ACCO Brands (ABD)

Q2 2011 Earnings Call

July 27, 2011 8:30 am ET

Executives

Bob Keller - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee

Neal Fenwick - Chief Financial Officer and Executive Vice President

Jennifer Rice - IR

Analysts

Dan Mazer - Harvest Capital

William Chappell - SunTrust Robinson Humphrey, Inc.

Arnold Ursaner - CJS Securities, Inc.

Unknown Analyst -

Reza Vahabzadeh - Lehman Brothers

Presentation

Operator

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

Jennifer Rice

Good morning, and welcome to our second 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 accobrands.com. Each slides provide detailed information to supplement this call. When speaking to earnings per share, we are using a normalized effective tax rate of 30%.

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.

Bob Keller

Thank you, Jennifer, and good morning, everyone. Earlier today, we released our second quarter financial results, and I continue to be pleased with our progress. In what remains a difficult operating environment, we grew our top line by 8% and expanded our operating income margin 110 basis points.

We returned our European operations to profitability, and we ended the quarter with $93 million in cash. Including the costs related to the rationalization of our European business, earnings from continuing operations were $0.15 per share.

Virtually all of our businesses and geographies performed at or above our expectations. Our teams in Australia, Asia-Pacific, Canada and Latin America all delivered strong results. Our Kensington Computer Products business was substantially ahead of plan in large measure because of robust sales of iPad and iPhone accessories and the continued success of the new quick save computer security line.

In the United States, we held our own in a difficult business environment. Our Print Finishing Solutions business, a focus area we targeted for improvement, achieved break-even status in the quarter, and we're expecting it to both grow the top line and become profitable in the second half of the year.

In Europe, our account transition plan and our SKU rationalization are both tracking to our internal expectations. On the product side, the Swingline Stack and Shred Auto Heat [ph] Shredder, which we introduced at the beginning of the year, continues to perform perfectly well for us globally.

During the quarter, we announced that we had sold the GBC Australia operations to our longtime distribution partner, Neopost. While we weren't seeking a purchaser, Neopost made an attractive offer, and they will become the exclusive distributor of print finishing products for the direct channel in Australia and New Zealand. The sale added significantly to our cash reserves and have had no effect on our 2 larger operations in the region, ACCO Australia and our joint venture interest in Pelikan Artline.

In closing, while we're pleased with our second quarter results, we remain cautious about the external operating environment. We continue to believe that we'll grow our business in line with our previous outlook, sales up 2% to 4% excluding currency. But based on our year-to-date performance, we now believe that we'll be at the high end of our earnings range, growing EPS around 30% and generating $100 million to $110 million in free cash flow by year end.

Overall, I believe we are well positioned to deliver on our commitments for the year. With that, I'll turn the call over to Neil for more detailed review of the numbers. Neil?

Neal Fenwick

Thank you, Paul. Our second quarter performance is recapped on Slide 4. Reported sales increased 8% with a 6% benefits from foreign exchange. Pricing was favorable 2%, underlying volume was flat. EBITDA was $42.2 million and included $3.7 million of benefit from foreign exchange translation. EPS from continuing operations was $0.15, using a 30% tax rate versus a comparable $0.08 in the prior year.

Our gross profit margin increased 100 basis points to 32%. The increase was mainly due to the reductions in freight and distribution costs. SG&A expense was down 20 basis points, primarily due to reductions in Europe. In all, operating income increased 22% and margin expanded 110 basis points to 9.3%.

For the 6 months, sales increased 4% driven by foreign exchange. Volume was down 2% for the 6 months due to the Q1 impact from the year-end buy forward and introductory reductions by certain customers. Pricing for the 6 months period was favorable 2%.

As shown on Slide 5, gross margin increased 40 basis points for the 6-month period to 31%. Cost savings accounted for 50 basis points of the improvement, but were partially offset by material cost increases, which were not fully offset by our price increases.

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