ACCO Brands Corporation Reports Third Quarter 2012 Results

LINCOLNSHIRE, Ill., Oct. 31, 2012 /PRNewswire/ -- ACCO Brands Corporation (NYSE: ACCO), a world leader in branded office products, today reported its third quarter results for the period ended September 30, 2012.

"We are successfully integrating the Mead Consumer and Office Products business acquired on May 1. Our integration efforts are ahead of schedule, and we continue to expect meaningful top- and bottom-line synergies over the next several years," said Robert J. Keller, chairman and chief executive officer.  "The external environment continues to be challenging, but the merger of Mead and ACCO Brands has significantly strengthened our business, and we are confident about our prospects going forward. Our strong cash position in the quarter allowed us to pay down $52 million in debt, and we are increasing our full year forecast for debt reduction to $150 million, up from $125 million."

Third Quarter Results

Net sales increased 48% to $501.2 million, compared to $339.1 million in the prior-year quarter, due to the merger with MeadWestvaco's Consumer & Office Products business ("Mead C&OP").  Income from continuing operations was $55.2 million, or $0.48 per share, compared to income of $11.9 million, or $0.21 per share, in the prior-year quarter, or compared to $0.26 per share in the prior-year quarter using a normalized effective tax rate of 30%.  The increase in income was the result of the merger with Mead C&OP.

On a pro forma basis, including the results of Mead C&OP for the full quarter in both years, sales decreased 12%. Of this decline, volume/mix accounted for 9% and the negative impact of foreign currency accounted for 3%.  Adjusted income from continuing operations was $33.2 million, or $0.29 per share, compared to adjusted pro forma income from continuing operations of $47.2 million, or $0.42 per share in the comparable prior-year period. The current year excludes $5.8 million of inventory step-up charges and additional transaction, integration and restructuring charges, collectively, and uses a normalized effective tax rate of 30% in both periods.

Business Segment Highlights

ACCO Brands North America

ACCO Brands North America third quarter net sales increased 93% to $321.4 million, from $166.6 million in the prior-year quarter, due to the merger with Mead C&OP.  Reported segment operating income increased to $40.0 million from $13.5 million in the prior-year quarter, due to the merger, partially offset by inventory step-up, integration and restructuring charges. 

On a pro forma basis, including the results of Mead C&OP in both periods, net sales decreased 6% to $321.4 million from $343.4 million in the comparable prior-year period.  This decrease was driven by lower volume/mix of 7% due to lower demand and a mix shift to lower sales value products during the back-to-school season.  Higher net pricing added 1%. 

Adjusted pro forma operating income was $42.6 million, compared to $48.3 million in the prior-year quarter, and excludes $2.6 million of inventory step-up, integration and restructuring charges in the current year.  The decline was due to lower sales and gross profit driven by the unfavorable product mix noted above.  Adjusted pro forma operating margin decreased to 13.3% from 14.1%.

ACCO Brands International

ACCO Brands International net sales increased to $139.4 million from $126.3 million in the prior-year quarter due to the merger with Mead C&OP, partially offset by the weak demand environment in Europe and Australia as well as planned  exits of low-margin products in the European business. Operating income decreased to $14.7 million from $17.6 million in the prior-year quarter due to the decline in sales and transaction-related charges. 

On a pro forma basis, including the results of Mead C&OP in both periods, net sales decreased 21% to $139.4 million from $177.5 million in the prior year.  Of this decline, volume/mix accounted for nearly 12%, negative foreign exchange accounted for 8% and lower pricing accounted for 1%.  The decline in volume was primarily due to the weak demand environment in Europe and Australia as well as planned exits of low-margin products in the European business. 

Adjusted pro forma operating income was $15.6 million, compared to $27.9 million in the prior-year quarter, and excludes charges of $0.9 million in the current year. Adjusted pro forma operating margin decreased to 11.2% from 15.7%.  The decline in profit and margin was driven by lower sales volumes and pricing in Australia, along with the weak demand environment in Europe.

Computer Products Group

Computer Products net sales decreased 13% to $40.4 million, compared to $46.2 million in the prior-year quarter.  Foreign currency translation and pricing unfavorably impacted sales by 3% and 4%, respectively. Included in pricing is a 3% impact due to the loss of $1.4 million of royalties. Volume/mix decreased 5% due to lower sales of PC accessories. The decline was partially offset by new product introductions of accessories for smartphones and tablets. Adjusted operating income was $8.0 million, compared to $11.1 million in the prior-year quarter, and operating margin decreased to 19.8% from 24.0%.  The decline was primarily due to lower royalties, lower sales volume and lower net pricing.

Nine Month Results

Net sales increased 27% to $1,228.8 million, compared to $967.7 million in the prior-year nine-month period, due to the merger.  Income from continuing operations was $132.1 million, or $1.47 per share, compared to income of $9.2 million, or $0.16 per share, in the prior-year period, or $0.35 per share using a normalized effective tax rate of 30%.  The increase was the due to the reversal of the U.S. tax valuation allowances and the merger with Mead C&OP. 

On a pro forma basis, including the results of Mead C&OP for the full nine months, sales decreased 9%.  The decrease was due to lower volume/mix of 7% in the legacy ACCO Brands business and unfavorable foreign currency translation of 3%, offset by higher pricing of 1%.  Adjusted pro forma income from continuing operations was $51.4 million, or $0.45 per share, compared to $69.2 million, or $0.61 per share, in the comparable prior-year period. The current-year period excludes $37.2 million of restructuring charges, Mead corporate allocations, inventory step-up and additional transaction and integration charges, collectively, and uses a normalized effective tax rate of 30% in both periods.

Business Outlook

The company reiterates its expectation for pro forma sales, including Mead C&OP for the entire 12-month period, to be $1.90-$1.95 billion for 2012, compared to $2.1 billion in the comparable 2011 year period, and adjusted pro forma earnings per share of $0.82-$0.85.  The company has increased its expectation for 2012 free cash flow (cash available for debt reduction) to approximately $75 million, from $50 million, and increased its expectation for annual debt reduction to $150 million from $125 million.  For 2013 the company still expects an increase in adjusted pro forma earnings per share of approximately $0.20, driven by cost synergies and savings, partially offset by an increase in the effective tax rate to 35% from 30% in 2012.  The company will issue formal guidance for 2013 when it reports its full-year 2012 results in February.  

Webcast        

At 8:30 a.m. Eastern Time today, ACCO Brands Corporation will host a conference call to discuss the company's 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 for one month following the event.

Non-GAAP Financial Measures

To supplement our consolidated financial statements presented on a GAAP basis in this earnings release, we provide investors with certain non-GAAP measures, including "adjusted,"  "adjusted pro forma," and "adjusted supplemental EBITDA" financial measures.  See our Reconciliation of Adjusted Results, Reconciliation of Adjusted Pro Forma Results, and Reconciliation of Pro Forma Operating Income to Adjusted Supplemental EBITDA for a description of each of these non-GAAP financial measures and a reconciliation to the comparable GAAP financial measure for each of the periods presented herein.  We believe these non-GAAP financial measures are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future, as well as to facilitate comparisons with our historical operating results.  These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operational results and trends.  For example, the non-GAAP results are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside our core operating results.  In addition, these non-GAAP financial measures are among the primary indicators management uses as a basis for our planning and forecasting of future periods.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.  The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results.  The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with generally accepted accounting principles in the United States.  Investors should review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

About ACCO Brands Corporation

ACCO Brands Corporation is one of the world's largest suppliers of branded office and consumer products and print finishing solutions.  Our widely recognized brands include AT-A-GLANCE®, Day-Timer®, Five Star®, GBC®, Hilroy®, Kensington®, Marbig, Mead®, NOBO, Quartet®, Rexel, Swingline®, Tilibra®, Wilson Jones® and many others.  We design, market and sell products in more than 100 countries around the world.  More information about ACCO Brands can be found at www.accobrands.com.

Forward-Looking Statements

This press release contains statements which may constitute "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties, are made as of the date hereof and the company assumes no obligation to update them.  The company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Because actual results may differ from those predicted by such forward-looking statements, you should not place undue reliance on them when deciding to buy, sell or hold the company's securities.  Among the factors that could cause our plans, actions and results to differ materially from current expectations are: fluctuations in the cost and availability of raw materials; competition within the markets in which the company operates; the effects of both general and extraordinary economic, political and social conditions, including any volatility and disruption in the capital and credit markets; our continued ability to access the capital and credit markets; the liquidity and solvency of our major customers; the effect of consolidation in the office products industry; the dependence of the company on certain suppliers of manufactured products; the risk that targeted cost savings and synergies from business combinations may not be fully realized or take longer to realize than expected; future goodwill and/or impairment charges; foreign exchange rate fluctuations; the development, introduction and acceptance of new products; the degree to which higher raw material costs and freight and distribution costs can be passed on to customers through selling price increases and the effect on sales volumes as a result thereof; increases in health care, pension and other employee welfare costs; the risk that anticipated cost savings, growth opportunities and other financial and operating benefits as a result of our recent acquisition of the MeadWestvaco's Consumer & Office Products Business may not be realized or may take longer to realize than expected; the risk that benefits from our acquisition of MeadWestvaco's Consumer & Office Products Business may be significantly offset by costs incurred in integrating the companies; potential adverse impacts from incurring additional indebtedness in connection with our acquisition of MeadWestvaco's Consumer & Office Products Business; and potential difficulties in connection with the process of integrating MeadWestvaco's Consumer & Office Products Business with the company, which potential difficulties include, but are not limited to, coordinating geographically separate organizations, integrating business cultures, which could prove to be incompatible, difficulties and costs of integrating information technology systems, and potential difficulty in retaining key officers and personnel.  These and other risks are more fully described under "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011, and "Part II, Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, and in other reports we file with the SEC.

SOURCE ACCO Brands Corporation