ACCO Brands Corporation (ABD)
Q1 2010 Earnings Call
April 28, 2010 8:30 am ET
Robert Keller – CEO
Neal Fenwick – CFO
Jennifer Rice – VP IR
William Chappell - SunTrust Robinson Humphrey
Arnold Ursaner - CJS Securities
Reza Vahabzadeh - Barclays Capital
Derek Leckow - Barrington Research
Mark Rupe – Longbow Research
Arun Seshadri – Credit Suisse
Previous Statements by ABD
» ACCO Brands Corporation Q4 2009 Earnings Call Transcript
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» ACCO Brands Corporation Q2 2009 Earnings Call Transcript
Good day ladies and gentlemen and welcome to the first quarter 2010 ACCO Brands earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Ms. Jennifer Rice, Vice President of Investor Relations.
Good morning and welcome to our first quarter 2010 conference call. On the call today are Robert Keller, Chairman and Chief Executive Officer of ACCO Brands Corporation, and Neal Fenwick, Executive Vice President and Chief Financial Officer.
Slides that accompany this call have been posted to the Investor Relations section of www.accobrands.com. These slides provide detailed information to supplement this call.
Our discussion this morning will refer to results for continuing operations and on an adjusted basis, which for 2009 excludes all restructuring and other charges, and for 2010 applies a normalized effective tax rate of 30%. A reconciliation to all adjusted results to GAAP can be found in this morning’s press release.
During the call, we may make forward-looking statements, and based on certain risk factors, our actual results could differ materially. Please refer to our press release and SEC filings for an explanation of those factors. Following our prepared remarks, we will hold a Q&A session.
Now, it is my pleasure to turn the call over to Mr. Keller.
Thank you Jennifer, and good morning everyone. Earlier this morning we released our first quarter results, which I believe reflect the progress we continue to make in improving our customer relationships, taking market share in key categories and channels, and maintaining cost discipline.
Our reported net sales increased 6%, but more importantly volume was down only one-half of a percent. Each of our three business segments recorded operating income gains with computer products delivering a notable 53% improvement.
In total gross profit margin expanded by 210 basis points over the prior year first quarter in spite of inbound freight increases from Asia, and increasing raw material costs and operating income increased 29% on a comparable basis.
EBITDA increased 22% to $33.1 million, per share earnings were $0.03 based on a normalized tax rate for the year versus a loss of $0.02 in the first quarter of last year. Our results this far are consistent with our expectations for the year.
Market share gains in last year’s line reviews have helped us offset the lack of meaningful growth in consumer and business spending. We continue to believe that durable sales will rebound before consumable product sales and while we’re cautiously optimistic about early signs of a durables recovery, its too soon to call this a trend.
We continue to focus on our customer service performance and for the first time in our history Staples recognized us with its Customer Experience Award, marking another milestone in our significantly improved relationship with them. We were also named as a Xerox Partner of the Year in our category and just last week a very important European buying group, Quantor, named us Vendor of the Year.
Our outlook for the business in 2010 remains unchanged. While the volatility of currency especially the current weakness of the European currencies is a concern, we continue to expect to grow revenue and profitability this year.
Our gross margin should expand by 200 to 300 basis points in 2010, faster than our SG&A cost rise despite the normalization of compensation expenses and a planned increase in marketing costs to drive end user sales. EBITDA margin should increase by roughly three quarters to a full point this year over 2009 results.
Our long-term goal is still to deliver EBITDA margins of at least 15% to 16% on a sustainable basis as business optimism and white-collar employment improve. While we’re pleased with the progress we’ve made we appreciate that we’ve got a long way to go. We expect the global economic environment to remain challenging and our ability to hit our targets remains dependent on our continued focus on improving our service and value to our customers, on competing vigorously for all new business opportunities, on aggressively defending our existing business, on carefully managing our expenses, and by continuing to invest in new product innovation and introduction.
Now Neal will provide a more detailed look at our results.
Thank you Robert, our first quarter performance is recapped on slide five, reported sales increased 6%, currency adding eight points. Volume declined only half a percent significantly less than in the last several quarters, and in line with our expectations.
Share gains reduced the effect of softer market demand. Adjusted gross margin increased 210 basis points to 30.6%. Favorable mix accounted for 90 basis points of the improvement. Commodity costs which had been extremely unfavorable last year accounted for 70 basis points of improvement.
SG&A was higher in the quarter as expected, increasing 11%, or 90 basis points to 23.1% of sales. Foreign exchange translation added $4 million to SG&A. Salary, benefits and incentive costs increased $9.1 million, mainly due to temporary reductions in the prior year.
This cost increase was partially offset by costs savings. Go to market expenditures were up modestly. All in operating income improved 29% on a comparable basis with margin expanding 120 basis points to 6.9%. Contributing to operating income was $3.7 million of year over year benefit from foreign exchange translation.