.

Much about success in 2019 was due to the strength and resilience of our geographically balanced business.

Now nimble responses to rapidly changing market conditions.

As we faced inflation from input costs multiple rounds of tariffs and changing circumstances with channels m. customers.

We address the higher cost of commodities logistics and tariffs and a few different ways.

First.

We pre bought some of the 2019 inventory in the fourth quarter of 2018.

That inventory was already priced for 2019 back to school shipments to all customers.

We leveraged our balance sheet to avoid some of the if that's from tariffs and successfully brought down those high inventory levels.

We sold through the goods in the second and third quarters of 2019.

We also took several price increases throughout the year to offset inflation and tariffs.

Pricing lapped the cost increases by approximately one quarter, but we successfully implemented what we needed to offset the higher costs.

Finally, we work during the year to move a sizable part of our supply chain out of China and into Vietnam and Taiwan.

It is very difficult to operate under continually changing external circumstances, such as the ones we faced in 2019.

And I would like to thank all of our employees.

Whose hard work and diligence allowed us to overcome these challenges in post excellent results.

To further strengthen our business last August we purchased ferrone.

Leading provider of branding notebooks and school and office products in Brazil.

Marrone is the second largest player in the market after to Libra, which we already own.

As a result, we're now it's very significant participant in this growing product area in Brazil.

The fourth quarter is the largest and most important quarter for us in Brazil.

Because it accomplish this shipments for the back to school season, as well as calendars and other data products.

Both businesses in Brazil performed well with the Libra growing 5% in the fourth quarter and for only delivering better than expected profitability.

Peroni is a fourth strategic acquisition in four years as we continue to focus on rebalancing our portfolio of brands channels and geographies to achieve faster and more profitable growth.

We will look for additional acquisitions that will provide profitable growth and geographic or category expansion at a reasonable price.

And now the critical component of our success in 2019.

It was our outstanding back to school performance in the U.S.

All five star brand led the way, allowing us to grow mid single digits and take share in a flat market.

The new product ranges introduced in 2019.

Just true sense Air Purifiers GBC automatic laminator.

At Kensington docking station for the Microsoft surface Pro.

And the full line of lights, and a red cell manual shredders.

Continued to perform very well as the you have progressed.

We will continue to focus on growing these lines enhancing them in other categories with additional innovations in twentytwenty.

Moving to our productivity initiative.

Well continue to generate substantial savings from our programs.

Each year, we target approximately 30 million in productivity improvements.

In 2019, we achieved more than a 40 million in productivity in integration savings.

We have reinvested much of that into our business.

I expect another year of solid productivity improvement in Twentytwenty.

Overall, I'm very happy with our results.

A full year performance manifest the fact that our strategy of focusing on growing channels strong brands.

Innovative products and the productivity improvements.

Complemented by accretive acquisitions and excellent execution is working.

Looking at 2020.

Oh guidance reflects the fact that we expect the environmental continued to be challenging but were looking for improved profitability and strong free cash flow.

With that I will turn the call over to Neil for review of segments, our outlook and other financial commentary and then I'll join them in answering your questions Neil.

Thank you bars, and good morning, everyone I'm going to focus lottery on a full year results.

For 2019 comparable sales increased almost 1% based on solid performance in North America as Bart mentioned it was critical that we raised prices throughout the year, well set high input costs, including several rounds of tariff increases on Chinese imports.

We were successful in doing so and that is reflected in posting an increase for the full year in both reported net sales and comparable sales. This is the best growth in comparable sales that we have had in a decade.

Adjusted net income of 122 million was even with 2000 a day team adjusted EPS was 120 versus 114 in 2018, having deployed 65 million about free cash flow to share repurchases, we benefited from fewer shares outstanding.

Gross margin was 32.4% a bit above 2000 and eighteens level.

Yes, you in a expenses as a percent of sales decreased slightly to 19.9% from 20.2%.

We incurred 5.6 million of higher annual incentive expenses based on outperformance in 2019.

2018, very limited incentives.

Reported operating income increased to 196 million from 187 million, an operating margin rose to 10% from 9.6% in 2000, a day team.

On a reported and adjusted basis operating income increased due to acquisitions by a net pricing and cost savings, partially offset by higher incentive accruals.

Our adjusted tax rate of 30.5% was higher than we estimated as the various impacts from U.S. tax reform and in particular the areas related to the impact of foreign earnings have proven more difficult to full cost and those non U.S. earnings have triggered higher U.S., Texas.

Twentytwenty, we expect our adjusted tax rate to be similar to the 2019 rate.

Now, let's turn to some details of all segment results.

Net sales in North America rose, 3% with higher prices offsetting higher input costs, including tariffs and low volume.

Well back to school season was strong with growth in note, taking and ring binders.

Growth also continued in the Kensington brand on the strength of new products in the notebook talking and security areas.

Office supplies in Canada items declined.

So growth in the independent and wholesale channels, which offset some declines that dollar and other regional retail stores.

North America operating margin increased to 13.5% from 12.4% driven by pricing luxury catching up there's a cost inflation cycle that began in mid 2018.

I sing along with cost reductions were only partially offset by lower volumes and higher incentive accruals.

For the first quarter of Twentytwenty, We expect North America sales to continue to benefit from some of last year's price increases what our pricing will follow changes in tariffs. For example, we will reflect tariff reductions to list foray items from my own would.

For the full year, we anticipate North America sales to be down slightly.

Now, let's turn to EMEA.

Well your sales decreased 6% almost all of which was related to currency translation.

Comparable sales were roughly flat as we saw sequential demand improvement in the fourth quarter from the slower second and third quarters, primarily from gains a lever our trials do it yourself tools and computer accessories.

As you have mentioned, India had a very strong 2018 because of the new privacy law the increased demand for shredders. So the comparisons for 2019, particularly by quarter would difficult.

We were very pleased we almost matched 2018 sales by replacing onetime shredded demand from the previously low with ongoing demand from share gains and new products.

EMEA gross profit in gross profit margin were negatively impacted by adverse foreign exchange and low volume.

And he is 2019 adjusted operating income of 61 million declined 10% due to lower sales adverse foreign exchange and higher input costs.

The cost increase was largely due to weakness in the euro and UK pound, which increased the local currency cost of U.S. dollar sourced products that we purchase in Asia, but sell in local currency.

Looking at Twentytwenty on a comparable basis, we expect to me as sales to be approximately flat for the.

Moving to the international segment.

Full year comparable sales decreased almost 3% because of low volume, partially offset by higher pricing.

The Ghoba and ferrone acquisitions added approximately 54 million to sales in 2019.

Adverse foreign currency reduced sales approximately 19 million.

Lets trailer continues to be a difficult market, we've lost placements and an unfavorable mix, although we saw a slower rate of decline in the fourth quarter.

In Asia, we are seeing the effects of exiting low margin product lines.

The year sales in Mexico, excluding the Gober acquisition were down slightly.

Moving on Brazil had strong sales during its back to school selling as far as mentioned the fourth quarter is the largest quarter seasonally but both to LIBOR and for Oneq and both performed well.

Keep in mind that because both Brazilian businesses are heavily skewed to the full quota almost all of the profits that generated in the second half.

As a result in Twentytwenty, we expect full year ownership of for only to add approximately 30 million to sales, but had minimal incremental S.

Full year reported international operating income declined slightly because of higher restructuring and acquisition related costs.

Adjusted operating income of 53 million rose, 4% because of the acquisitions, partially offset by continuing difficulties in Australia and Asia, along with adverse foreign exchange.

But twentytwenty international sales are expected to be up high single digits with the benefit of full year for Oneq growth in general in Brazil, and Mexico, and less of a drag from foreign exchange Asia and Australia.

Let's move now to our balance sheet and cash flow.

In 2019, we generated 204 million in net cash from operating activities and free cash flow of 172 million.

We repurchased 8.3 million shares for net 65 million and we also paid dividends of approximately 24 million returning 89 million to shareholders.

During the fourth quarter, we repurchased 800000 shares for a net 7 million and paid 6 million in dividends.

We also repaid 116 million seasonal borrowings at quarter end on net leverage ratio was 2.7 times.

Now, let's turn to our initial outlook Twentytwenty.

We estimate that sales, we will be in the range of negative 1% to positive, 1%, including approximately 20 million from adverse foreign currency exchange and 30 million benefit from having full year for only results.

Our outlook for adjusted EPS for the year.

In the range of 120 to 130, which includes three cents negative impact from foreign exchange and minimal incremental impact from full year for only results.

We anticipate normalization of incentives and our guidance includes a 14 million headwind as a result.

In 2019 or sale seasonality for back to school was skewed towards the second quarter.

Twentytwenty, we expect back to school to be more balanced between the second and third quarter's similar to what we saw in 2018.

Yeah outlook for free free cash flow is 165 to 175 million.

We do not expect to repeat as the large cash outflow in the first quarter of Twentytwenty that we experienced in 2019, because we have not pre bought any inventory.

The second quarter, therefore, we'll see a larger more normal cash outflow as we build back to school inventory.

Subject to any new acquisitions, we anticipate yearend net leverage will be at or below 2.5 times.

We have included certain modeling assumptions and on slide deck on page 16.

Now, let's move onto Q, and I were forest and I will be happy to take your questions.

Operator.

Thank you as a reminder to ask a question you will need to press Star then one on your Touchtone telephone to withdraw your question press the pound key.

Please standby well, we compile the culinary roster.

Our first question comes from Brad Thomas with Keybanc capital markets. Your line is now open.

Hi, good morning, or worse than me on congratulations on a strong fourth quarter and a strong year.

Thank you Brad.

I wouldn't ask a couple of questions up first was hoping.

Maybe for a little bit more color as we think about some of these margin puts and takes and I recognize it's noisy that figure them all out across your different channels and countries that your end, but but as we think about.

Pricing and tariff spanning behind a as well some of the cost opportunities that you still have ahead.

How are you thinking about smart and puts and takes for 2020 as we think about it on an annual basis.

If you look at the gross margins are they should be up a little bit.

Just due to the tariff and a inflation.

Precious largely behind US we will have some inflationary pressures from currency because the U.S. dollar is definitely stronger now than it was on average in 2019.

We have.

Increase prices in our international regions on January Onest.

So hopefully will we will mitigate or being the a dollar weakness but.

It has been getting a stronger dollar strength that has been getting stronger.

So there will be that additional inflationary pressure, but with all of that I do expect gross margins to be a higher in the 2020.

And destination be a little bit higher as well because as Neal mentioned, we have $14 million in a incremental incentives to to absorb so even though.

We do have a restructuring program in place and we will continue to drive on productivity.

It probably will be a little bit a higher as well so if I look from a.

Operating margin standpoint, it should be roughly similar to what we saw a in 2019.

But we do expect a less interest.

Significantly less interest.

In 2020, 2019, and we expect a.

You are outstanding shares as well so that will drive EPS accretion in 2020.

That's very helpful Boris and if I can follow up on.

How are you all are thinking about the U.S. channel. It it seems to me that the U.S. consumer is relatively healthy clearly some of the retailers that you're partnering with on the mass side that has had some nice momentum.

Yeah on the other hand that office superstores continue to shrink how are you feeling about the set up here for 2020 in the U.S.

You know, it's likely to follow a similar pattern Brad you know we've seen that now.

For several years and that's why our Q1 in Q4 are relatively weak because were more dependent on those challenge channels.

In Q2 in Q3, a relatively strong.

As long as we perform well them back to school, which we've done over the last a few years. So you know things are kind of going the same way I'm very confident in our team I'm very confident or ability to manage all this puts and takes about the situation on the ground. This I don't think put any different.

That's very helpful and if I could squeeze in one more on sort of a topic does your.

As you all access some of the sourcing that you do from China can you give us an upgrade on if you're seeing initiator expecting actually is going in the crown virus.

Well as as I'm sure you recognize it's a very dynamic situation, there's new information that comes in a daily and weekly we don't sell in China. So the the virus outbreak will have no impact on the sale sell side for us.

But as you mentioned some of our products I mean, it's actually in China, we have not having a supply disruptions to date.

Due to the Corona virus.

Typically we pre buy additional inventory ahead of the Chinese new year.

And what which lasted through the period of normal factory shutdowns.

This year, the shutdowns were one week longer than usual, but now the factories have opened and workers that coming back to work.

However, the leave the ramp up period.

To get to the normal production output will take longer than usual.

Luckily were entering our slow selling season.

From now through April.

And where XP that expediting some shipments out of China to make sure that we continue to stay in stock.

Our north American sales start ramping up for back to school in May.

About 20% of our a U.S. back to school products I mean, if that's your than China.

Based on all the information we have today.

And our projections for.

Customer needs and the ramp ups et cetera, we expect to have good supply for B T S.

But as I said, the very beginning of the situation is dynamic and this may change.

Thanks, so much and congratulations again.

Thank you Brad.

Thank you. Our next question comes from Kevin Stocking with Barrington Research. Your line is now open.

Good morning.

Good morning, Kevin.

Hey, I'm wondering if you could touch a little bit more on the new product introductions that that you mentioned.

In terms of the shredders and other the other things you're a expanding into I think.

What can you give us sense for the size of those in terms of revenue.

In 2019, and you know what what's the outlook for new product introductions and 2020. It will you accelerate the pace or will vote stay about a about the same.

Hi, Thanks for answering the question Kevin Yeah, we've launched a several very exciting product lines. In 2019 are the ones I mentioned on the Halo products are the ones that are off significance value add and that's true sense. That's the.

GBC photons 30, Ah that's the Kensington notebook dock.

And the line of a manual shredders under the lights on work so brands.

They were launched throughout 2019 very successful we.

Recognize revenue around $13 million from.

Those are products.

Through the partial year of 2019, many of them I still ramping up of because we're introducing them on a on the global basis, they're nice margin products. So that is very very pleased with with our innovations.

This will continue to expand and 2020, we introduce thousands of new products every year and most of them are a seasonal that out either for back to school of back to business.

We will continue to introduce these halo products and I expect a certainly.

All of the four lines I mentioned in terms of air Purifiers slot automatic Laminator shredders and notebook dogs continued to expand in in 2020.

Okay that sounds great and.

You know you continue to be really consistent with the productivity improvements from year to year.

Sounds like you're targeting more productivity gains in 2020 can you just trying to give us a sense.

Some of the areas, where you expect to get those productivity gains and you know maybe is it still 30 million kind of the ballpark range to think about for for this year.

Yeah, I think 30 million is a good number to think about this this last year, we delivered about 40.

Some of that was driven.

There last year the last four here of the integration initiatives routine ACCO brands and the cell day.

That that explains the.

The additional incremental roughly $10 million a this year, we're shooting for around 30, or so and that's thousands of projects.

That targeting.

Both cost of goods logistics.

The abuse and centers as well as all of the.

General and administrative functions.

We are also rolling out a.

Or a consolidating on it on a single ERP and.

North America in a in April.

And that should enable some additional productivity improvements in the second half of the yeah. We don't expect something in there in the summer, but as that ramps up we should get incremental productivity improvements and the in the in the second half you know this says this is something that we live with and do every year.

It's a focus Oh every organization.

We are a low growth business so for us a really squeezing efficiency out of our operations is really important in order to drive improved profitability. So we're very focused on that.

Great you mentioned the ERP implementation I do you haven't called anything out of out it before but is there any any meaningful incremental <unk>.

Implementation cost and 19.

From from that effort.

So well away over the last of the last few years, there's been a capital spend has been in the.

30 due to 34.

Million dollar range, which is up from around 25, or so or that we were spending before the last couple of years that incremental capital.

Has gone into our ERP.

Planning and development you know Weve talked several times when we'll give guidance were going to be at around $35 million. We should include all of a a capital needs.

So that that was part of it.

The guidance that we provided today.

Includes.

What we are planning to spend on the ERP.

As we get closer to it when I give you guys an update.

After Q1, I'll have more visibility about and quarterly impacts because I do anticipate there may be some shifts from.

Q2 into Q1.

But right now it's just too early to tell so.

We don't give quarterly guidance, we give annual guidance it doesn't change our outlook for the here.

But there could be called out within quarters that we will provide you a when we speak to you in a in April.

Okay. Good and then lastly, maybe an update on Australia in terms of or the headwinds from.

Customer consolidation that you've been experiencing there are we maybe getting towards the end to that or you know is that kind of expected to be a continued.

A headwind as we move through 2020.

You know I, certainly expect sales pressures to continue there's a large customer that's consolidating.

I do expect us to do a less business.

With that customer.

And given that they're fairly large it's difficult for Australia to grow if that customer shrinking we are managing Australia for improved profitability, a Australia has taken a few restructuring actions last year.

And we have a good plan.

In that in 2020 to improve profitability, So I expect Australia to have a.

Uh Huh battery here in 2020, but a better year for me is slightly lower sales and improved profitability.

Okay. Thanks for taking all the questions.

Thank you Kevin.

Thank you and our next question comes from Joe Gomes with Noble capital. Your line is now open.

Good morning.

Good morning, Joe.

Okay real quick on North America kind of overall year watch [noise].

Really good.

The fourth quarter.

Sales were down a after two really good strong quarters in the second and third I was just wondering if you provide a little more detail on color.

What was going on in North America in the fourth quarter and how you guys were responding to that.

Sure Joe.

This is something that we expect every year I as I mentioned on my previous answer.

North America is really driven by Q2 in Q3, because the healthier channels, which are the mass and etail channels more prevalent.

And represent a higher mix in the second and third quarters.

And you want in Q4, its last back to school and it's more about the business and there the share of that business that is driven by more challenged resellers is higher. So therefore, it has an impact on our business again. This is something that's normal the plan for that.

You know overall.

North America was up 3%, which is great, but it's really driven by the success and Oh Q2 in Q3, an hour increased share during back to school.

Okay. Thanks for that color.

I'm not [noise].

Your remarks, you you.

When you're talking about channels you you noted that the dollar store channel. It declined it I know a while back you guys had some.

Positive hope for that channel I'm, just wondering what what's going on there and where do you see that channel going.

You know we continue to experiment with the the the dollar channel and so we were pretty aggressive with them in 2018.

So incremental sales, but on acceptable profitability for us.

So we pulled back in 2019 to to try to strike a balance between revenue growth and profitability.

And we saw.

Less revenue, but certainly improve profitability in 2019. Its it continues to be an important channel for us, but we have to get it right we have to.

To be able to drive profitable sales through that channel.

You know I think where where have a better view on how to do that I expect that we will have incremental sales through the dollar.

Stores in 2020, but you know, it's not going to be huge huge share of our business. It's a nice complement to our overall portfolio, but striking that balance between sales and profitability is important to us.

Okay.

Thanks on that and then you also mentioned that.

You guys are taking some price increases in the international markets.

And just wondering and due to the strength of the dollar.

HM.

How does that price your guys products versus some of your competitors and there's that delta getting.

You know two way, a oh level, where there might be some additional trade off in product.

You know we compete against local competition all the time, so certainly the competitive environment is part of our consideration well look at pricing.

We.

Past pricing on products that are manufactured in Asia and cost sit in us dollars that affects most of our competitors as well so they have to do a similar pricing to us.

All of our locally produced products we.

Priced differently, because we don't have the same currency a inflation going through them. So it's certainly as part of the consideration and our teams are local teams review that to make sure that in the market at the end of the day.

Where competitive we can sell they have a good value proposition to both our customers and the consumer so how do you know I feel I feel.

Comfortable where we are throughout the year, if we need to adjust things either up or down we do that both based on cost of inflation as well as well as market conditions.

Okay. Thanks for the insight on that one one last one for me.

Real quick what is the remaining authorization of the stock buyback program.

Neil do you have that Oh, my head, it's north of 100 million.

I don't remember off stuff exact number two well that's fine we have we have enough enough certainly for this year.

Right. Okay, great. Thanks, guys. Appreciate it thank you Joe.

Thank you. Our next question comes from Bill Chappelle with Suntrust. Your line is now open.

Thanks, Good morning.

Good morning about <unk>.

They are just.

Starting on the topline outlook for North America, and then for Europe.

On North America, I think you said it possibly go backwards is that all on I mean, it could be flat to down is that all on just the roll off on price or do you expect volume to be flat to down.

I, certainly expect volume to be down price should be up a little bit overall overall I mean, we had a great great year.

In a 2019 with.

North America, not you know I expect the back to school to be roughly similar.

But then in Q1 in Q4 I do expect some fall off again driven by.

The decline in more and more challenged with most challenged resellers. So I just you know expect.

To be we expect it to be slightly down versus our son superbly year of 2019.

And then on Europe is it the currency is included in that or do you expect a sales to be just flat as is and then currency.

I guess anything you can give us on would be helpful.

No that's right comparable sales to be roughly flat and then currency will certainly taken down a little bit.

Okay and.

And then last one I don't I guess I help me understand the 14 million of increase normalize comp in 2020, just coming off of what you are saying is a very good year I.

I didn't realize or didn't understand maybe where if accrual stop sometime in 2019 and why they weren't fully paid out and then why there's such a big jump because I guess, it's about 10 cents EPS headwind on variable copper on normalized comp in 2020, so maybe a little more color there would be helpful.

Yeah. It's a you know unfortunate dilemma a bill we did have a great year, but none of our.

Incented objectives are not net.

During 2019, so so hands.

We did not earn.

You know how our our targeted bonus.

So for 2020 as we plan 2020, we're assuming a earn that in 2020 and that's the.

$14 million most of that is driven by annual incentives that were not man for 2019. So you know it's unfortunate but you know that's a factor that's where we are.

Well I guess Im just trying to understand I mean, you had a.

One person overall growth.

Or almost 1% organic growth in 19, you're looking for flat to that you know roughly that in 2020, maybe help me understand where you would have mr. where were you fell below your expectations.

Well if you look at if you look at the or a bill. It was it was a fairly and even between regions right. So the the overall company as the consolidation of all the regions North America, certainly did better.

Than international or.

Yeah. So he man international have not met.

Many of their objectives for.

2019, which rolls into.

Into the enterprise.

And then the other one way that we missed you know even though we certainly met our free cash flow objectives that that that is not a metric in our annual plan Oh annual incentive based on working capital efficiency.

We set ourselves a pretty high goal.

In 2019.

We haven't met that as an enterprise as well and that's about 20% of out of our total annual incentive so as a company. We haven't met that either so you know it's you know it's more of a I think a goal setting issue other than a company performance issue because I think we can all recognize that we did as an enterprise very well.

In 2019, but you know you know goal setting is a challenge.

We do that early in the air when we don't have visibility to the full year.

Unfortunately, we haven't met.

Some of our short term targets in 2019 that hopefully we will get a chance to me than 2020.

Okay I'll leave it at that thanks, so much.

Thank you though.

Thank you. Our next question comes from William Reuter with Bank of America. Your line is now open.

Good morning.

Let me about previous Hey, previously you had said that the impact of tariffs and 2020 was gonna be sevenmillion is that still the the number that you expect or has a list for and for a a decrease in percentage a lower at that number.

It's going to be a little bit lower than that because of exactly because the.

Or be is no longer than forays down from 15% to 75% they'll be a little bit lower than that.

Okay, and then earlier you mentioned that you expect a little bit of gross margin expansion based upon some price increases that were more than offset the tariffs will this be evenly spread throughout the year are based upon the timing of implementation of those.

And Ah Ah tariffs will we see a little pressure in the beginning of the year that will be offset by expansion later on.

Yeah. The the gross margin expansion is driven.

Really by international.

And productivity, there's not going to be so much due to a two tariffs anniversarying and you know I don't want to provide any color by like water bill because it's so difficult to predict so I think overall for the here are we looking at a little done an expansion, but exactly when it's going to.

Throughout the year that it's hard to tell.

Okay and then just lastly, your your near your target leverage ratio.

I guess as you look at the M&A pipeline at this point, how do you view. It do you think you'll be active.

During 2020 do you think valuations are attractive at this point.

Failed. Its its you know anything has to do with acquisitions is very difficult to predict that can't really.

Comment anything more specifically acquisitions are core to our strategy, we like what we've done and we like the incremental results that we've delivered to our shareholders a due to acquisitions.

But we are you know patient and prudent buyers or what to make sure that we don't overpay you know, whether it's up something's going to happen in 2020, I I don't know I can't tell you that.

Alright, Thank you very much.

Think about.

Thank you. Our next question comes from Hale Holden with Barclays. Your line is now open.

Hi, Thanks for taking my call.

I was wondering just a follow up on adult tariff question the.

The commentary that.

For a four area when you step down.

And I.

I guess my second quarter for pricing.

When you give up back or just by fair with your customers.

Is that sort of one to one on margins or is there a lag time on the on how that works.

And it sounds like kind of sort of how for sort of just for 20% from taught us a relatively small topline number that's what I'm not sure how fast the thinking correctly.

Yeah, I think you have to understand and first of all the actual tariff reduction didnt happen until February and then we have to working through a purchase inventory cycle and so that's the like <unk> and we do that in the same way when we raise prices when tariffs go up we didn't raise prices straight away. There's a three month lag and so we try and match.

All cost with all selling price that's fundamentally we're trying to do.

It will be margin neutral level.

Okay, great. Thank you and then the only other question I had was I was just wondering I wonder if you give a sort of a an update on what's you're seeing in EMEA.

One of a few reasons you haven't talked about Macquarie I'll detail.

You know EMEA had a overall a a good here in 2019. It came on the back up at a record year in 2018, we had a really a phenomenal here. So you know as Neal mentioned we had.

<unk> sales.

Comparable sales to 2018, we were hurt by currency in EMEA sales in actual U.S. dollars were down 6% because of currency.

And then they me.

Had a.

Kinda by unusually here, we had a strong Q1 relatively weak Q2 in Q3, and then a strong Q4.

You know, we expect a flat business in EMEA, we have a very strong business there, but the economies they are slowing down a little bit.

So we don't have you know expectations for it for significant growth in the me in 2020.

Well, there's no there's no shredder impact 19 to 20 like there was an 18 to 19 right.

That's right the shred it the privacy laws in Europe came out in the second quarter of 18. So you saw a surgeon sales in Q2 in Q3, and that's what made such a difficult comp in 19.

Great. Thank you so much appreciate it.

Thank you.

Thank you. Our next question comes from Karru Martinson with Jefferies. Your line is now open.

Good morning, just on for back to school U.S.. So superstores continue to shrink and consolidate your where do you see that U.S. consumer going where are the channels or growth that you're seeing.

You know superstores are very very small for back to school back to school is really made by three primary players and that's Walmart target an Amazon and that's really has been the case for the last couple of years.

And I expect that to continue to be the case, Oh, we have very strong with all three of them. They drive back to school you know that's the reason why we were successful last few years and they get my expectations. At this will continue superstores are a big player and indeed on the business side.

You know in Q1, and Q4, but really you know marginal for back to school.

Okay and then on on the business side are you seeing expansion from other players or is it still being dominated by Staples and office depot.

You know on the back to business side, Amazon is certainly making inroads.

Specialty with small and medium business and independents are doing a great job. So you know over the last few years, we've seen independence I take share.

For a on the business side, they're focused on that on that the small and medium customer and they do a great job servicing those customers. So you know one of the reasons, we did well.

In 2019 in a in North America is because independents have done well in advance.

North America in 2019, so that channel is certainly something that we supporting pay attention to and we expect further girl from.

Okay. Thank you very much appreciate it guys.

Thank you Carol.

Thank you and our next question comes from how about of course on with VW S. financial Your line is now open.

Hi, Good morning. So first question I had was.

What are your capital allocation plans for 2020, because your presentation slides assumes very small almost zero share buybacks.

Yeah, we don't we don't really.

Forecast share buybacks in our future plans or how that so.

You know the history, we purchase $75 million in 2018 and $65 million 2019.

We certainly have the free cash flow.

To do more in 2020, but exactly how and when we don't we don't give guidance on that.

Okay and then.

Is there anything.

The indication that the you're going to do more of the store brand.

Sales this year.

Can you elaborate a little bit what do you mean by Storebrand <unk>.

Oh, probably late last year, you got it yeah. The private label got it a private label is about six or 7% of our sales.

We were continuing to do.

Private label I expect that to be a little bit less in 2020.

To that in 2019 in 2019, we won some incremental private label business seasonal private label business for for back to school, which I don't expect to repeat.

But other than that the steady state now private label business I.

Expect us to continued to participate but it will be in that you know.

6% arrange it shouldn't be in Ohio or significantly lower than that.

Are you assuming the some of your input costs stay the same even though there's been some deflationary pressures lately.

Oh, three and he certainly worked very.

We certainly worked very hard on that too.

Capture all of the savings from lower input costs.

And you know what else can achieve and consolidate a we will take into either incremental profit or into our.

Demand generation programs, you know as I've mentioned in my prepared remarks, the $40 million of productivity.

That we achieved in 2019 most of that we reinvest back in the business.

To drive to drive demand I mean, it's really a you know important for us to continue to feature all brands to continue to continue to feature our products. So.

We will we will capture the lower input costs.

But a lot of that will go back and drive demand.

You remember another thing okay. The end of 2018, we forward both an awful lot of inventory to avoid tariff costs increases that obviously can't be done again its own twentytwenty. What we've had to do is always the work on resourcing those items two different areas well, we will be receiving cost increases.

Okay. That's helpful. Thank you.

I think it on it.

Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Boris Elisman for any closing remarks.

Thank you Jamie a in closing to summarize were very pleased with how the business performed in 2019 remain confident about our future and continue to position the company for growth and strong returns to our shareholders I look forward to speaking with you again after the report <unk> first quarter earnings. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.