ACCO Brands (ABD)

Q4 2011 Earnings Call

February 15, 2012 8:30 am ET


Jennifer Rice -

Neal V. Fenwick - Chief Financial Officer and Executive Vice President


Arnold Ursaner - CJS Securities, Inc.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Karru Martinson - Deutsche Bank AG, Research Division

Simeon Gutman - Crédit Suisse AG, Research Division

Gary Balter - Crédit Suisse AG, Research Division

Unknown Analyst



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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 ACCO Brands Earnings Conference Call. My name is Janita, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Jennifer Rice, Vice President, Investor Relations. Please proceed.

Jennifer Rice

Good morning, and welcome to our fourth quarter 2011 conference call. Speaking 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 These slides provide detailed information to supplement this call. When speaking to our earnings per share, we are using a normalized effective tax rate of 30%, and we exclude the cost associated with the pending acquisition of MeadWestvaco's Consumer and Office Products business and costs associated with the repurchase of our bonds during the year. SG&A, operating income and EBITDA also exclude costs associated with the pending acquisition.

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.

Neal V. Fenwick

Thank you, Bob. Our fourth quarter performance is recapped on Slide 4. Reported sales decreased 2%, and volume decreased 4%. We expanded our gross profit margin 50 basis points to 32.2%. The improvement came from freight distribution and other process efficiencies, particularly in Europe. SG&A expenses are down in the quarter, 130 points excluding $4.1 million of costs related to the pending acquisition due to reduced expenses in both Europe and Computer Products.

In all, fourth quarter operating income increased 17%, also excluding the Mead transaction cost. And operating margin increased 11.4%, an improvement of 190 basis points. EBITDA increased 8% to $52 million, and EPS from continuing operations increased 26% to $0.29 versus a comparable $0.23 in the prior-year quarter. For the full year, sales increased 3% driven by currency and pricing. Volume was down 2% due to declines in U.S. and Europe, largely due to inventory reductions by certain customers and lower demand in Europe.

As shown on Slide 5, for the full year, gross margin increased 60 basis points to 31.5%. Operational improvements, particularly in Europe, were the largest driver of the increase. SG&A was up 2.5% for the year excluding $5.6 million of costs related to the pending acquisition. The increase in SG&A dollars was due largely to the impact from foreign exchange, which was $7 million. As a percentage of sales, SG&A was even with the prior year at 21.9%. Investments made in the first half of the year to improve our operations in Europe were offset by savings in the second half of the year. Operating income increased 10% for the year excluding transaction-related costs, and margin expanded 70 basis points to 9.2%. EBITDA increased 6% to $168 million and to 12.8% of sales.

Foreign exchange added $8.6 million to EBITDA. And finally, EPS from continuing operations increased 36% to $0.64 excluding the $0.05 cost associated with bond repurchases and the $0.07 of transaction-related costs. This compared to $0.47 in the prior year.

Looking at segment performance for the quarter. Reported sales for the Americas decreased 4% due to currency and volume. The decline in volume was due to a tough comparison to the prior-year quarter as well as tight management of inventory by 7 of our customers. Operating income for the Americas decreased 17%, and margin declined 130 basis points due to the lower sales volume. International segment sales decreased 4% due to a 7% decline in volume, which was the result of lower demand in Europe.

Pricing and currency were both favorable. Operating income increased 47% to $17.9 million compared to $12.2 million in the prior-year quarter, and operating margin expanded 500 basis points to 14.6% from 9.6% due to the turnaround of the profitability of the European business resulting from price increases and operational improvements executed in the first half of the year, which returned the business to modest profitability.

Computer product sales increased 6%, driven by strong volume growth, which was up 10% due to strong sales of new products for smartphones and tablets. Growth was broad-based and across most regions. Computer Products operating profit increased 17% in the quarter and margin expanded 230 points to 25.1%. Margins improved despite significantly low royalty revenue, which were the result of lower laptop sales and, therefore, lower security sales. We continue to roll out on new ClickSafe security lock. The net volume growth resulted in lower SG&A to sales ratio.

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