ACCO Brands Corporation (ABD)
Q2 2010 Earnings Call Transcript
July 28, 2010 8:30 am ET
Jennifer Rice – VP, IR
Bob Keller – Chairman and CEO
Neal Fenwick – EVP and CFO
Reza Vahabzadeh – Barclays Capital
Arnie Ursaner – CJS Securities
Bill Chappell – SunTrust
Derek Leckow – Barrington Research
Karru Martinson – Deutsche Bank
Arun Seshadri – Credit Suisse
Previous Statements by ABD
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Good day, ladies and gentlemen, and welcome to the second quarter 2010 ACCO Brands earnings conference call. My name is Keisha, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) I would now like to hand the call over to Jennifer Rice, Vice President of Investor Relations. Please proceed.
Good morning, and welcome to our second quarter 2010 conference call. On the call today are Bob 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 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 the normalized effective tax rate of 30%. A reconciliation of 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 second quarter results. And I'm pleased to report that we continue to make solid progress in growing both sales and profitability, all while maintaining good control of our expenses.
In spite of the challenging economic environment, we delivered our third consecutive quarter of profit growth and our second consecutive quarter of top line improvement. Our reported net sales increased 4%. And for the first time since the fourth quarter of 2006, we saw volume growth as well the volume up 5%. We recorded sales increases in all three of our operating segments. And most of our geographies are a reflection of our share gains, our improved customer relations, our focus on category management and improved demand, specifically for our durable products.
Our gross profit margin expanded 200 basis points, compared to last year's second quarter. And operating income increased 14%. EBITDA increased 11% to $38 million. And per share earnings were $0.09 versus $0.11 in the prior year quarter, with the decline due to higher interest expense.
In spite of the headwinds in the marketplace, we've made significant improvements in every area of our business, from our financial stability to our operational metrics. But we believe we have significant opportunity to be a much stronger company. At any end, we've recently made some organizational changes that will improve our ability to compete on a global basis, make us more agile in the marketplace, and more responsive to our customers. It will also generate efficiencies in our operations that will help us better control our costs and allow us to invest more in our future.
First, we have more closely integrated the Kensington Global computer products business with the larger office products business, created new distribution channels for Kensington products, particularly in Europe. This will also allow us to take full advantage of the talents of our European computer products team in support of our office products business.
Related to this integration, we've asked Christopher Franey, we've brought into the business 18 months ago to run our Kensington business, to take new responsibilities as president of ACCO Brands International. The computer products business will continue to report to Christopher.
Second, we've consolidated our marketing functions into one global organization headed by Tom Tedford, who we recently brought into the organization as well to help us better leverage the power of our brands, drive new product development, and further develop our category management capabilities. In addition, he will be responsible for increasing our focus on corporate social responsibility as a strategic competitive advantage and as part of our culture. Separately, we've also formalized a lean Six Sigma team to attack process improvement opportunities in our operational and administrative functions.
And finally, we've streamlined our finance organization, creating clearer line of sight reporting relationships in our accounting and business support functions. As I've said before, we're proud of what we've accomplished in the last 18 months, but we've got a long way to go. I think all of these changes will help move us forward.
Shifting gears, our 2010 outlook remains largely unchanged. We still expect local currency sales growth of 0% to 2%, with market share gains from the last year's line reviews helping to drive growth. Given our current view of the global economic environment, which calls for continuing volatility in the currency markets, our gross margin expansion is likely to be slightly less than we've previously anticipated. But we will use SG&A leverage to ensure that we deliver bottom line improvement.
Importantly, the initiatives to expand gross margin remain on track, and are only being temporarily offset by macroeconomic headwinds. EBITDA margins are still expected to increase by roughly 0.75 to a full point this year over 2009 results. And 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.