ACCO Brands Corporation (NYSE: ACCO), today announced its second
quarter earnings for the period ended June 30, 2020.
- 2Q EPS of $0.06 versus $0.35 in prior year
- Adjusted 2Q EPS of $0.12 versus $0.36 in 2019
- 2Q net sales $367 million, down 29 percent
- Solid back-to-school sell-in in North America
- Initiated restructuring with $7 million charge
"Our second quarter sales were at the upper end of our guidance.
We saw sequential monthly improvement after April's bottom, which
continued into July. Our profitability and adjusted earnings per
share were much better than expected, mainly from the aggressive
cost saving actions we took worldwide. We are still facing an
uncertain environment, particularly around schools reopening in
North America; however, our balance sheet remains strong, and we
have good liquidity, with no debt maturities until May 2024. We
expect to continue to generate strong cash flow for the full year,"
said Boris Elisman, Chairman, President and Chief Executive Officer
of ACCO Brands.
"We expect global economic conditions will remain challenging
for some time. As a result, our cost reduction initiatives are
moving from temporary to structural. We have made decisions to
streamline our organizations in North America and Mexico. At the
same time, effective in the third quarter, we resumed regular pay
for full time work at our global facilities. I would like to thank
our global team for the hard work everyone has done under very
difficult circumstances. We have a proven track record of
overcoming economic and industry headwinds, and I am confident that
we will emerge from the pandemic as a stronger, more
consumer-focused business," Elisman added.
Second Quarter Results
Net sales decreased 29.3 percent to $366.9 million from $518.7
million in 2019. Comparable sales decreased 28.3 percent. Both
declines were due to lower demand because of COVID-19 impacts.1
Adverse foreign exchange hurt sales $7.0 million, or 1.3
percent.
Operating income was $18.5 million, down from $61.4 million in
2019, due to lower sales related to COVID-19 impacts, partially
offset by cost reductions. Foreign exchange benefited operating
income $1.2 million by reducing the impact of operating losses in
International and EMEA. Adjusted operating income was $25.4
million, down from $61.5 million in 2019, due to lower sales and
increased charges for slow moving inventory and bad debt reserves,
partially offset by cost reductions.
Net income was $5.4 million, or $0.06 per share, compared with
$35.9 million, or $0.35 per share, last year due to lower operating
income. Adjusted net income was $11.6 million, down from $36.3
million in 2019 largely due to lower adjusted operating income.
Adjusted earnings per share were $0.12 compared with $0.36 in
2019.
Business Segment Results
ACCO Brands North America - Sales of $231.7 million decreased
24.7 percent from $307.9 million in 2019. Comparable sales
decreased 24.5 percent. Both declines were due to lower demand
related to COVID-19 impacts. While back-to-school retail sell-in
was solid, there were significant declines in the commercial office
products side of the business. Operating income of $37.4 million
decreased from $60.6 million in 2019. Adjusted operating income of
$42.4 million decreased 29.8 percent from $60.4 million in 2019.
Both declines are due to lower sales, higher slow moving inventory
charges, and unfavorable product and customer mix, partially offset
by cost reductions. Restructuring charges for the segment were $5.0
million versus none in 2019.
ACCO Brands EMEA - Sales of $88.3 million decreased 31.2 percent
from $128.3 million in 2019. Comparable sales decreased 29.6
percent. Both decreases resulted from lower demand from COVID-19
impacts. Adverse foreign exchange reduced sales 1.6 percent. An
operating loss of $1.8 million decreased from operating income of
$7.4 million. An adjusted operating loss of $1.1 million decreased
from adjusted operating income of $7.4 million in 2019. Both
declines were due to lower sales and higher bad debt reserves,
partially offset by cost reductions.
ACCO Brands International - Sales of $46.9 million decreased
43.2 percent from $82.5 million in 2019. Comparable sales decreased
39.6 percent. The Foroni acquisition in Brazil added $1.3 million,
or 1.6 percent, and adverse foreign exchange reduced sales $4.3
million, or 5.2 percent. Both sales declines resulted from lower
demand due to COVID-19 impacts. An operating loss of $4.4 million
decreased from $4.1 million operating income, and an adjusted
operating loss of $3.2 million decreased from $4.4 million adjusted
operating income in 2019. Both declines were the result of lower
sales, adverse customer/product mix, higher bad debt reserves, and
lower fixed cost absorption, partially offset by cost reductions
and $1.0 million foreign exchange that reduced the operating loss.
Foroni posted a loss of $2.2 million.
Six Months Results
Net sales decreased 17.7 percent to $751.0 million from $912.6
million in 2019. Comparable sales decreased 17.5 percent. Both
declines resulted from lower demand because of COVID-19 impacts.
Adverse foreign exchange was $17.6 million, or 1.9 percent. The
Foroni acquisition added $15.7 million, or 1.7 percent.
Operating income was $35.9 million, a decrease of $43.4 million,
from $79.3 million in 2019. Adjusted operating income was $43.4
million, a decrease of $39.2 million from $82.6 million. Both
declines were due to lower sales, partially offset by cost
reductions. Foroni had an operating loss of $2.4 million. Foreign
exchange was immaterial and restructuring charges increased
expenses $4.1 million versus last year.
Net income was $13.4 million, or $0.14 per share, compared with
$35.3 million, or $0.34 per share, in 2019 due to lower operating
income. Adjusted net income was $18.6 million, down from $45.0
million in 2019 due to lower adjusted operating income. Adjusted
earnings per share were $0.19 compared with $0.44 in 2019.
Capital Allocation
In the second quarter, the company used $42.3 million of net
cash from operating activities and $44.3 million of free cash flow,
including capital expenditures of $2.0 million. The company also
paid $6.1 million in dividends. Year to date, the company used
$67.5 million of net cash from operating activities and $76.4
million of free cash flow, including capital expenditures of $8.9
million. The company also repurchased 2.9 million shares for a net
$19.2 million, and paid $12.3 million in dividends. Capital
allocation priorities for the remainder of 2020 will be to fund
dividends and reduce debt.
Outlook
"We have limited visibility beyond the third quarter because of
the uncertainties of the pandemic. As a result, we will not be
issuing a full year outlook for sales and adjusted earnings per
share, but we are reiterating our outlook to generate more than
$100 million of free cash flow for the year (over $120 million in
operating cash flow less $20 million in capital expenditures),"
Elisman continued.
Although the company does not typically provide quarterly
guidance, it is doing so for the third quarter. The outlook for the
third quarter is a sales decline in a range of 15 percent to 20
percent, and adjusted earnings per share in a range of $0.13 to
$0.19. The third quarter outlook includes an adverse foreign
exchange impact of 1 percent to 2 percent on sales and ($0.01)
impact on adjusted EPS.
"Our near-term focus is to drive back-to-school sellout in North
America, reduce costs and strengthen our position with growing
channels and categories. Given our financial strength and our
experienced management team, I am confident in our ability to
emerge stronger in the post-COVID world," Elisman concluded.
Update on Incremental Cost Reduction Actions in Response to
COVID-19
In March, the company began a range of new cost reduction
actions in addition to its normal productivity initiatives. The
savings from all cost reduction actions reduced expenses
approximately $33 million in the second quarter. Actions to curtail
employees' and Board of Directors' pay have been rescinded
effective July 1. Further actions were recently decided to focus
the business on faster growing categories and channels and will
reduce headcount in North America and Mexico. On an annualized
basis, these actions are expected to deliver an $11 million savings
run rate.
Update on Safeguarding Employees and Facilities
The health and safety of ACCO Brands employees are paramount,
and the company made early decisions to minimize COVID-19 exposure
to its employees. The vast majority of ACCO Brands office employees
continue to work from home; however, some employees outside of
North America have returned to their offices, with appropriate
health and safety restrictions in place. Most factories and
distribution facilities have remained open to meet customer demand,
following WHO and CDC recommendations and local government
guidelines. The company will continue to monitor and update actions
as warranted.
Webcast
At 8:30 a.m. Eastern time on July 29, 2020, ACCO Brands
Corporation will host a conference call to discuss the company's
second quarter results. The call will be broadcast live via
webcast. The webcast can be accessed through the Investor Relations
section of www.accobrands.com. The
webcast will be in listen-only mode and will be available for
replay following the event.
About ACCO Brands Corporation
ACCO Brands Corporation is one of the world's largest designers,
marketers and manufacturers of branded academic, consumer and
business products. Our widely recognized brands include
AT-A-GLANCE®, Barrilito®, Derwent®, Esselte®, Five Star®, Foroni®,
GBC®, Hilroy®, Kensington®, Leitz®, Mead®, Quartet®, Rapid®,
Rexel®, Swingline®, Tilibra®, Wilson Jones®, and many others. Our
products are sold in more than 100 countries around the world. More
information about ACCO Brands, the Home of Great Brands Built by
Great People, can be found at www.accobrands.com.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with
generally accepted accounting principles (GAAP), we have provided
certain non-GAAP financial information in this earnings release to
aid investors in understanding the company's performance. Each
non-GAAP financial measure is defined and reconciled to its most
closely related GAAP financial measure in the "About Non-GAAP
Financial Measures" section at the end of this earnings
release.
Forward-Looking Statements
Statements contained in this earnings release, other than
statements of historical fact, particularly those anticipating
future financial performance, business prospects, growth, operating
strategies and similar matters, including without limitation,
statements concerning the impacts of the COVID-19 pandemic on the
company’s business, operations, results of operations, liquidity
and financial condition, are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on the beliefs and assumptions of
management based on information available to us at the time such
statements are made. These statements, which are generally
identifiable by the use of the words "will," "believe," "expect,"
"intend," "anticipate," "estimate," "forecast," "project," "plan,"
and similar expressions, are subject to certain risks and
uncertainties, are made as of the date hereof, and we undertake no
duty or obligation to update them. Because actual results may
differ materially from those suggested or implied by such
forward-looking statements, you should not place undue reliance on
them when deciding whether to buy, sell or hold the company’s
securities.
Our outlook is based on certain assumptions, which we believe to
be reasonable under the circumstances. These include, without
limitation, assumptions regarding both the near-term and long-term
impact of the COVID-19 pandemic on the economy and our business,
our customers and the end-users of our products, and other changes
in the macro environment; changes in the competitive landscape,
including ongoing uncertainties in the traditional office products
channels; as well as the impact of fluctuations in foreign currency
and acquisitions and the other factors described below.
Among the factors that could cause our actual results to differ
materially from our forward-looking statements are: the scope and
duration of the COVID-19 pandemic, government actions and other
third party responses to it and the consequences for the global
economy, as well as the regional and local economies in which we
operate, uncertainties regarding when the risks of the pandemic
will subside and how geographies, distribution channels and
consumer behaviors will evolve over time in response to the
pandemic, and its impact on our business, operations, results of
operations and financial condition, including, among others,
manufacturing, distribution and supply chain disruptions, reduced
demand for our products and services, and the financial condition
of our suppliers and customers, including their ability to fund
their operations and pay their invoices. Additionally, many of the
other risk factors affecting us are currently elevated by, and may
continue to be elevated by, the COVID-19 pandemic.
Other factors that could cause actual results to differ
materially from our forward-looking statements are: a relatively
limited number of large customers account for a significant
percentage of our sales; risks associated with shifts in the
channels of distribution for our products; issues that affect
customer and consumer spending decisions during periods of economic
uncertainty or weakness; risks associated with foreign currency
fluctuations; challenges related to the highly competitive business
environments in which we operate; our ability to develop and market
innovative products that meet consumer demands; our ability to grow
profitably through acquisitions and expand our product assortment
into new and adjacent categories; our ability to successfully
integrate acquisitions and achieve the financial and other results
anticipated at the time of acquisition, including planned
synergies; our ability to successfully implement our cost reduction
and productivity initiatives; risks associated with the changes to
U.S. trade policies and regulations, including increased import
tariffs and overall uncertainty surrounding international trade
relations; the failure, inadequacy or interruption of our
information technology systems or supporting infrastructure; risks
associated with a cybersecurity incident or information security
breach, including that related to a disclosure of personally
identifiable information; our ability to successfully expand our
business in emerging markets and the exposure to greater financial,
operational, regulatory and compliance and other risks in such
markets; the effects of the U.S. Tax Cuts and Jobs Act; the impact
of litigation or other legal proceedings; the risks associated with
outsourcing production of certain of our products, information
systems and other administrative functions; the continued decline
in the use of certain of our products; risks associated with
seasonality; risks associated with changes in the cost or
availability of raw materials, labor, transportation and other
necessary supplies and services and the cost of finished goods; our
failure to comply with applicable laws, rules and regulations and
self-regulatory requirements and the costs of compliance; the
sufficiency of investment returns on pension assets, risks related
to actuarial assumptions and changes in the unfunded liabilities of
a multi-employer pension plan; any impairment of our intangible
assets; risks associated with our indebtedness, including our debt
service obligations, limitations imposed by restrictive covenants,
our ability to comply with financial ratios and tests, and the
phase out of the London Interbank Offered Rate; a change in or
discontinuance of our stock repurchase program or the payment of
dividends; the bankruptcy or financial instability of our customers
and suppliers; our ability to secure, protect and maintain our
intellectual property rights; product liability claims, recalls or
regulatory actions; our ability to attract and retain key
employees; the volatility of our stock price; risks associated with
circumstances outside our control, including those caused by public
health crises, such as the occurrence of contagious diseases like
COVID-19, war, terrorism and other geopolitical incidents; and
other risks and uncertainties described in "Part I, Item 1A. Risk
Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2019, in "Part II, Item 1A. Risk Factors" in our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,
and in other reports we file with the Securities and Exchange
Commission.
1 In the earnings documents, "COVID-19 impacts" include the
operational, financial, and other effects on ACCO Brands, its
customers, and end users of its products of school and business
closures, work from home and government orders, and manufacturing,
distribution, supply chain and other disruptions resulting from
COVID-19.
ACCO Brands Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
(unaudited)
(in millions)
June 30, 2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
$
128.8
$
27.8
Accounts receivable, net
358.3
453.7
Inventories
336.0
283.3
Other current assets
44.3
41.2
Total current assets
867.4
806.0
Total property, plant and equipment
633.6
651.7
Less: accumulated depreciation
(389.4
)
(384.6
)
Property, plant and equipment, net
244.2
267.1
Right of use asset, leases
90.2
101.9
Deferred income taxes
111.6
119.0
Goodwill
714.0
718.6
Identifiable intangibles, net
724.3
758.6
Other non-current assets
24.9
17.4
Total assets
$
2,776.6
$
2,788.6
Liabilities and Stockholders'
Equity
Current liabilities:
Notes payable
$
3.2
$
3.7
Current portion of long-term debt
46.7
29.5
Accounts payable
212.5
245.7
Accrued compensation
31.9
48.5
Accrued customer program liabilities
64.1
99.7
Lease liabilities
20.2
21.8
Other current liabilities
105.5
139.9
Total current liabilities
484.1
588.8
Long-term debt, net
971.4
777.2
Long-term lease liabilities
79.6
89.8
Deferred income taxes
168.4
177.5
Pension and post-retirement benefit
obligations
266.3
283.2
Other non-current liabilities
95.2
98.4
Total liabilities
2,065.0
2,014.9
Stockholders' equity:
Common stock
1.0
1.0
Treasury stock
(39.9
)
(38.2
)
Paid-in capital
1,876.9
1,890.8
Accumulated other comprehensive loss
(553.2
)
(505.7
)
Accumulated deficit
(573.2
)
(574.2
)
Total stockholders' equity
711.6
773.7
Total liabilities and stockholders'
equity
$
2,776.6
$
2,788.6
ACCO Brands Corporation and
Subsidiaries
Consolidated Statements of
Income (Unaudited)
(In millions, except per share
data)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
% Change
2020
2019
% Change
Net sales
$
366.9
$
518.7
(29.3
)%
$
751.0
$
912.6
(17.7
)%
Cost of products sold
256.9
352.9
(27.2
)%
528.8
621.0
(14.8
)%
Gross profit
110.0
165.8
(33.7
)%
222.2
291.6
(23.8
)%
Operating costs and expenses:
Selling, general and administrative
expenses
77.2
95.5
(19.2
)%
163.3
191.4
(14.7
)%
Amortization of intangibles
7.8
8.9
(12.4
)%
16.2
18.2
(11.0
)%
Restructuring charges
6.5
—
NM
6.8
2.7
151.9
%
Total operating costs and expenses
91.5
104.4
(12.4
)%
186.3
212.3
(12.2
)%
Operating income
18.5
61.4
(69.9
)%
35.9
79.3
(54.7
)%
Non-operating expense (income):
Interest expense
9.9
11.7
(15.4
)%
18.5
22.1
(16.3
)%
Interest income
(0.3
)
(1.3
)
(76.9
)%
(0.6
)
(2.2
)
(72.7
)%
Non-operating pension income
(1.5
)
(1.4
)
7.1
%
(3.0
)
(2.8
)
7.1
%
Other expense, net
1.2
1.2
—
%
0.7
1.0
(30.0
)%
Income before income tax
9.2
51.2
(82.0
)%
20.3
61.2
(66.8
)%
Income tax expense
3.8
15.3
(75.2
)%
6.9
25.9
(73.4
)%
Net income
$
5.4
$
35.9
(85.0
)%
$
13.4
$
35.3
(62.0
)%
Per share:
Basic income per share
$
0.06
$
0.35
(82.9
)%
$
0.14
$
0.35
(60.0
)%
Diluted income per share
$
0.06
$
0.35
(82.9
)%
$
0.14
$
0.34
(58.8
)%
Weighted average number of shares
outstanding:
Basic
94.5
101.3
95.3
101.8
Diluted
95.2
102.2
96.3
103.3
Cash dividends declared per common
share
$
0.065
$
0.060
$
0.130
$
0.120
Statistics (as a % of Net sales, except
Income tax rate)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Gross profit (Net sales, less Cost of
products sold)
30.0
%
32.0
%
29.6
%
32.0
%
Selling, general and administrative
expenses
21.0
%
18.4
%
21.7
%
21.0
%
Operating income
5.0
%
11.8
%
4.8
%
8.7
%
Income before income tax
2.5
%
9.9
%
2.7
%
6.7
%
Net income
1.5
%
6.9
%
1.8
%
3.9
%
Income tax rate
41.3
%
29.9
%
34.0
%
42.3
%
ACCO Brands Corporation and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows (Unaudited)
Six Months Ended June
30,
(in millions)
2020
2019
Operating activities
Net income
$
13.4
$
35.3
Amortization of inventory step-up
—
0.1
Depreciation
18.4
17.5
Other non-cash items
0.5
—
Amortization of debt issuance costs
1.1
1.0
Amortization of intangibles
16.2
18.2
Stock-based compensation
3.4
5.4
Loss on debt extinguishment
—
0.3
Changes in balance sheet items:
Accounts receivable
58.8
(29.7
)
Inventories
(66.4
)
(26.6
)
Other assets
(5.9
)
(9.4
)
Accounts payable
(23.0
)
(74.4
)
Accrued expenses and other liabilities
(78.3
)
(55.6
)
Accrued income taxes
(5.7
)
2.2
Net cash used by operating activities
(67.5
)
(115.7
)
Investing activities
Additions to property, plant and
equipment
(8.9
)
(14.7
)
Proceeds from the disposition of
assets
—
0.3
Cost of acquisitions, net of cash
acquired
0.6
—
Other assets acquired
—
(5.2
)
Net cash used by investing activities
(8.3
)
(19.6
)
Financing activities
Proceeds from long-term borrowings
227.4
325.8
Repayments of long-term debt
(15.8
)
(105.0
)
Repayments of notes payable, net
—
(1.4
)
Payments for debt issuance costs
(1.6
)
(3.3
)
Dividends paid
(12.3
)
(12.2
)
Repurchases of common stock
(18.9
)
(37.9
)
Payments related to tax withholding for
stock-based compensation
(1.8
)
(4.3
)
Proceeds from the exercise of stock
options
1.5
0.2
Net cash provided financing activities
178.5
161.9
Effect of foreign exchange rate changes on
cash and cash equivalents
(1.7
)
0.5
Net increase in cash and cash
equivalents
101.0
27.1
Cash and cash equivalents
Beginning of the period
27.8
67.0
End of the period
$
128.8
$
94.1
About Non-GAAP Financial Measures
This earnings release contains non-GAAP financial measures. We
explain below how we calculate and use each of these non-GAAP
financial measures and a reconciliation of our current period and
historical non-GAAP financial measures to the most directly
comparable GAAP financial measures follows.
We use our non-GAAP financial measures both to explain our
results to stockholders and the investment community and in the
internal evaluation and management of our business. We believe our
non-GAAP financial measures provide management and investors with a
more complete understanding of our underlying operational results
and trends, facilitate meaningful period-to-period comparisons and
enhance an overall understanding of our past and future financial
performance.
Our non-GAAP financial measures exclude certain items that may
have a material impact upon our reported financial results such as
restructuring charges, transaction and integration expenses
associated with acquisitions, the impact of foreign currency
fluctuation and acquisitions, unusual tax items and other
non-recurring items that we consider to be outside of our core
operations. These measures should not be considered in isolation or
as a substitute for, or superior to, the directly comparable GAAP
financial measures and should be read in connection with the
company’s financial statements presented in accordance with
GAAP.
Our non-GAAP financial measures include the following:
Comparable Net Sales:
Represents net sales excluding the impact of acquisitions with
current-period foreign operation sales translated at prior-year
currency rates. We believe comparable net sales are useful to
investors and management because they reflect underlying sales and
sales trends without the effect of acquisitions and fluctuations in
foreign exchange rates and facilitate meaningful period-to-period
comparisons. We sometimes refer to comparable net sales as
comparable sales.
Adjusted Gross Profit:
Represents gross profit excluding the effect of the amortization of
the step-up in inventory from acquisitions. We believe adjusted
gross profit is useful to investors and management because it
reflects underlying gross profit without the effect of inventory
adjustments resulting from acquisitions that we consider to be
outside our core operations and facilitates meaningful
period-to-period comparisons.
Adjusted Selling, General and
Administrative (SG&A) Expenses: Represents selling,
general and administrative expenses excluding transaction and
integration expenses related to our acquisitions. We believe
adjusted SG&A expenses are useful to investors and management
because they reflect underlying SG&A expenses without the
effect of expenses related to acquiring and integrating
acquisitions that we consider to be outside our core operations and
facilitate meaningful period-to-period comparisons.
Adjusted Operating Income/Adjusted
Income Before Taxes/Adjusted Net Income/Adjusted Net Income Per
Diluted Share: Represents operating income, income
before taxes, net income, and net income per diluted share
excluding restructuring charges, the amortization of the step-up in
value of inventory, transaction and integration expenses associated
with acquisitions, non-recurring items in interest expense or other
income/expense such as expenses associated with debt refinancing
and other non-recurring items as well as all unusual and discrete
income tax adjustments, including income tax related to the
foregoing. We believe these adjusted non-GAAP financial measures
are useful to investors and management because they reflect our
underlying operating performance before items that we consider to
be outside our core operations and facilitate meaningful
period-to-period comparisons. Senior management’s incentive
compensation is derived, in part, using adjusted operating income
and adjusted net income per diluted share, which is derived from
adjusted net income. We sometimes refer to adjusted net income per
diluted share as adjusted earnings per share.
Adjusted Income Tax
Expense/Rate: Represents income tax expense/rate
excluding the tax effect of the items that have been excluded from
adjusted income before taxes, unusual income tax items such as the
impact of tax audits and changes in laws, significant reserves for
cash repatriation; excess tax benefits/losses; and other discrete
tax items. We believe our adjusted income tax expense/rate is
useful to investors because it reflects our baseline income tax
expense/rate before benefits/losses and other discrete items that
we consider to be outside our core operations and facilitates
meaningful period-to-period comparisons.
Adjusted EBITDA: Represents
net income excluding the effects of depreciation, stock-based
compensation expense, amortization of intangibles, interest
expense, net, other (income) expense, net, and income tax expense,
the amortization of the step-up in value of inventory, transaction
and integration expenses associated with acquisitions,
restructuring charges, expenses associated with debt refinancing
and other non-recurring items. We believe adjusted EBITDA is useful
to investors because it reflects our underlying cash profitability
and adjusts for certain non-cash charges, and items that we
consider to be outside our core operations and facilitates
meaningful period-to-period comparisons.
Free Cash Flow: Represents
cash flow from operating activities less cash used for additions to
property, plant and equipment, plus cash proceeds from the
disposition of assets. We believe free cash flow is useful to
investors because it measures our available cash flow for paying
dividends, funding strategic acquisitions, reducing debt, and
repurchasing shares.
Net Leverage Ratio:
Represents total debt, less debt origination costs and cash and
cash equivalents divided by Adjusted EBTIDA. We believe that net
leverage ratio is useful to investors since the company has the
ability to, and may decide to use a portion of its cash and cash
equivalents to retire debt.
This earnings release also provides forward-looking non-GAAP
adjusted earnings per share, free cash flow, net leverage ratio and
adjusted tax rate. We do not provide a reconciliation of
forward-looking adjusted earnings per share, free cash flow, net
leverage ratio or adjusted tax rate to GAAP because the GAAP
financial measure is not accessible on a forward-looking basis and
reconciling information is not available without unreasonable
effort due to the inherent difficulty of forecasting and
quantifying certain amounts that are necessary for such a
reconciliation, including adjustments that could be made for
restructuring, integration and acquisition-related expenses, the
variability of our tax rate and the impact of foreign currency
fluctuation and acquisitions, and other charges reflected in our
historical numbers. The probable significance of each of these
items is high and, based on historical experience, could be
material.
ACCO Brands Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited)
(In millions, except per share data)
The following tables set forth a reconciliation of certain
Consolidated Statements of Income information reported in
accordance with GAAP to adjusted Non-GAAP Information for the three
months ended June 30, 2020 and 2019.
Three Months Ended June 30,
2020
SG&A
% of Sales
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
77.2
21.0
%
$
18.5
5.0
%
$
9.2
2.5
%
$
3.8
41.3
%
$
5.4
1.5
%
Reported GAAP diluted income per share
(EPS)
$
0.06
Transaction and integration expenses
(B)
(0.4
)
0.4
0.4
0.1
0.3
Restructuring charges
—
6.5
6.5
1.7
4.8
Other discrete tax items
(E)
—
—
—
(1.1
)
1.1
Adjusted Non-GAAP
$
76.8
20.9
%
$
25.4
6.9
%
$
16.1
4.4
%
$
4.5
28.0
%
$
11.6
3.2
%
Adjusted diluted income per share
(Adjusted EPS)
$
0.12
Three Months Ended June 30,
2019
SG&A
% of Sales
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net Income
% of
Sales
Reported GAAP
$
95.5
18.4
%
$
61.4
11.8
%
$
51.2
9.9
%
$
15.3
29.9
%
$
35.9
6.9
%
Reported GAAP diluted income per share
(EPS)
$
0.35
Transaction and integration expenses
(B)
(0.1
)
0.1
0.1
—
0.1
Refinancing costs
(C)
—
—
0.3
0.1
0.2
Other discrete tax items
(E)
—
—
—
(0.1
)
0.1
Adjusted Non-GAAP
$
95.4
18.4
%
$
61.5
11.9
%
$
51.6
9.9
%
$
15.3
29.7
%
$
36.3
7.0
%
Adjusted diluted income per share
(Adjusted EPS)
$
0.36
See "Notes for Reconciliation of GAAP to Adjusted Non-GAAP
Information (Unaudited)" for further information regarding adjusted
items on page 13.
ACCO Brands Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited)
(In millions, except per share data)
The following tables set forth a reconciliation of certain
Consolidated Statements of Income information reported in
accordance with GAAP to adjusted Non-GAAP Information for the six
months ended June 30, 2020 and 2019.
Six Months Ended June 30,
2020
SG&A
% of Sales
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
163.3
21.7
%
$
35.9
4.8
%
$
20.3
2.7
%
$
6.9
34.0
%
$
13.4
1.8
%
Reported GAAP diluted income per share
(EPS)
$
0.14
Transaction and integration expenses
(B)
(0.7
)
0.7
0.7
0.2
0.5
Restructuring charges
—
6.8
6.8
1.8
5.0
Operating tax gains
(D)
—
—
(1.6
)
—
(1.6
)
Other discrete tax items
(E)
—
—
—
(1.3
)
1.3
Adjusted Non-GAAP
$
162.6
21.7
%
$
43.4
5.8
%
$
26.2
3.5
%
$
7.6
29.0
%
$
18.6
2.5
%
Adjusted diluted income per share
(Adjusted EPS)
$
0.19
Six Months Ended June 30,
2019
Gross Profit
% of Sales
SG&A
% of Sales
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (E)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
291.6
32.0
%
$
191.4
21.0
%
$
79.3
8.7
%
$
61.2
6.7
%
$
25.9
42.3
%
$
35.3
3.9
%
Reported GAAP diluted income per share
(EPS)
$
0.34
Inventory step-up amortization
(A)
0.1
—
0.1
0.1
—
0.1
Transaction and integration expenses
(B)
—
(0.5
)
0.5
0.5
0.1
0.4
Restructuring charges
—
—
2.7
2.7
0.8
1.9
Refinancing costs
(C)
—
—
—
0.3
0.1
0.2
Brazil tax adjustment
(E)
—
—
—
—
(5.6
)
5.6
Other discrete tax items
(E)
—
—
—
—
(1.5
)
1.5
Adjusted Non-GAAP
$
291.7
32.0
%
$
190.9
20.9
%
$
82.6
9.1
%
$
64.8
7.1
%
$
19.8
30.6
%
$
45.0
4.9
%
Adjusted diluted income per share
(Adjusted EPS)
$
0.44
See "Notes for Reconciliation of GAAP to Adjusted Non-GAAP
Information (Unaudited)" for further information regarding adjusted
items on page 13.
Notes to Reconciliation of
GAAP to Adjusted Non-GAAP Information (Unaudited)
A.
Represents the amortization of step-up in
the value of inventory associated with the Cumberland asset
acquisition in 2019.
B.
Represents transaction and integration
expenses associated with the acquisition of Indústria Gráfica
Foroni Ltda. ("Foroni") in 2020, and associated with the Cumberland
asset acquisition in 2019.
C.
Represents the write-off of debt issuance
costs of $0.1 million and $0.2 million of other costs associated
with the Company's refinancing in the second quarter of 2019.
D.
Represents the gain from certain Brazilian
indirect tax credits recognized of $1.1 million and the gain from
the release of unneeded reserves for certain operating taxes
related to a pre-acquisition period for GOBA Internacional, S.A. de
C.V. ("GOBA") of $0.5 million.
E.
The adjustments to income tax expense
include the effects of the adjustments outlined above for the three
months ended June 30, 2020, in the amount of $1.8 million and
discrete tax adjustments of $(1.1) million for a total of $0.7
million, resulting in an adjusted tax rate of 28.0% for the second
quarter of 2020, and adjustments for the three months ended June
30, 2019, in the amount of $0.1 million and discrete tax
adjustments of $(0.1) million, resulting in an adjusted tax rate of
29.7% for the second quarter of 2019. Adjustments for the six
months ended June 30, 2020, were in the amount of $2.0 million and
discrete tax adjustments of $(1.3) million for a total of $0.7
million, resulting in an adjusted tax rate of 29.0% and adjustments
for the six months ended June 30, 2019 were in the amount of $1.0
million and discrete tax adjustments of $(7.1) million.(including a
$5.6 million tax expense related to our Brazilian tax reserve) for
a total of $(6.1) million resulting in an adjusted tax rate of
30.6%.
ACCO Brands Corporation and
Subsidiaries
Reconciliation of Net Income
to Adjusted EBITDA (Unaudited)
(In millions)
The following table sets forth a
reconciliation of net income reported in accordance with GAAP to
Adjusted EBITDA.
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
% Change
2020
2019
% Change
Net income
$
5.4
$
35.9
(85.0
)%
$
13.4
$
35.3
(62.0
)%
Inventory step-up amortization
—
—
NM
—
0.1
(100.0
)%
Transaction and integration expenses
0.4
0.1
300.0
%
0.7
0.5
40.0
%
Restructuring charges
6.5
—
NM
6.8
2.7
151.9
%
Depreciation
9.8
8.7
12.6
%
18.4
17.5
5.1
%
Stock-based compensation
2.5
3.4
(26.5
)%
3.4
5.4
(37.0
)%
Amortization of intangibles
7.8
8.9
(12.4
)%
16.2
18.2
(11.0
)%
Interest expense, net
9.6
10.4
(7.7
)%
17.9
19.9
(10.1
)%
Other expense, net
1.2
1.2
—
%
0.7
1.0
(30.0
)%
Income tax expense
3.8
15.3
(75.2
)%
6.9
25.9
(73.4
)%
Adjusted EBITDA (non-GAAP)
$
47.0
$
83.9
(44.0
)%
$
84.4
$
126.5
(33.3
)%
Adjusted EBITDA as a % of Net Sales
12.8
%
16.2
%
11.2
%
13.9
%
Reconciliation of Net Cash
Used by Operating Activities to Free Cash Flow (Unaudited)
(In millions)
The following table sets forth a
reconciliation of net cash used by operating activities reported in
accordance with GAAP to Free Cash Flow.
Three Months Ended June 30,
2020
Three Months Ended June 30,
2019
Six Months Ended June 30,
2020
Six Months Ended June 30,
2019
Net cash used by operating
activities
$(42.3)
$(54.4)
$(67.5)
$(115.7)
Net cash (used) provided by:
Additions to property, plant and
equipment
(2.0)
(7.5)
(8.9)
(14.7)
Proceeds from the disposition of
assets
—
0.2
—
0.3
Free cash flow (non-GAAP)
$(44.3)
$(61.7)
$(76.4)
$(130.1)
ACCO Brands Corporation and
Subsidiaries
Supplemental Business Segment
Information and Reconciliation (Unaudited)
(In millions)
2020
2019
Changes
Adjusted
Adjusted
Reported
Adjusted
Operating
Reported
Adjusted
Operating
Adjusted
Adjusted
Operating
Operating
Income
Operating
Operating
Income
Operating
Operating
Reported
Income
Adjusted
Income
(Loss)
Reported
Income
Adjusted
Income
(Loss)
Net Sales
Net Sales
Income
Income
Margin
Net Sales
(Loss)
Items
(Loss) (A)
Margin (A)
Net Sales
(Loss)
Items
(Loss) (A)
Margin (A)
$
%
(Loss) $
(Loss) %
Points
Q1:
ACCO Brands North America
$
167.8
$
7.6
$
—
$
7.6
4.5
%
$
160.4
$
6.8
$
1.4
$
8.2
5.1
%
$
7.4
4.6
%
$
(0.6
)
(7.3
)%
(60
)
ACCO Brands EMEA
127.5
12.0
(0.1
)
11.9
9.3
%
146.5
15.9
0.2
16.1
11.0
%
(19.0
)
(13.0
)%
(4.2
)
(26.1
)%
(170
)
ACCO Brands International
88.8
5.9
0.5
6.4
7.2
%
87.0
5.6
1.2
6.8
7.8
%
1.8
2.1
%
(0.4
)
(5.9
)%
(60
)
Corporate
—
(8.1
)
0.2
(7.9
)
—
(10.4
)
0.4
(10.0
)
—
2.1
Total
$
384.1
$
17.4
$
0.6
$
18.0
4.7
%
$
393.9
$
17.9
$
3.2
$
21.1
5.4
%
$
(9.8
)
(2.5
)%
$
(3.1
)
(14.7
)%
(70
)
Q2:
ACCO Brands North America
$
231.7
$
37.4
$
5.0
$
42.4
18.3
%
$
307.9
$
60.6
$
(0.2
)
$
60.4
19.6
%
$
(76.2
)
(24.7
)%
$
(18.0
)
(29.8
)%
(130
)
ACCO Brands EMEA
88.3
(1.8
)
0.7
(1.1
)
(1.2
)%
128.3
7.4
—
7.4
5.8
%
$
(40.0
)
(31.2
)%
(8.5
)
(114.9
)%
(700
)
ACCO Brands International
46.9
(4.4
)
1.2
(3.2
)
(6.8
)%
82.5
4.1
0.3
4.4
5.3
%
$
(35.6
)
(43.2
)%
(7.6
)
(172.7
)%
(1,210
)
Corporate
—
(12.7
)
—
(12.7
)
—
(10.7
)
—
(10.7
)
—
(2.0
)
Total
$
366.9
$
18.5
$
6.9
$
25.4
6.9
%
$
518.7
$
61.4
$
0.1
$
61.5
11.9
%
$
(151.8
)
(29.3
)%
$
(36.1
)
(58.7
)%
(500
)
Q3:
ACCO Brands North America
$
272.4
$
33.7
$
1.9
$
35.6
13.1
%
ACCO Brands EMEA
133.1
13.8
0.1
13.9
10.4
%
ACCO Brands International
100.2
10.8
0.3
11.1
11.1
%
Corporate
—
(9.5
)
1.3
(8.2
)
Total
$
505.7
$
48.8
$
3.6
$
52.4
10.4
%
Q4:
ACCO Brands North America
$
226.1
$
29.9
$
2.5
$
32.4
14.3
%
ACCO Brands EMEA
161.4
21.5
2.0
23.5
14.6
%
ACCO Brands International
149.9
28.0
2.5
30.5
20.3
%
Corporate
—
(11.3
)
1.3
(10.0
)
Total
$
537.4
$
68.1
$
8.3
$
76.4
14.2
%
YTD:
ACCO Brands North America
$
399.5
$
45.0
$
5.0
$
50.0
12.5
%
$
966.8
$
131.0
$
5.6
$
136.6
14.1
%
ACCO Brands EMEA
215.8
10.2
0.6
10.8
5.0
%
569.3
58.6
2.3
60.9
10.7
%
ACCO Brands International
135.7
1.5
1.7
3.2
2.4
%
419.6
48.5
4.3
52.8
12.6
%
Corporate
—
(20.8
)
0.2
(20.6
)
—
(41.9
)
3.0
(38.9
)
Total
$
751.0
$
35.9
$
7.5
$
43.4
5.8
%
$
1,955.7
$
196.2
$
15.2
$
211.4
10.8
%
(A) See "Notes for Reconciliation of GAAP
to Adjusted Non-GAAP Information (Unaudited)" for further
information regarding adjusted items on page 13.
ACCO Brands Corporation and
Subsidiaries
Supplemental Net Sales Change
Analysis (Unaudited)
% Change - Net Sales
$ Change - Net Sales (in
millions)
GAAP
Non-GAAP
GAAP
Non-GAAP
Comparable
Comparable
Net Sales
Currency
Net Sales
Net Sales
Currency
Net Sales
Change
Translation
Acquisition
Change (A)
Change
Translation
Acquisition
Change (A)
Q1 2020:
ACCO Brands North America
4.6%
(0.1)%
—%
4.7%
$7.4
$(0.2)
$—
$7.6
ACCO Brands EMEA
(13.0)%
(2.9)%
—%
(10.1)%
(19.0)
(4.3)
—
(14.7)
ACCO Brands International
2.1%
(7.0)%
16.6%
(7.5)%
1.8
(6.1)
14.4
(6.5)
Total
(2.5)%
(2.7)%
3.7%
(3.5)%
$(9.8)
$(10.6)
$14.4
$(13.6)
Q2 2020:
ACCO Brands North America
(24.7)%
(0.2)%
—%
(24.5)%
$(76.2)
$(0.6)
$—
$(75.6)
ACCO Brands EMEA
(31.2)%
(1.6)%
—%
(29.6)%
(40.0)
(2.1)
—
(37.9)
ACCO Brands International
(43.2)%
(5.2)%
1.6%
(39.6)%
(35.6)
(4.3)
1.3
(32.6)
Total
(29.3)%
(1.3)%
0.3%
(28.3)%
$(151.8)
$(7.0)
$1.3
$(146.1)
2020 YTD:
ACCO Brands North America
(14.7)%
(0.2)%
—%
(14.5)%
$(68.8)
$(0.8)
$—
$(68.0)
ACCO Brands EMEA
(21.5)%
(2.3)%
—%
(19.2)%
(59.0)
(6.4)
—
(52.6)
ACCO Brands International
(19.9)%
(6.1)%
9.3%
(23.1)%
(33.8)
(10.4)
15.7
(39.1)
Total
(17.7)%
(1.9)%
1.7%
(17.5)%
$(161.6)
$(17.6)
$15.7
$(159.7)
(A) Comparable net sales represents net
sales excluding acquisitions and with current-period foreign
operation sales translated at prior-year currency rates.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200728005912/en/
Christine Hanneman Investor Relations (847) 796-4320
Julie McEwan Media Relations (937) 974-8162
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