Q1 2024 ACCO Brands Corp Earnings Call

May 3, 2024

Elliot: Hello and welcome to the ACCO Brands Corp. 2024 conference call. My name is Elliot, and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd now like to hand over to Chris McGinnis, Senior Director of Investor Relations. The floor is yours. Please go ahead.

Hello, and welcome to the ACCO brands Corp. So I just want to try it before its conference call. My name is and I'll be coordinating Yokels day.

If you would like to register a question Joan stage events. Please press star followed by one on your telephone keypad.

I'd now like to hand over to Chris Mcginnis Senior director of Investor Relations. The floor is yours. Please go ahead.

Chris McGinnis: Good morning, and welcome to the ACCO Brands first quarter 2024 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today is Tom Tedford, President and Chief Executive Officer of ACCO Brands Corporation. He will provide an overview of our first quarter results and update you on our 2024 priorities. Also speaking today is Deb O'Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our first quarter results and update you on our outlook for the full year 2024 and the second quarter. We will then open the line for questions.

Chris McGinnis: Good morning, and welcome to the ACCO Brands first quarter 2024 conference call. This is Chris McGinnis, Senior Director of Investor Relations.

Chris McGinnis: Good morning, and welcome to the <unk> brands first quarter 2024 conference call.

Chris McGinnis: This is Chris Mcginnis senior director of Investor Relations speaking on the call today, if contact the President and Chief Executive Officer of Acrobatics Corporation.

Chris McGinnis: Speaking on the call today is Tom Tedford, President and Chief Executive Officer of ACCO Brands Corporation. He will provide an overview of our first quarter results and update you on our 2024 priorities. Also speaking today is Deb O'Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our first quarter results and update you on our outlook for the full year 2024 and the second quarter. We will then open the line for questions.

Chris McGinnis: Tom will provide an overview of our first quarter results and update you on our 2024 priorities.

Chris McGinnis: Also speaking today as Deb Oconnor Executive Vice President and Chief Financial Officer, who will provide greater detail on our first quarter results and update you on our outlook for the full year 2024, and the second quarter.

Speaker Change: We will then open the line for questions.

Chris McGinnis: Slides that accompany this call have been posted to the investor relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude amortization and restructuring costs, non-cash goodwill impairment charges, and other non-recurring items and unusual tax items, and adjustments to reflect the estimated annual tax rate on quarterly earnings. A schedule 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 the slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP measures.

Speaker Change: Slides that accompany this call have been posted to the Investor Relations section of ACCO Brands' dotcom.

Deborah A. OConnor: And speaking about our results we may refer to adjusted results.

Deborah A. OConnor: Adjusted results exclude amortization and restructuring costs noncash goodwill impairment charges and other nonrecurring items, an unusual tax items and adjustments to reflect the estimated annual tax rate on quarterly earnings.

Deborah A. OConnor: 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 the slides that accompany this call.

Chris McGinnis: Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP measures. Forward-looking statements made during this call are based on the belief and assumption of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain risk factors and assumptions. Our four forecast statements are made as of today, and we assume no obligation to update them going forward. Now, I will turn the call over to Tom Tedford.

Deborah A. OConnor: Due to the inherent difficulty in forecasting and quantifying certain amounts we do not reconcile our forward looking non-GAAP measures.

Chris McGinnis: Forward-looking statements made during this call are based on the belief and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain risk factors and assumptions. Our four forward-looking statements are made as of today, and we assume no obligation to update them going forward. Now, I will turn the call over to Tom Tedford. Thank you, Chris.

Deborah A. OConnor: Forward looking statements made during this call are based on the beliefs and assumptions of management based on information available to us at the time the statements are made.

Deborah A. OConnor: Our forward looking statements are subject to risks and uncertainties.

Deborah A. OConnor: Actual results could differ materially.

Deborah A. OConnor: Please refer to our earnings release, and SEC filings for an explanation of certain risk factors and assumptions.

Deborah A. OConnor: Our forward looking statements are made as of today and we assume no obligation to update them going forward now.

Deborah A. OConnor: Now I will turn the call over to Tom Patrick.

Thomas W. Tedford: Thank you, Chris. Good morning, everyone, and welcome to today's call. Last night, we reported first quarter 2024 results with adjusted EPS of $0.03 within our outlook range. While we anticipated that 2024 would be a reset year, with sales being below 2023, Q1 was modestly weaker than planned as demand for our categories remains muted. Our proactive, disciplined cost management, combined with recent strategic pricing in several regions, enabled us to expand our gross margin rate by 120 basis points.

Thomas W. Tedford: Good morning, everyone, and welcome to today's call. Last night, we reported first quarter 2024 results with adjusted EPS of $0.03 within our outlook range. While we anticipated that 2024 would be a reset year, with sales below 2023, Q1 was modestly weaker than planned as demand for our categories remains muted. However, our proactive, disciplined cost management, combined with recent strategic pricing in several regions, enabled us to expand our gross margin rate by 120 basis points.

Thomas W. Tedford: Thank you Chris Good morning, everyone and welcome to today's call.

Thomas W. Tedford: Last night, we reported first quarter 2024 results with adjusted EPS of <unk> <unk>.

Thomas W. Tedford: Within our outlook range.

Thomas W. Tedford: While we anticipated that 2024 would be a reset year with sales being below 2023, Q1 was modestly weaker than planned as demand for our categories remains muted.

Thomas W. Tedford: Our proactive disciplined cost management combined with recent strategic pricing in several regions.

Thomas W. Tedford: Enabled us to expand our gross margin rate by 120 basis points.

Thomas W. Tedford: We effectively controlled our costs and managed our working capital as inventory was down considerably versus Q1 of the prior year. These actions translated into a healthy free cash flow of $26 million in the quarter, a $51 million improvement over last year, and enabled us to end the quarter with a leverage ratio of 3.5 times, well below the 4.3 times ratio at the end of Q1 last year and our debt covenant.

Thomas W. Tedford: We effectively controlled our costs and managed our working capital as inventory was down considerably versus Q1 of the prior year.

Thomas W. Tedford: These actions translated into our healthy free cash flow of $26 million.

Thomas W. Tedford: In the quarter.

Thomas W. Tedford: A $51 million improvement over last year.

Thomas W. Tedford: And enabled us to end the quarter with a leverage ratio of three five times.

Thomas W. Tedford: Well below the $4 three times ratio at the end of Q1 last year and our debt covenant.

Thomas W. Tedford: As a reminder, the first quarter is seasonally our smallest in terms of sales and profitability. We continue to expect relative improvement in both as we progress through the balance of the year. We are encouraged by the trends in our technology accessories categories and believe, along with improving sales trends within our learning and creative and office product businesses, that the rate of sales decline will moderate in the second half of the year. First quarter comparable sales were down 11%, with approximately 2% from the planned exit of lower-margin businesses and another 3% relating to softer sales at the end of the back-to-school season in Brazil.

Thomas W. Tedford: As a reminder, the first quarter is seasonally our smallest in terms of sales and profitability.

Thomas W. Tedford: We continue to expect relative improvement in both as we progress through the balance of the year.

Thomas W. Tedford: We are encouraged by the trends in our technology accessories categories, and believe along with improving sales trends within our learning and creative and office products businesses.

Thomas W. Tedford: But the rate of sales decline will moderate in the second half of the year.

Thomas W. Tedford: First quarter comparable sales were down 11%, with approximately 2% from the planned exit of lower margin business and another 3% relating to softer sales at the end of the back-to-school season in Brazil. The remaining decline represents the persistent global headwinds from softer consumer and business demand. On a segment basis, sales declined the most in the Americas. Sales of our office products in the U.S. and Canada were pressured in the quarter as market demand for our categories was weaker than anticipated. Structural shifts in how and where people work have created headwinds for the office products industry since the pandemic.

Thomas W. Tedford: First quarter comparable sales were down 11% with approximately 2% from the planned exit of lower margin business.

Thomas W. Tedford: And another 3% relating to softer sales at the end of the back to school season in Brazil.

Thomas W. Tedford: The remaining decline represents the persistent global headwinds from softer consumer and business demand. On a segment basis, sales declined the most in the Americas. Sales of our office products in the U.S. and Canada were pressured in the quarter as market demand for our categories was weaker than anticipated. Structural shifts in how and where people work have created headwinds for the office products industry since the pandemic. We expect these sales declines to moderate, and we are now exploring innovative new product solutions that solve the challenges of the future of work. For the important back-to-school season in the U.S., industry experts continue to forecast sales for the season to be down modestly compared to the prior year.

Thomas W. Tedford: The remaining decline represents the persistent global headwinds from softer consumer and business demand.

Thomas W. Tedford: On a segment basis sales declined the most in the Americas.

Thomas W. Tedford: Sales of our office products in the U S and Canada were pressured in the quarter as market demand for our categories was weaker than anticipated.

Thomas W. Tedford: Structural shifts in how and where people work have created headwinds for the office products industry since the pandemic.

Thomas W. Tedford: We expect these sales declines to moderate and are now exploring innovative new product solutions that solve the challenges of the future of work. For the important back-to-school season in the U.S., industry experts continue to forecast sales for the season to be down modestly compared to the prior year. We expect our year-over-year declines to be greater than the broader market as we exit lower margin private label products within the back-to-school category. We have initiatives underway to gain market share with our category-leading five-star Mead brand for the upcoming back-to-school season and expect another year of strong performance.

Thomas W. Tedford: We expect these sales declines to moderate and are now exploring innovative new product solutions that solve the challenges of the future of work.

Thomas W. Tedford: For the important back to school season in the U S industry experts continue to forecast sales for the season to be down modestly compared to prior year.

Thomas W. Tedford: We expect our year-over-year declines to be greater than the broader market as we exit lower margin private label products within the back-to-school category. We have initiatives underway to gain market share with our category-leading five-star Mead brand for the upcoming back-to-school season and expect another year of strong performance. The value our leading brands offer consumers transcends economic conditions, as evidenced by our market share gains pre and post-pandemic. While declines in the U.S. and Canada were expected due to the softer demand environment, end-of-season sales for back-to-school products in Brazil were weaker than anticipated in the quarter. Despite this weakness, for the full back-to-school season, we had good sales growth in Brazil. As a reminder, Brazil's back-to-school season sell-in occurs later in the year and concludes in the first quarter.

Thomas W. Tedford: We expect our year over year declines to be greater than the broader market as we exited lower margin private label products within the back to school category.

Thomas W. Tedford: We have initiatives underway to gain market share with our category, leading five star need brands for the upcoming back to school season, and expect another year of strong performance.

Thomas W. Tedford: The value our leading brands offer consumers transcends economic conditions, as evidenced by our market share gains pre and post-pandemic. While declines in the U.S. and Canada were expected due to the softer demand environment, end-of-season sales for back-to-school products in Brazil were weaker than anticipated in the quarter. Despite this weakness, for the full back-to-school season, we had good sales growth in Brazil. As a reminder, Brazil's back-to-school season sell-in occurs later in the year and concludes in the first quarter.

Thomas W. Tedford: The value, our leading brands offer consumers transcends economic conditions as evidenced by our market share gains pre and post pandemic.

Thomas W. Tedford: While declines in the U S and Canada were expected due to the softer demand environment and the season sales for back to school products in Brazil were weaker than anticipated in the quarter.

Thomas W. Tedford: Despite this weakness for the full back to school season, we had good sales growth in Brazil.

As a reminder, Brazil is back to school season sell in occurs later in the year and concludes in the first quarter.

Thomas W. Tedford: Based on customer feedback this year, sell-through was good, and customer inventory levels are healthy in the region. As a result, we expect sales trends to improve as we move throughout the year. We are also working closely with our valued retail partners to ensure we are well positioned to capitalize on all sales opportunities in Brazil and the rest of Latin America. However, our international segment also faced top-line pressure, with sales down year over year. The demand environment remained challenging across the segment due to weaker economic activity. The sales declines highlight the impact of the current macroeconomic environment on consumer and business spending globally.

Thomas W. Tedford: Based on customer feedback this year sell through was good and customer inventory levels are healthy in the region.

Thomas W. Tedford: As a result, we expect sales trends to improve as we move throughout the year.

Thomas W. Tedford: We are also working closely with our valued retail partners to ensure we are well positioned to capitalize on all sales opportunities in Brazil, and the rest of Latin America.

Thomas W. Tedford: Our international segment also faced topline pressures with sales down year over year.

The demand environment remained challenging across the segment due to weaker economic activity.

Thomas W. Tedford: The sales declines highlight the impact of the current macroeconomic environment on consumer and business spending globally.

Thomas W. Tedford: We introduced new products within the segment in Q1, with several product launches exceeding our initial expectations. Our market shares and key categories in the segment are stable with the support of leading brands like Lights, Rapide, Kensington, and PowerA. Our teams operating in this segment maintain price discipline and tight cost controls, allowing us to expand the operating margin base to 40 percent. While we face top-line pressures across our core office products, we are seeing improved sales trends in our two global technology businesses, Kensington and PowerA. Q1 was encouraging as sales declines for Kensington, our computer accessories business, moderated significantly.

Thomas W. Tedford: We introduced new products within the segment in Q1, with several product launches exceeding our initial expectations. Our market shares and key categories in this segment are stable with the support of leading brands like Lights, Rapide, Kensington, and PowerAid. Our teams operating in this segment maintain price discipline and tight cost controls, allowing us to expand the operating margin by 40 basis points. While we face top-line pressures across our core office products, we are seeing improved sales trends in our two global technology businesses, Kensington and PowerA. Q1 was encouraging as sales declines for Kensington, our computer accessories business, moderated significantly.

Thomas W. Tedford: We introduced new products within the segment in Q1 with several product launches exceeding our initial expectations.

Thomas W. Tedford: Our market shares in key categories. In this segment are stable with the support of leading brands like lights repeat Kensington and power.

Our teams operating in this segment maintained price discipline and tight cost controls, allowing us to expand operating margin 40 basis points.

Thomas W. Tedford: While we faced topline pressures across our core office products, we are seeing improved sales trends in our two global technology businesses and Clinton empower.

Q1 was encouraging as sales declines for Kensington, our computer accessories business moderated significantly.

Thomas W. Tedford: Our channel partners continue to work through XX Inventory and Docking Station, and as their inventory positions improve, we anticipate our sales trends will improve as well. The combination of improving market conditions as we move through 2024 and our pipeline of innovative new product launches gives us confidence that the year-over-year declines we experienced in 2023 are largely behind us, and Kensington will return to growth in 2024. PowerA, our leading gaming accessories brand, saw solid sales growth of 14% in the quarter, driven by a greater supply of wireless gaming controllers and our international expansion. We still anticipate sales trends will remain choppy as we navigate quarterly programs and uncertain market dynamics in the video gaming category.

Thomas W. Tedford: Our channel partners continue to work through XX Inventory and Docking Station, and as their inventory positions improve, we anticipate our sales trends will improve as well. The combination of improving market conditions as we move through 2024 and our pipeline of innovative new product launches gives us confidence that the year-over-year declines we experienced in 2023 are largely behind us, and that Kensington will return to growth in 2024. PowerA, our leading gaming accessories brand, saw solid sales growth of 14% in the quarter, driven by a greater supply of wireless gaming controllers and our international expansion. We still anticipate sales trends will remain choppy as we navigate quarterly programs and uncertain market dynamics in the video gaming category.

Thomas W. Tedford: Our channel partners continue to work through excess inventory and docking station and as their inventory positions improve we anticipate our sales trends will as well.

Thomas W. Tedford: The combination of improving market conditions, as we move through 2024, and our pipeline of innovative new product launches give us confidence that the year over year declines we experienced in 2023 are largely behind us and the Kensington will return to growth in 2024.

Thomas W. Tedford: Power, a our leading gaming accessories brand saw solid sales growth of 14% in the quarter driven by a greater supply of wireless gaming controllers and our international expansion.

Thomas W. Tedford: We still anticipate sales trends will remain choppy as we navigate quarterly programs and in certain market dynamics and the video gaming category.

Thomas W. Tedford: We remain excited about the growth opportunities for PowerA with our global licensing agreement with Epic Games, the maker of Fortnite, and licensing agreements with both Nintendo and Sony in Japan. While still in the early days of commercialization, we are receiving positive feedback from our partners. Now, let me transition to an update on the progress we are making against our multi-year cost restructuring initiative as we reposition the company for long-term profitable growth.

Thomas W. Tedford: We remain excited about the growth opportunities for power with our global licensing agreement with epic games, the maker of Fortnite and licensing agreements with both Nintendo and Sony in Japan.

Thomas W. Tedford: While still in the early days of commercialization, we are receiving positive feedback from our partners.

Now, let me transition to an update on the progress we are making against our multi year cost restructuring initiatives as we reposition the company for long term profitable growth.

Thomas W. Tedford: As a reminder, we are targeting at least $60 million in cost savings from this multi-year program. In the first quarter, our team successfully implemented a series of cost savings initiatives, and we are on track to deliver more than $20 million in expected savings in 2024. We realized $4 million of savings in the quarter and expect more substantial savings throughout the year as these actions gain traction. As part of the restructuring, we have streamlined our management structure, moving from three business segments to two.

Thomas W. Tedford: As a reminder, we are targeting at least $60 million in cost savings from this multiyear program.

Thomas W. Tedford: In the first quarter, our team successfully implemented a series of cost savings initiatives and we are on track to deliver more than $20 million in expected savings in 2024.

Thomas W. Tedford: We realized $4 million of savings in the quarter and expect more substantial savings throughout the year as these actions gain traction.

Thomas W. Tedford: As part of the restructuring we have streamlined our management structure moving from three business segments to two.

Thomas W. Tedford: This combination has brought our leadership teams closer to our customers, enabling greater engagement and collaboration. We are encouraged by the conversations we are having with our valued customers, which point to opportunities for ACCO Brands to become an even larger, more strategic supplier as we position our brands to assist them in achieving their business objectives. An additional area of focus within the restructuring program is to better leverage our global scale to improve our profitability. As an initial step, we are reviewing opportunities to harmonize processes and to better use technology tools to assist in productivity.

Thomas W. Tedford: This combination has brought our leadership teams closer to our customers, enabling greater engagement and collaboration.

Thomas W. Tedford: We are encouraged by the conversations we're having with our valued customers, which point to opportunities for ACCO brands to become an even larger more strategic supplier as we position our brands to assist them in achieving their business objectives.

Thomas W. Tedford: An additional area of focus within the restructuring program is to better leverage our global scale to improve our profitability.

Thomas W. Tedford: As an initial step we are reviewing opportunities to harmonize processes and to better use technology tools to assist in productivity. Our supply chain optimization work is on track and is delivering cost savings improving our customer service and enabling better inventory management.

Thomas W. Tedford: Our supply chain optimization work is on track and is delivering cost savings, improving our customer service, and enabling better inventory management. Importantly, we remain committed to investing in incremental growth opportunities. Our global platform and diverse product portfolio provide ACCO Brands with multiple areas to bring innovative, new, and refreshed products to market. While still early, I'm excited about the pipeline of new products. In closing, the actions we are taking to reset our cost structure, improve our revenue management execution, and enhance our focus on innovation and new product development are the right strategic moves to reposition the company for long-term profitable growth.

Thomas W. Tedford: Importantly, we remain committed to investing in incremental growth opportunities.

Thomas W. Tedford: Our global platform and diverse product portfolio provide ACCO brands multiple areas to bring innovative new and refreshed products to market.

While still early I am excited about the pipeline of new products.

Thomas W. Tedford: In closing the actions, we are taking to reset our cost structure improve our revenue management execution and enhance our focus on innovation and new product development are the right strategic moves to reposition the company for long term profitable growth.

Thomas W. Tedford: We have a solid foundation with a global portfolio of leading brands and consistent free cash flow generation. Our strong balance sheet with no debt maturities until 2026 and low fixed interest rates on more than half of our debt provide financial flexibility to invest in growth initiatives as well as support our dividend and reduced debt near term. We have an experienced leadership team that will successfully execute our repositioning strategy. While challenges remain in the near term, I am confident in the actions we are taking in 2024. I will now hand it over to Deb, and we'll come back to answer your questions.

Thomas W. Tedford: We have a solid foundation with a global portfolio of leading brands and consistent free cash flow generation. Our strong balance sheet with no debt maturity until 2026 and low fixed interest rates on more than half of our debt provide financial flexibility to invest in growth initiatives as well as support our dividend and reduced debt near term. We have an experienced leadership team that will successfully execute our repositioning strategy. While challenges remain in the near term, I am confident in the actions we are taking in 2024. I will now hand it over to Deb, and we'll come back to answer your questions.

Thomas W. Tedford: We have a solid foundation with a global portfolio of leading brands and consistent free cash flow generation.

Thomas W. Tedford: Our strong balance sheet with no debt maturities until 2026, and low fixed interest rates on more than half of our debt provide financial flexibility to invest in growth initiatives as well as support our dividend and reduce debt near term.

Thomas W. Tedford: We have an experienced leadership team that will successfully execute our repositioning strategy.

Thomas W. Tedford: While challenges remain in the near term I am confident in the actions we are taking in 2024.

Thomas W. Tedford: I will now hand, it over to Deb and we'll come back to answer your questions.

Thomas W. Tedford: Deb.

Deborah A. OConnor: Thank you, Tom, and good morning, everyone. When we last spoke in February, we highlighted the slow demand environment due to the current macroeconomic backdrop. As expected, this trend continued in the first quarter as consumer and business demand remained muted. However, a combination of weaker industry-wide trends in our office product categories and lower-than-expected end-of-season back-to-school sales in Brazil led to our sales shortfall versus outside. Offsetting the lower top line, we continue to make progress in improving our gross margin rate, which expanded 120 basis points versus the prior year, benefiting from a combination of moderating input costs and pricing and cost action.

Deborah A. OConnor: Thank you, Tom, and good morning, everyone. When we last spoke in February, we highlighted the slow demand environment due to the current macroeconomic backdrop. As expected, this trend continued in the first quarter as consumer and business demand remained muted. However, a combination of weaker industry-wide trends in our office product categories and lower-than-expected end-of-season back-to-school sales in Brazil led to our sales shortfall versus expectations. Offsetting the lower top line, we continue to make progress in improving our gross margin rate, which expanded 120 basis points versus the prior year, benefiting from a combination of moderating input costs and pricing in cost act.

Deborah A. OConnor: Thank you Tom and good morning, everyone.

Deborah A. OConnor: When we last spoke in February.

Deborah A. OConnor: Highlight of the slow demand environment due to the current macroeconomic backdrop.

Deborah A. OConnor: As expected this trend continued in the first quarter as consumer and business demand remained muted.

Deborah A. OConnor: However, a combination of weaker industry wide trends in our office product categories and lower than expected end of season back to school sales in Brazil led to our sales shortfall versus outlook.

Deborah A. OConnor: Offsetting the lower top line, we continue to make progress in improving our gross margin rate, which expanded 120 basis points versus the prior year.

Deborah A. OConnor: Operating from a combination of moderating input costs.

Deborah A. OConnor: And pricing and cost actions.

Deborah A. OConnor: These improvements allowed us to deliver adjusted EPS within our outlook range. Consolidated reported and capital sales in the first quarter of 2024 decreased 11% versus the prior year due to the planned exit of lower margin business, which negatively impacted sales by approximately 2%, and softer back-to-school sales at the end of the season in Brazil, which accounted for another 3% of the decline. In addition, we continue to see overall soft global demand for our products, which is in line with industry trends.

Deborah A. OConnor: These improvements allowed us to deliver adjusted EPS within our Outlook range. Consolidated reported and comparable sales in the first quarter of 2024 decreased 11% versus the prior year due to the planned exit of lower margin business, which negatively impacted sales by approximately 2%, and softer back-to-school sales at the end of the season in Brazil, which accounted for another 3% of the decline. In addition, we continue to see overall soft global demand for our products, which is in line with industry trends.

Deborah A. OConnor: These improvements allowed us to deliver adjusted EPS within our outlook range.

Deborah A. OConnor: Consolidated reported and comparable sales in the first quarter of 2024 decreased 11% versus the prior year.

Deborah A. OConnor: Due to the planned exit of lower margin business, which negatively impacted sales by approximately 2%.

Deborah A. OConnor: And stopped or back to school sales at the end of the season in Brazil, which accounted for another 3% of the decline.

Deborah A. OConnor: In addition, we continue to see overall soft global demand for our products, which was in line with industry trends.

Deborah A. OConnor: Gross profit for the first quarter was $110 million, a decrease of 8% due to lower sales. FQ&A expense of $94 million was down slightly versus the prior year as cost reductions were offset by merit increases and inflation. Adjusted operating income for the first quarter was $16 million compared to $24 million last year due to the sales decline. Now, let's turn to our segment results.

Deborah A. OConnor: Gross profit for the first quarter was $110 million, a decrease of 8% due to lower sales. ST&A expense of $94 million was down slightly versus the prior year, as cost reductions were offset by merit increases and inflation.

Deborah A. OConnor: Gross profit for the first quarter was $110 million, a decrease of 8% due to the lower sales.

Deborah A. OConnor: SG&A expense of $94 million was down slightly versus the prior year as cost reductions were offset by merit increases and inflation.

Deborah A. OConnor: Adjusted operating income for the first quarter was $16 million compared to $24 million last year due to the sales decline. Now, let's turn to our segment results. This is the first quarter we are reporting under the new two-segment structure of the Americas and International segments. In the Americas segment, comparable sales declined 15 percent, driven by volume declines due to industry-wide trends and from the exit of lower margin business. Demand for our traditional office product categories remains under pressure.

Deborah A. OConnor: Adjusted operating income for the first quarter was $16 million compared to the $24 million last year due to the sales decline.

Deborah A. OConnor: We did see moderating rates of decline in our computer accessories category and growth in gaming accessories. In addition, the end-of-season sales for our back-to-school products in Brazil were lower than anticipated. Overall, the full back-to-school season in Brazil was up 6%. The timing of our sales reflected earlier, stronger purchases offset by lower replenishment demand in Q1. As Tom mentioned earlier, the back-to-school season in Brazil begins in Q3 and ends in Q1.

Speaker Change: Now, let's turn to our segment results.

Deborah A. OConnor: This is the first quarter we are reporting under the new two-segment structure of the Americas and International segments. In the Americas segment, comparable sales declined 15 percent, driven by volume decline due to industry-wide trends and from the exit of lower margin business. Demand for our traditional office product categories remains under pressure.

Speaker Change: This is the first quarter, we are reporting under the new two segment structure of the Americas and international.

Speaker Change: In the Americas segment comparable sales declined 15%.

Speaker Change: By volume declines due to industry wide trends and from the exit of lower margin business.

Speaker Change: Demand for our traditional office product categories remains under pressure.

Speaker Change: We did see moderating rates of decline in our computer accessories category and growth in gaming accessories.

In addition, the end of season sales for our back to school products in Brazil were lower than anticipated.

Speaker Change: Overall, the full back to school season in Brazil was up 6%.

Speaker Change: The timing of our sales reflected earlier stronger purchases offset by lower replenishment demand in Q1.

Speaker Change: As Tom mentioned earlier the back to school season in Brazil begins in Q3 and ended in Q1.

Deborah A. OConnor: We are expecting improved sales from Brazil going forward and remain positive about this year's back-to-school season. America's adjusted operating income margin for the first quarter was 6.2% versus the 8.1% rate in 2023, with a decline in the margin rate due to the lower volume in the quarter and negative fixed cost leverage. In larger future quarters, we would expect our cost reduction actions to expand at this margin rate. Now, let's turn to our international segment.

Deborah A. OConnor: We are expecting improved sales from Brazil going forward and remain positive about this year's back-to-school season. America's adjusted operating income margin for the first quarter was 6.2% versus the 8.1% rate in 2023, with a decline in the margin rate due to the lower volume in the quarter and negative fixed cost leverage. In larger future quarters, we would expect our cost reduction actions to expand this margin rate. Now, let's turn to our international segment.

Speaker Change: We are expecting improved sales from Brazil going forward and remain positive about this year's back to school season.

Speaker Change: The Americas adjusted operating income margin for the first quarter was six 2% versus the eight 1% rate in 2023.

Speaker Change: With the decline in the margin rate due to the lower volume in the quarter and negative fixed cost leverage.

Speaker Change: And our larger future quarters, we would expect our cost reduction actions to expand this margin rate.

Speaker Change: Now, let's turn to our international segment for the first quarter reported and comparable sales declined 6% due to volume declines as the demand environment remains soft for our traditional categories.

Deborah A. OConnor: For the first quarter, reported and comparable sales declined 6% due to volume declines as the demand environment remained soft for our traditional category. However, we are seeing growth in our gaming accessories across the segment and improvement in the rate of decline for our computer accessories. International adjusted operating income margin for the first quarter increased 40 basis points to 10.5 percent, with adjusted operating income down modestly.

Deborah A. OConnor: For the first quarter, reported incomparable sales declined 6% due to volume declines as the demand environment remains soft for our traditional category. However, we are seeing growth in our gaming accessories across the segment and improvement in the rate of decline for our computer accessories. International adjusted operating income margin for the first quarter increased 40 basis points to 10.5%, with adjusted operating income down modestly. The improvement in adjusted operating income margin rates was due to moderating input costs and our pricing and cost reduction act.

Speaker Change: We are seeing growth in our gaming accessories across the segment and improvement in the rate of decline for our computer accessories.

Speaker Change: International adjusted operating income margin for the first quarter increased 40 basis points to 10, 5% with adjusted operating income down modestly.

Deborah A. OConnor: The improvement in adjusted operating income margin rates was due to moderating input costs and our pricing and cost reduction actions. Now, let's switch to cash flow and balance sheet items. Historically, due to our seasonality, we generally use cash in the first half of the year and generate significant cash flow in the second half of the year. Our working capital reduction resulted in positive operating cash flow during the first quarter, which historically has been very hard to achieve due to the seasonality of the business.

Speaker Change: The improvement in adjusted operating income margin rate was due to moderating input costs, and our pricing and cost reduction actions.

Deborah A. OConnor: Now let's switch to cash flow and balance sheet items. Historically, due to our seasonality, we generally use cash in the first half of the year and generate significant cash flow in the second half of the year. Our working capital reduction resulted in positive operating cash flow during the first quarter, which historically has been very hard to achieve due to the seasonality of the business. Free cash will improve $51 million compared to the prior year, driven by this working capital.

Speaker Change: Now, let's switch to cash flow and balance sheet items here.

Speaker Change: Historically due to our seasonality, we generally use cash in the first half of the year and generate significant cash flow in the second half of the year.

Our working capital reduction resulted in positive operating cash flow during the first quarter, which historically has been very hard to achieve due to the seasonality of the business.

Deborah A. OConnor: Free cash will improve $51 million compared to the prior year, driven by this working capital. However, inventory continues to be down significantly from the prior year, 17% down as of March 31st. We end the quarter with total gross debt of $961 million, which is $138 million lower than at the same time last year. Our cash balance was $125 million, similar to last year's first quarter. However, in the first quarter, our cash balance is higher and largely held in Brazil due to the timing of collection. We intend to use those dollars to fund our Brazilian business throughout the country.

Speaker Change: Free cash flow improved $51 million compared to the prior year driven by this working capital.

Deborah A. OConnor: Inventory continues to be down significantly from the prior year, 17% down as of March 31st. We end the quarter with total gross debt of $961 million. That's $138 million lower than the same time last year. Our cash balance was $125 million, similar to last year's first quarter. In the first quarter, our cash balance is higher and largely held in Brazil due to the timing of collection. We intend to use those dollars to fund our Brazilian business throughout the country.

Speaker Change: Inventory continues to be down significantly from the prior year, 17% down as of March 31.

We ended the quarter with total gross debt of $961 million, that's a $138 million lower than the same time last year.

Speaker Change: Our cash balance was $125 million similar to last year's first quarter.

Speaker Change: In the first quarter, our cash balances higher and largely held in Brazil due to the timing of collections.

Speaker Change: We intend to use those dollars to fund our Brazilian business throughout the year.

Deborah A. OConnor: At the end of the quarter, we had $518 million of remaining availability on our $600 million revolving credit facility. As shown on our earnings slide, more than half of our debt is at a fixed interest rate of 4.25% and does not mature until 2029. We ended the quarter with a consolidated leverage ratio of three and a half times, down from the 4.3 times leverage ratio in Q1 of last year and well below our 4.5 times covenant ratio. However, longer term, we are still targeting a ratio of two to two and a half times.

Speaker Change: At the end of the quarter, we had $518 million of remaining availability on our $600 million revolving credit facility.

Speaker Change: As shown on our earnings side more than half of our debt is at a fixed interest rate of 4.25% and does not mature until 2029.

We ended the quarter with a consolidated leverage ratio of three five times.

Down from the $4 three times leverage ratio in Q1 of last year and well below our four five times covenant ratio.

Speaker Change: Longer term, we are still targeting a ratio of two to two five times.

Deborah A. OConnor: Now, I want to update you on our outlook for 2024. Given the sales shortfall in the first quarter and the softer demand trends we are seeing in our office product category, we are tempering our full-year outlook until we begin to see some positive sales momentum. We continue to expect improvement throughout the year, especially in the second half, as the economic environment improves and technology spend rebounds. We also anticipate modest increases in the current year's back-to-school season in Brazil.

Speaker Change: Now I want to update you on our outlook for 2024, given the sales shortfall in the first quarter and the softer demand trends. We are seeing in our office product category. We are tempering, our full year outlook until we begin to see some positive sales momentum.

Speaker Change: We continue to expect improvement throughout the year, especially in the second half as the economic environment improves and technology spend rebounds.

Speaker Change: We also anticipate modest increases in the current year back to school season in Brazil.

Deborah A. OConnor: Our full-year outlook now calls for reported sales to be within a range of down 5% to down 7% for the full year, which reflects continued soft demand and the exit of lower margin business. For the full year, we expect adjusted EPS to be in the range of $1.02 to $1.07 per share. We continue to expect full-year growth margin rates to be flat to modestly improved compared to 2023. SG&A costs will be slightly down to the prior year, as savings from our cost actions are somewhat offset by inflationary pressures related to labor and other costs.

Speaker Change: Our full year outlook now calls for reported sales to be within a range of down 5% to down 7% for the full year.

Speaker Change: Which reflects continued soft demand and the exit of lower margin business.

Speaker Change: For the full year, we expect adjusted EPS to be in the range of $1 two to $1 seven per share.

Speaker Change: We continue to expect full year gross margin rate to be flat to modestly improved compared to 2023.

Speaker Change: SG&A costs will be slightly down to the prior year as savings from our cost actions are somewhat offset by inflationary pressures related to labor and other costs.

Deborah A. OConnor: The adjusted tax rate is expected to be approximately 29 percent. Intangible amortization for the full year is estimated to be $42 million, which equates to approximately $0.30 of adjusted ETF. Given the strong cash flow start to the year, we remain confident in our expectation that free cash flow for the full year will be at least $120 million. Looking at cash uses in 2024, we expect to continue to prioritize dividends and debt reduction and expect to end 2024 with a consolidated leverage ratio of approximately 3 to 3.2 times.

Deborah A. OConnor: The adjusted tax rate is expected to be approximately 29 percent. Intangible amortization for the full year is estimated to be $42 million, which equates to approximately $0.30 of adjusted EPS. Given the strong cash flow start to the year, we remain confident in our expectation that free cash flow for the full year will be at least $120 million. Looking at cash uses in 2024, we expect to continue to prioritize dividends and debt reduction and expect to end 2024 with a consolidated leverage ratio of approximately 3 to 3.2 times.

Speaker Change: The adjusted tax rate is expected to be approximately 29%.

Speaker Change: Intangibles amortization for the full year is estimated to be $42 million, which equates to approximately 30 of adjusted EPS.

Speaker Change: Given the strong cash flow start to the year, we remain confident in our expectation that free cash flow for the full year will be at least $120 million.

Looking at cash uses in 2024, we expect to continue to prioritize dividends and debt reduction and expect to end 2024 with a consolidated leverage ratio of approximately three to three two times.

Deborah A. OConnor: For the second quarter, we expect reported sales to be down seven to down nine percent. I do want to highlight that our planned exit of certain lower-margin businesses will be most impactful to our top line in the second quarter and in our America's Second. Our second quarter outlook is for adjusted EPS to be in the range of $0.30 per share to $0.33. Now, let's move on to Q&A, where Tom and I will be happy to take your questions. Apparator.

Deborah A. OConnor: For the second quarter, we expect reported sales to be down seven to nine percent. I do want to highlight that our planned exit of certain lower-margin businesses will be most impactful to our top line in the second quarter and in our Americas segment. Our second quarter outlook is for adjusted EPS to be in a range of $0.30 per share to $0.33. Now, let's move on to Q&A, where Tom and I will be happy to take your questions. Apparator.

Speaker Change: For the second quarter, we expect reported sales to be down seven to down 9%.

Speaker Change: I do want to highlight that our planned exit of certain low margin businesses will be most impactful to our topline in the second quarter and in our Americas segment.

Speaker Change: Our second quarter outlook is for adjusted EPS to be in the range of <unk> 30 per share to 33 per share.

Speaker Change: Now, let's move on to Q&A with Tom and I will be happy to take your questions.

Speaker Change: Operator.

Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Greg Burns with Sid Doty. Your line is open, please go ahead.

Speaker Change: Thank you.

Speaker Change: I'd like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: I would like to withdraw your question. Please press star followed by two.

Speaker Change: When preparing to ask a question. Please ensure devices on mute locally.

Speaker Change: Okay.

Operator: The first question comes from Greg Burns with Sid Doty. Your line is open. Please go ahead.

Speaker Change: Question comes from Greg Burns with Sidoti.

Gregory John Burns: Your line is open. Please go ahead.

Gregory John Burns: Okay.

Gregory John Burns: Good morning.

Gregory John Burns: In terms of the low-margin business that you've been exiting, how much more, is there more to go, or is what you're projecting just going to be the impact of what you've already done, or is there more pruning to be done on that front?

Gregory John Burns: In terms of the low margin business, so you've been exiting.

Gregory John Burns: How much more is there more to go or is what youre projecting just going to be the impact of what you've already done or is there more more pruning to be done on that front.

Thomas W. Tedford: Good morning, Greg. This is Tom.

Good morning, Greg This is Tom yes, So let me.

Thomas W. Tedford: Yeah, so let me address that question. So, what we've made decisions on the large, the largest part of the impact is yet to be felt. Q2 will be seasonally the biggest quarter that's impacted by the business exit, and then it abates a bit in Q3 and Q4. But we think, for the most part, Greg, moving forward, that we've optimized our product portfolio. We like our gross margin rates. And I don't anticipate significant product pruning or business exits moving forward after this year.

Thomas W. Tedford: Address that question.

Thomas W. Tedford: So we've made decisions on the large the largest part of the impact is yet to be felt.

Thomas W. Tedford: Q2 will be seasonally the biggest quarter, that's impacted by the business exits and then it abates a bit in Q3 and Q4, but.

Thomas W. Tedford: But we think for the most part Greg moving forward that we've optimized our product portfolio, we like our gross margin rates.

Thomas W. Tedford: And I don't anticipate significant product pruning or business exits.

Thomas W. Tedford: Moving forward after this year.

Deborah A. OConnor: Yeah, and Greg, I would just add that it does spike up in the second quarter, and we end the year kind of in the range of what we talked about in the first quarter, where it has an effect of 2-3%, but it does spike up to Tom's point in the quarter.

Thomas W. Tedford: Yeah, I'm good.

Speaker Change: And Greg I would just add it does spike up in the second quarter and we end the year kind of in the range of what we talked about in the first quarter, where it has an effect of <unk>, 3%.

Speaker Change: But it does spike up to Toms point in the quarter second quarter.

Gregory John Burns: Okay, great. And then...

Gregory John Burns: Okay, Great and then.

Gregory John Burns: In terms of the, I guess, the core office trends, are you seeing any improvement there on that front, return to office trends, or anything positive that might make you, I guess it might make you have a more positive view going forward there, or is it just going to be a function of maybe new product introductions? Like, what's your view on the core office space and the demand trends that you're seeing there? Yeah, Greg, so Q1 was

Gregory John Burns: In terms of the, I guess, the core office trends, are you seeing any improvement there on that front or any return to office trends or anything positive that might make you, I guess it might make you have a more positive view going forward there, or is it just gonna be a function of maybe new product introductions? Like, what's your view on the core office space and the demand trends that you're seeing there? Yeah, Greg, so Q1 was

Gregory John Burns: In terms of the I guess the core office trends are you seeing.

Gregory John Burns: Any improvement there on that front and our work return to office trends or anything positive that might make you.

Speaker Change: Thank you Mike.

Speaker Change: You have a more positive view going forward there or is it just going to be a function of maybe new product introductions.

Speaker Change: What's your view on the core office space.

Speaker Change: The demand trends that youre seeing there.

Thomas W. Tedford: Yeah, Greg. So Q1 was weaker than we anticipated. So we subscribed to Cercana, which is a data aggregation source here in the US. And they have an annual forecast that we use in addition to the information that we have.

Thomas W. Tedford: Yeah, Greg, so Q1 was weaker than we anticipated. So we subscribe to Cercana, which is a data aggregation source here in the U.S., and they have an annual forecast that we use in addition to the information that we have.

Mike: Yeah, Greg So Q1 was was weaker than.

Mike: We anticipated so we subscribe to <unk>.

Gregory John Burns: Which is a data aggregation source here in the U S and they have an annual forecast that we use in addition to the information that we have in.

Thomas W. Tedford: And Q1 came in a bit weaker than the market had anticipated for our legacy office category. There are some bright spots within that data, certainly in some of the bigger categories that we track. We took market share, which we're excited about. But I think it's yet to be determined.

Gregory John Burns: Q1 came in a bit weaker than.

Thomas W. Tedford: And, you know, Q1 came in a bit weaker than the market had anticipated for our legacy office category. There are some bright spots within that data, certainly in some of the bigger categories that we track. We took market share, which we're excited about. But I think it's yet to be determined.

Gregory John Burns: The market had anticipated for our legacy office categories.

Gregory John Burns: There is some bright spots within that data certainly.

Gregory John Burns: Some of the bigger categories that we track, we took market share, which we're excited about.

Speaker Change: I think it's yet to be determined and that's why we're being a bit cautious on our outlook for the year, we're not exactly sure.

Speaker Change: When these categories will start to rebound.

Thomas W. Tedford: That's why we're being a bit cautious on our outlook for the year. We're not exactly sure when these categories will start to rebound, thus the reason why we've brought our revenue outlook down. Our brands are performing strong, really globally. We've maintained or gained market share in most of our key categories, and as the market rebounds, we think we're well positioned to outperform our categories in our markets globally. Thank you.

That's why we're being a bit cautious on our outlook for the year. We're not exactly sure when these categories will start to rebound, thus the reason why we've brought our revenue outlook down. Our brands are performing strong, really globally. We've maintained or gained market share in most of our key categories, and as the market rebounds, we think we're well positioned to outperform our categories in our markets globally. Thank you.

Speaker Change: Thus the reason why we brought our revenue outlook down our brands are performing strong really globally.

Speaker Change: We've maintained or gained market share in most of our key categories and as the market rebounds, we think we're well positioned to.

Out perform our categories in our markets globally.

Speaker Change: Yeah.

Speaker Change: Alright, thank you.

Operator: We now turn to Joe Gomez with Noble Capital. Your line is open, please go ahead.

Speaker Change: We now turn to Joe Gomes with Noble capital. Your line is open. Please go ahead.

Joseph Anthony Gomes: Good morning.

Joseph Anthony Gomes: Good morning, Joe.

Joseph Anthony Gomes: I was wondering if maybe you could get a little more color on what occurred in Brazil to make the last part of the back-to-school season so soft. Was there anything specific going on there, or just overall malaise?

I was wondering it maybe get a little more color on what occurred in Brazil to make the last part of the <unk>.

Joseph Anthony Gomes: Back to school season, so soft was there anything specific going on there or just overall malaise.

Thomas W. Tedford: Yeah, so there are a few things that happened in Brazil, and I think the proper color would be helpful. So, you know, the Baptist full season, as we've talked about in our prepared remarks, was really good in Brazil for the full season. It was up year over year. Unfortunately, the back-to-school season is in two years, two physical years. And so the timing of our back-to-school was a little different than we had originally anticipated.

Joseph Anthony Gomes: Yes. So there are a few things that that.

Joseph Anthony Gomes: That happened in Brazil, and I think.

Joseph Anthony Gomes: The proper color.

Joseph Anthony Gomes: Color would be helpful. So the back to school season, as we've talked about in our prepared remarks was.

Joseph Anthony Gomes: Really good in Brazil for the full season.

Joseph Anthony Gomes: It was up year over year. Unfortunately, the back to school season isn't two years' two physical years.

Joseph Anthony Gomes: So the timing of our back to school was a little different than we had originally.

Joseph Anthony Gomes: Anticipated.

Joseph Anthony Gomes: So that was a big driver in.

Joseph Anthony Gomes: The weaker back half of the season.

Thomas W. Tedford: So that was a big driver in the weaker back half of the season. And then I think there's certainly persistent inflation in the market. There are certainly other things that are pressuring consumers.

Joseph Anthony Gomes: And then I think there is.

Joseph Anthony Gomes: Theres certainly persistent inflation in the market. There's certainly other things are pressuring consumers. So our retail partners, we're a little cautious.

Joseph Anthony Gomes: In late season demand fulfillment and replenishment, but.

Joseph Anthony Gomes: But overall, we felt really good about the season, we think were well prepared as we go into next year's back to school well positioned to continue to grow and take market share in that very important season for our Brazilian business. So overall the season was good the timing of it was a little different than we had anticipated.

Thomas W. Tedford: So our retail partners were a little cautious in late season demand fulfillment and replenishment. But overall, we felt really good about the season. We think we're well prepared as we go into next year's back-to-school, well positioned to continue to grow and take market share in that very important season for our Brazilian business. So overall, the season was good. The timing of it was a little different than we had anticipated, thus the shortfall in Q1. But we think we're well positioned in the Brazilian back-to-school environment moving forward. And we anticipate next year to be really strong again.

Joseph Anthony Gomes: Thus the shortfall in Q1, but we think we're well positioned in the Brazilian back to school environment moving forward and we anticipate next year to be really strong again.

Speaker Change: Okay. Thanks for that and then.

Thomas W. Tedford: And thanks for that. And if you look at your distribution channels, are any performing better than expected? Or, you know, if you look at, you know, the office supplier, the big box retailers, or the e-tailers, or any of the other distribution channels you have, are you getting any positive feedback from any of them?

Speaker Change: If you look at your distribution channels or any performing better than expected.

Speaker Change: If you look at the all of the supply or the big box retailers are the E tailers or any of the other distribution channels you have.

Alright, you are getting any positives from any of them.

Thomas W. Tedford: Yeah, so, you know, Q1 is seasonally, seasonally, a really light quarter for the business. And so it's hard to draw, you know, full year conclusions on Q1, but we continue to believe that, you know, our investments in e-commerce and retail globally make sense for the consumer. You know, we want to be really where the consumer is looking for our products. We want to be distributed across all of our channels and equally support them. And they're all very important to us.

Speaker Change: Yes so.

Speaker Change: Q1 is seasonally seasonally a really.

Speaker Change: <unk> quarter for the business.

And so it's hard to draw.

Speaker Change: Full year conclusions on on Q1.

Speaker Change: We continue to believe.

Speaker Change: That.

Speaker Change: We're distorting our investments towards e-commerce.

Speaker Change: And retail globally makes sense.

Speaker Change: For the consumer.

Speaker Change: We want to be really where the consumer is looking for our products, we want to be distributed across all of our channels.

Speaker Change: And equally.

Speaker Change: Support them and they are all very important to us.

Thomas W. Tedford: But we do believe that e-commerce is going to continue to perform better than most channels. We continue to see that in our own business results. And that's really where most of our investments tend to get distorted, driving demand through our e-commerce partners.

Speaker Change: But we do believe.

Speaker Change: E Commerce is going to continue to perform better than most channels. We continue to see that in our own business results and Thats really where most of our investments tend to get distorted as driving demand through our E Commerce partners.

Joseph Anthony Gomes: Okay, and one more from me if I may. You talked about in the press release looking at additional cost savings initiatives. I was wondering if you could just add some color as to, you know, where else are you looking? Are you looking at additional facility rationalization or, you know, anything that you can provide as to where you think these additional cost savings can come from.

Speaker Change: Okay and one more for me if I may.

Speaker Change: Talked about in the press release looking at additional cost savings initiatives.

Speaker Change: I was wondering if you just add some color as to where else are you looking at and we're looking at additional facility rationalization.

Speaker Change: Anything that you can provide as to where you think these additional cost savings can come from.

Thomas W. Tedford: Yeah, you know, Joe, you've followed us for a long time. And you know, we're good at as the demand changes. And as things evolve, looking at our cost structure and really pulling out where we need to pull out. So I would tell you, we're going through some reviews now and just understanding where some of that may come. But this is sort of ACCO's DNA. And You know, we're looking at a lot of different areas to make sure we're tight.

Speaker Change: Yes, Joe you followed us a long time and you know.

Speaker Change: We're good at is the demand changes and as things evolve looking at our cost structure and.

Speaker Change: Really pulling out where we need to pull out so I would tell you were going through some reviews now and just understanding.

Speaker Change: Where some of that may come, but this is sort of apples DNA.

Speaker Change: <unk>.

Speaker Change: We're looking at a lot of different areas.

Speaker Change: Make sure we're tight.

Thomas W. Tedford: Yeah, Joe, it's obviously early in the year. And we want to be careful about, you know, ensuring we're protecting our investments to drive future growth. And so, you know, we're not going to compromise the future. And I think that's important to reinforce to you and others that, you know, we'll continue to focus on and to invest in demand drivers and innovation, and we'll currently manage our costs elsewhere.

Speaker Change: Yes, Joe.

Speaker Change: Obviously early in the year.

Joseph Anthony Gomes: And we want to be careful about.

Joseph Anthony Gomes: Ensuring we're protecting our investments to drive future growth and so we're not going to compromise the future.

Joseph Anthony Gomes: That's important to reinforce to you and others that will continue to grow sinden to invest and demand drivers in innovation and we will prudently manage our cost elsewhere.

Thomas W. Tedford: Okay, thank you for that. I'll get back in queue. Thank you, Joe.

Okay. Thank you for that I'll get back in queue.

Speaker Change: Thank you Joe.

Operator: Our next question comes from Kevin Steinke with Barrington Research. Your line is open, please go ahead.

Speaker Change: Our next question comes from Kevin Steinke with Barrington Research. Your line is open. Please go ahead.

Kevin Mark Steinke: Good morning.

Kevin Mark Steinke: Good morning, Kevin. Why don't you... ... ... ... ... ... ...

Good morning, Kevin wanted to.

Kevin Mark Steinke: Yes, I wanted to just ask again about, you know, the softer demand for office products that you're experiencing. Might be a tough one to answer, but how much of that would you attribute just to the changing way people work versus the softer macro environment? I don't know if there's any way you can apportion where the softer demand is coming from.

Kevin Mark Steinke: Yes, I wanted to.

Kevin Mark Steinke: Just ask again about.

The.

Kevin Mark Steinke: Softer demand in office products that youre experiencing might be a tough one to answer but.

Kevin Mark Steinke: How much would you.

Kevin Mark Steinke: Would you attribute just to the chain.

Kevin Mark Steinke: Changing.

Kevin Mark Steinke: Way people work versus the softer macro environment and I don't know if there's any way you can.

Kevin Mark Steinke: Sure.

Kevin Mark Steinke: A portion.

Kevin Mark Steinke: The softer demand is coming from.

Thomas W. Tedford: Yeah, Kevin, it's a really good question, and one that our marketing teams are closely monitoring. So we do believe that there are shifts in the way people work that are going to be permanent, and there are opportunities embedded in that that our marketing teams are exploring for solutions that we believe our brands and our products can support moving forward. I'm excited to see the early thoughts on this topic from our marketing teams and our product development teams, but I think these changes are here to stay and it's a great opportunity for us to step in and offer solutions to consumers and end users that they need in this changing work environment, but I don't really see a catalyst to bring office occupancy up significantly in the near term.

Yes, Kevin it's a really good question and one that.

Kevin Mark Steinke: Our marketing teams are closely.

Kevin Mark Steinke: Monitoring so we do believe that there are shifts in the way people work that are going to be permanent and theres opportunities embedded in that that our marketing teams are exploring for.

Kevin Mark Steinke: <unk> solutions that we believe our brands and our products can support.

Kevin Mark Steinke: Moving forward I'm excited to see.

Kevin Mark Steinke: The early.

Kevin Mark Steinke: Thoughts on this topic from our marketing teams and our product development teams, but I think.

These changes are here to stay and it's a great opportunity for us to step in and offer solutions to consumers and end users that they need in this changing work environment.

Kevin Mark Steinke: But I don't really see.

Kevin Mark Steinke: A catalyst to bring.

Kevin Mark Steinke: Office occupancy up significantly in the near term something is going to have to change for that to.

Thomas W. Tedford: Something's going to have to change for that to accelerate, and we just don't see that in the near term, and again, it's one of the reasons why we're being a bit cautious on our revenue outlook for the balance of the year.

Kevin Mark Steinke: To accelerate and we just don't see that in the near term and again, it's one of the reasons why we're being a bit cautious on our revenue outlook for the balance of the year.

Kevin Mark Steinke: Okay, thank you.

Speaker Change: Okay. Thank you.

Kevin Mark Steinke: And on the cost savings, I don't know if I'm reading too much into this.

Speaker Change: And on the cost savings.

Speaker Change: I don't know if im reading too much into this but you had talked I think you said SG&A is expected to be down slightly.

Thomas W. Tedford: I'm not reading too much into this, but you talked about SG&A expected to be down slightly, I think last quarter you were saying, flat to down slightly. So I don't know if you're a bit ahead on the cost savings, or if that, you know, that $20 million is still the number to think about. Yeah, so the 20 million is absolutely the number that we believe is going to be delivered in 2024.

Speaker Change: I think last quarter, you were saying.

Speaker Change: <unk> down slightly so I don't know if you're a bit ahead on the cost savings.

Speaker Change: Or is that.

Speaker Change: Yes.

Speaker Change: $20 million is still the number to think about.

Speaker Change: Yes, so the $20 million is absolutely the number that we believe is <unk>.

Speaker Change: Going to be delivered in 2024, we are looking to.

Thomas W. Tedford: We are looking to prudently manage the balance of the year. And that likely means we'll come in slightly above that $20 million. But, you know, again, as revenue moves, we'll make sure that our cost structure is in support of sales for the business. And we've done a good job at it historically, and we'll continue to do that moving forward. Okay, understood. Thanks for taking the question.

Speaker Change: Prudently manage the balance of the year and that likely means will.

Speaker Change: Come in slightly above that $20 million.

Speaker Change: But.

Speaker Change: Again as revenue.

Speaker Change: <unk>.

Speaker Change: Moves right, we'll make sure that our cost structure.

Speaker Change: Is in support of of the sales for the business and we've done a good job of that.

Speaker Change: Historically, and we'll continue to do that moving forward.

Speaker Change: Okay understood.

Speaker Change: Thanks for taking the questions.

Speaker Change: Thank you Kevin.

Operator: We now turn to Hale Holden with Barclays. Your line is open. Please go ahead.

Speaker Change: We now turn to Hale Holden with Barclays. Your line is open. Please go ahead.

Hale Holden: Hi, good morning. I just had one question. Tom, you made the point in your script about exiting private label but that your brains would sort of carry the day in U.S. Back-to-School this summer. And, you know, what we're seeing in other categories away from yours is, and Trade Down to Value and Private Label. So I was wondering how confident you were in that or how much risk there was for the guy around that assumption.

Hale Holden: Hey, good morning.

Hale Holden: I just had one question Tom you made the point in your script.

Hale Holden: Alright, exiting private label, but that your brands with sort of carry the day.

Hale Holden: In.

Speaker Change: And U S back to school this summer.

Speaker Change: What we're seeing in other categories away from yours.

Speaker Change: Trade down to value and private label.

Speaker Change: So I was wondering how confident you are on that or how much <unk> risk to the guide there was around that assumption.

Thomas W. Tedford: Yeah, Hale, it's a great question. And certainly, there are certain categories that we're seeing trade down. The good thing about ACCO Brands is we have a very diverse brand portfolio, and for our back-to-school customers, obviously, five stars is a value-enhanced brand. And it's one that we feel very strongly about supporting, and it serves our consumers really during difficult financial times and more robust economic times. So, five-star hotels have proved to perform quite well, regardless of the macro backdrop.

Speaker Change: Yes.

Speaker Change: Great question and certainly there are there are certain categories that we're seeing.

Speaker Change: Trade down the.

Speaker Change: Good thing about ACCO brands as we have.

Speaker Change: A very diverse brand portfolio and for our back to school customers.

Speaker Change: Obviously, five stars our value brand or a value enhanced brand.

Speaker Change: It's one that we feel very strongly and.

Speaker Change: Supporting and it serves our consumers really.

Speaker Change: During difficult financial times and in more robust economic time, So five star has proved to perform quite well.

Thomas W. Tedford: But we also offer Mead, which is a value brand at a lower price for consumers. And so, last year, if you think of last year as a bit of a proxy, our combined brands in the market took market share, and that, I think, was our fourth or fifth year in a row of taking market share, competing against all of our competitors, including private labels. So, it's important that we're sharp with our value proposition.

Speaker Change: Regardless of the macro backdrop, but we also offer me, which is a value brand at a lower price for.

Speaker Change: For consumers.

Speaker Change: So last year. If you think of last year is a bit of a proxy.

Speaker Change: Our combined brands in the market took market share and that I think was our fourth or fifth year in a row of taking market share competing against all of our competitors, including private label. So it's important that we're short with our value proposition. It's important that we're sharp with our pricing in the marketplace.

Thomas W. Tedford: It's important that we're sharp with our pricing in the marketplace, and we're kind of on point with our promotions, which we do a really good job of in North America. So, I anticipate this year will be no different from previous years, and we'll perform well during the season. We've got great partnerships with retailers and e-commerce, and that's a good recipe for our business, and it's proven to work well over time. Great

Speaker Change: And we're kind of on point with our promotions, which we do a really good job of in North America. So I anticipate.

Speaker Change: This year will be no different than previous years.

Speaker Change: <unk> performed well during the season.

Speaker Change: Got great partnerships with retailers and e-commerce in.

Speaker Change: That's a good recipe for our business and it's proven to work well over time.

Hale Holden: Great. Thank you so much. I appreciate it.

Speaker Change: Great. Thank you so much I appreciate it.

Speaker Change: Thank you.

Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We now turn to William Reuter with Bank of America. Your line is open, please go ahead.

Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.

Speaker Change: We now turn to William Reuter with Bank of America. Your line is open. Please go ahead.

William Michael Reuter: Good morning. My first question is a topic which you've touched upon a couple of times here. You've talked about, you know, when the market improves, you've also talked about being, you know, positioned for that. You've also talked about how you don't really see any, there's no expectation that office occupancy is going to improve in the near term. What are the drivers that could cause your core office products category to return to growth or at least stabilize? What types of changes in the environment?

Speaker Change: Good morning.

William Michael Reuter: My first the first question is the topic, which you've touched upon a couple of times here you've talked about.

William Michael Reuter: When the market improves you've also.

William Michael Reuter: And being positioned for that you've also talked about how you don't really see any there's no expectation that office occupancy is going to improve in the near term. So what are the drivers that could cause kind of your core office products category to return to growth or at least stabilize what types of.

William Michael Reuter: No.

William Michael Reuter: <unk> is in the environment.

Thomas W. Tedford: Yeah, it's a good question. So, you know, I've alluded to the work that we're doing really to address some of the needs of the consumers in the future of work. So, you know, our expectation is that moving forward, we'll have a bigger, larger impact on revenue from new products that we're introducing into the market. I think that is extremely important.

Speaker Change: Yeah. It's a good question, so I've alluded to.

Speaker Change: So work that we're doing really to address some of the needs of the consumers in the future of work so.

Speaker Change: Our expectation is moving forward, we will have a bigger larger impact.

Speaker Change: On revenue from new products that we're introducing into the market.

Thomas W. Tedford: That's a big focus of our management team and our organization, and we believe that's a critical element of growth moving forward. Market share gains; our brands are usually number one or number two globally in the categories that we compete in, and making sure that, you know, our value proposition is sharp, and making sure that, you know, we're distributed across all the channels that matter is also important. So, you know, making sure that we're managing that piece of our business is a component of driving growth.

Speaker Change: That is extremely important and that's a big focus of our management team and our organization and we believe that's a critical element of growth moving forward.

Speaker Change: Market share gains our brands or are you usually number one or number two globally in the categories that we compete in and making sure that our value proposition is sharp and making sure that.

Were distributed across all the channels that matter is also important so making sure that we're managing.

Thomas W. Tedford: We're also looking at international expansion. So, we've got strong brands and strong products that are distributed in certain markets that aren't distributed in others. And then there is the net impact of price, right? So there will be some price increases that we need in the market and in the market in certain markets, and that combination of activities, along with improving macro trends, we believe better positions the business for growth when those things occur. It's difficult at this point to tell, but we're confident that as we look ahead for the balance of the year, sequentially, the quarters will get better building off of Q1.

Speaker Change: That piece of our business is a component of driving growth. We're also looking at international expansion. So we've got strong brands and strong products that are distributed in certain markets that arent distributed and others. Our teams are looking at leveraging that as a part of our growth strategy moving forward.

Speaker Change: And then the net impact of price right. So there will be some price increases that we need in the market.

Speaker Change: The market in certain markets.

Speaker Change: That combination of activities, along with improving kind of macro trends, we believe better positions the business for growth when those things occur it's difficult at this point to tell but we're confident that as we look ahead for the balance of the year sequentially the quarters will get better.

Speaker Change: Building off of Q1.

Got it that makes sense and then in terms of innovation.

William Michael Reuter: Got it, that makes sense. And then, in terms of innovation, are there certain of your different product categories that you think there's more opportunity for innovation than others? And what would some of those be? You kind of mentioned that it sounds like the management team is working more closely with some of your customers to kind of fill their needs. So, what have you heard from some of those customers about where there are needs that could be addressed with innovation?

Speaker Change: Are there certain of your different product categories that you think theres more opportunity for innovation and others and what would some of those be you kind of mentioned that it sounds like the management team is working more closely with some of your customers to kind of fill their needs. So what is what is what have you heard from some of those customers about where there are needs.

Speaker Change: That could be addressed with innovation.

Thomas W. Tedford: Yeah, so we've talked a little bit about the future of work and the changing needs of professionals as they work in a more hybrid environment. They're not simply working at a desk anymore. They're working sometimes out of their car, at a coffee shop, at home, right?

Speaker Change: Yeah, So we've talked a little bit about the future of work and the changing needs of professionals as they work in a more hybrid environment, they're not simply working at a desk anymore, they're working sometimes out of their car at a coffee shop at home right. So there's opportunities that we think.

Thomas W. Tedford: So there are opportunities that we think are across many of our categories just in supporting end users where they work. We're excited about some of the product categories that we're introducing. We've gotten some recent awards for new products that have been introduced, but we're also leaning in on a wellness trend that we think is something that is going to continue to grow. So ergonomics is an area that we have been in in the past.

Speaker Change: R R.

Speaker Change: Across many of our categories just in supporting and.

Speaker Change: End users, where they work and we're excited about.

Speaker Change: Some of the product categories that we're introducing we've gotten some recent awards.

Speaker Change: On new products that have been introduced.

Speaker Change: But we're also leaning in on our wellness trend that we think is something that is going to continue.

Speaker Change: To grow so ergonomics is an area that.

Speaker Change: We have been in the past, we've probably under invested in it but when we think about the opportunities to improve the wellness of of <unk>.

Thomas W. Tedford: We probably underinvested in it, but when we think about the opportunities to improve the wellness of end users, regardless of where they work, we think that's a really big and intriguing opportunity moving forward. But we don't typically get into a ton of insights into our pipeline until after the products are released, but I can tell you that it's a robust pipeline and it's growing, and we're excited about the future revenue opportunities from the work that we're doing today.

Speaker Change: End users, regardless of where they work we think that's a really big an intriguing opportunity moving forward, but we don't typically get into a ton of.

Speaker Change: Insights into our pipeline until after the products are released.

Speaker Change: But I can tell you that it's a robust pipeline and its growing and were excited about the future revenue opportunities from the work that we're doing today.

William Michael Reuter: Got it. That makes sense. And then, just lastly for me, I think I heard correctly that gaming accessories returned to growth in the Americas. Was that, I guess, up in the US? And what is driving the increase there? I had felt like, in general, that's been a little bit of a kind of soft industry of late.

Speaker Change: Got it that makes sense and then just lastly for me.

Speaker Change: I think I heard correctly that gaming accessories returned to growth in the Americas.

Speaker Change: Was that I guess was it up in the U S and what is driving the increase there.

Speaker Change: <unk> felt like in general that's been a little bit of a kind of.

Speaker Change: Soft industry of late.

Thomas W. Tedford: Yeah, so we did return to growth globally. We were up 14% in our PowerA business, but we also grew in the US. Part of that growth is being driven by our expansion internationally. We've talked a bit about that in our prepared remarks.

Speaker Change: Yes. So we did return to growth globally, we were up 14% and our power business. We also grew in the U S.

Part of that growth is being driven by our expansion internationally, we've talked a bit about that in our prepared remarks and.

Thomas W. Tedford: And part of it is a return to stock for some products that we were out of stock on in Q1 of last year. You know, our PowerA brand performed well in the marketplace. It took market share, which we were excited to see and excited about, and the return to growth, you know, we believe is a positive development. However, we see the same things that you're seeing, and we think that the market remains a bit uncertain, and we think sales will be choppy for the rest of the year, but we're excited that Q1 is off to a good start for PowerA.

And part of it as is.

Speaker Change: A return to stock for some products that we were out of stock in in Q1 of last year.

William Michael Reuter: Got it. That's all for me. Thank you.

Speaker Change: Our brand power <unk> performed well in the marketplace.

Speaker Change: It took market share, which we were excited to see and excited about the return to growth.

Speaker Change: We believe is a positive development. However, we see the same things that you are seeing and we think that.

Speaker Change: The market remains a bit uncertain and we think sales will be choppy for the rest of the year, but we're excited that Q1 is off to a good start for power.

Speaker Change: Got it that's all for me thank you.

Speaker Change: Okay. Thank you.

Thomas W. Tedford: This concludes our Q&A. I'll now hand it back to Tom Tedford for closing remarks.

Speaker Change: This concludes our Q&A.

Speaker Change: To Tom <unk> for closing remarks.

Thomas W. Tedford: Thank you for your interest in ACCO Brands. We look forward to talking to you in a couple of months to report on our second quarter results.

Thomas W. Tedford: Thank you for your interest in ACCO brands, we look forward to taking talking to you in a couple of months to report on our second quarter results.

Operator: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Thomas W. Tedford: Ladies and gentlemen, today's call is now concluded wed like to thank you for your participation you may now disconnect your lines.

[music].

Q1 2024 ACCO Brands Corp Earnings Call

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