ACCO Brands Corporation (NYSE:ACCO) Q4 2022 Earnings Call Transcript

ACCO Brands Corporation (NYSE:ACCO) Q4 2022 Earnings Call Transcript February 24, 2023

Operator: Hello and welcome to the ACCO Brands 4Q 2022 Earnings Conference Call. My name is Emily, and I’ll be coordinating today’s call. I would now turn the call over to ACCO Brands’ Senior Director of Investor Relations, Chris McGinnis. Please go ahead, Chris.

Chris McGinnis: Good morning and welcome to ACCO Brands fourth quarter 2022 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today are Boris Elisman, Chairman and Chief Executive Officer of ACCO Brands Corporation; Tom Tedford, President and Chief Operating Officer; and Deb O’Connor, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude transaction, integration, amortization, and restructuring costs, a non-cash goodwill impairment charge and the change in fair value of the contingent consideration related to the PowerA earn-out and other non-recurring items and reflect an adjusted tax rate.

Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and the slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP measures. Forward-looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain of these risk factors and assumptions.

Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session Now I’ll turn the call over to Boris Elisman.

Boris Elisman: Thank you, Chris and good morning everyone. Thank you for joining us. Before I talk about our 2022 performance and priorities for 2023, I want to say that the solid fundamentals of our business are intact and we believe we have the right strategy and team to weather the current economic slowdown and continue to deliver sustained organic revenue growth as the economy improves. The transformative actions we have taken over the past few years to be more consumer-centric and geographically diverse helped us achieve record comparable sales and maintain or grow market share in many of our key brands in 2022. 2022 was a tale of two halves. We began the year strong as customers turn to us for surety of product for the important back-to-school season, and as office occupancy rates rebounded in North America.

In our EMEA segment, we had strong volume growth for computer and business products with sales tracking above pre-pandemic levels through the first half of the year. The trend in EMEA began to change in the summer of €˜22 as high levels of inflation, the war in Ukraine, and the energy crisis dampened consumer and business demand. In North America, retailers became concerned about an impending economic slowdown. And they began to take an aggressive stance on reducing inventory levels in the third quarter that continued throughout the fourth quarter, leading to lower overall demand in our North America segment. These actions were on top of the impacts from pulling orders forward into the first half of the year. All of these factors reduced our sales volume in the back half of 2022.

Profit in 2022 followed a similar trend as the rate of inflation continued to increase throughout 2022, for raw materials, finished goods and transportation, and outpaced our aggressive pricing actions, which included numerous price increases throughout the year. We have been active on the cost front, limited discretionary spending, implementing office hiring freezes, flexing direct labor headcount with volume and closely managing our SG&A cost structure throughout the year. In Q4, we actioned additional cost savings and restructuring activities in North America and EMEA, intended to expand margin through initiatives focused on improving operating efficiency and reducing costs. Importantly, we’re seeing deflation in ocean freight rates and moderating rates of inflation in other product costs.

We believe that the lessening rate of inflation combined with our pricing and cost actions, including our January 1 price increase better position us to expand margins in 2023. While 1 month does not make a quarter or a year, we are encouraged by the gross margin improvements we saw in January. As largely reflected by the rest of the industry, our sales of gaming accessories were down 26% for the year. In 2022, the gaming market faced a number of challenges and a difficult comparison to 2020 and 2021, when consumers spend more on in-home entertainment activities due to pandemic, as demand for the category softened with the reopening of experiential activities, many retailers engage in aggressive inventory destocking. The gaming market also experienced semiconductor shortages throughout 2022, which limited both video gaming consoles and gaming accessories production.

While we continue to hold the leading market share position for third-party gaming accessories, we temporarily lost some market share in the fourth quarter due to lack of product availability and a very competitive and promotional holiday season. Despite these challenges, we continue to believe in the long-term growth opportunity for gaming accessories and are executing our plans to expand our product assortment and accelerate growth in our EMEA and International segments. In 2023, we expect the industry backdrop to stabilize and improve as the year progresses and our semiconductor chip supply and new console production improves. In addition, there are several new game titles coming to market in 2023, which historically has spurred greater gamer engagement and the sales of associated gaming accessories.

Now let me share with you some highlights from 2022. Outside of gaming accessories comparable product sales increased 5%, fueled by the strength of our brands. Kensington, our computer accessories brand grew 10% in North America during the fourth quarter and was up over 13% globally for the full year, as we continue to bring new products to market and expand our enterprise sales. This is our fifth straight year of growth for the Kensington business. We have continued to enhance the offering, introducing a host of new products, largely related to connectivity and security. During the 2022 back-to-school season, our Five Star brand gained 2 points of share and grew 10% for the year. It was the second largest back-to-school brand in the U.S. during the season.

We demonstrated the strength of our supply chain capabilities to support customers with on-time deliveries during highly seasonal and high-volume engagement. Our International segment had an exceptional year, posting 19% comparable sales growth for the full year and delivered over 40% improvement in adjusted operating profit. This growth was fueled by our market-leading Tilibra and Foroni brands in Brazil as in-personal education continues its recovery in Latin America. These successes and strong brand performances from GBC, Quartet, Noble and Barrilito, among others, give us confidence that our commitment to bring in innovative, value-added new products to market; and investing behind our brands, operations, and customer service is transforming our company towards faster organic sales growth.

As we look to 2023, we are focused on four key priorities. First, we are laser-focused on restoring our gross margin. As I mentioned earlier, we have implemented multiple rounds of price increases, including our most recent round on January 1 of this year. And we have the ability to continue to raise prices to offset inflation, if warranted. Our ongoing productivity program delivered $20 million in mostly COGS savings in 2022. This included actions to improve our supply chain processes and consolidate our manufacturing and distribution footprints in North America. We also plan to reduce the number of SKUs we offer globally to simplify the manufacturing and distribution processes, improve our sourcing capabilities and reengineer current product specs for lower cost.

These actions will meaningfully mitigate the inflationary pressures we have experienced over the last 18 months and improve our gross margin. We will continue to evaluate additional cost reduction measures, including facilities consolidations in response to current macroeconomic environment and secular trends. Our second priority is to profitably manage the top line and what is expected to be a slow economic environment, especially in the first half. We have a complementary assortment of products and brands that occupy value to premium price points and met with profitable position for various customer segments, including the value segment. Historically, we have been able to do that with Five Star and Mead brands, Five Star and Hilroy, and Lights and Esselte brands, as examples.

We need to ensure that we are disciplined in offering the right assortment for the price point and not discounting our premium feature reach brands. Third, we will continue to invest in the product innovation, key brands and growth initiatives. Innovation and new product development have been a key factor behind successes of our brands and their ability to grow or maintain our leading market share positions. We have a host of new product introductions that will continue to drive our growth in 2023. Fourth, we will continue to manage our SG&A spend to improve management of headcounts and discretionary expenses. Offsetting these actions in €˜23 will be the restoration of the annual incentive plans. While ACCO Brands is not immune to current changes in economic conditions, we have the right strategy and an experienced management team to navigate the current operating environment.

We remain confident in our transformation to drive long-term sustainable organic revenue growth and are well capitalized with no debt maturities until 2026 and low fixed interest rates for over half of our outstanding debt. We continue to generate consistent strong cash flow and we’ll prioritize dividend payments and debt reductions in 2023. As I mentioned earlier, the margin expansion is a top priority for the company. Our management of price and costs will determine how successful it will be in achieving margin expansion goals. Pricing will be largely established in the marketplace, but our value-added cost is something we can control and manage. I have asked Tom Tedford, ACCO Brands’ President and Chief Operating Officer, to lead a multiyear effort to improve the efficiency of our physical assets in capital investments.

Tom has been with ACCO Brands for 13 years and in his current role for the last 18 months. I will now turn the call over to Tom to share with you the details of this initiative.

Tom Tedford: Thank you, Boris and good morning everyone. During the fourth quarter of 2022, we initiated restructuring plans for both our North America and EMEA segments. The actions are intended to expand 2023 margins through initiatives focused on improving operating efficiency, and reducing costs while continuing to support key seasonal product sets, for our retail partners and category-leading service levels for all of our customers. In North America, our actions are focused on streamlining and simplifying the organization through consolidation of supply chain operations, SKU reduction and automating our sales support process. In EMEA, we are focused on reducing redundancy and enhancing productivity with SKU reduction and other sourcing initiatives.

We expect to realize $13 million in annual cost savings from these actions, the vast majority of which will come in 2023. We are in the middle of a multiyear journey to rationalize our facilities footprint. Last year, we closed 1 distribution center in California, and rebalanced our manufacturing and distribution capabilities in the U.S. These actions will save us $2.5 million per year. We are looking at additional opportunities to leverage our existing footprint in the U.S. and shift more outsourced distribution into our facilities. In EMEA, we recently completed the move from a third-party distribution facility in the UK and consolidated shipments to our UK warehouse. Earlier this month, we approved a manufacturing facility closure in Continental Europe.

And will consolidate its production into another ACCO Brands factory in Europe. This project will be executed this year with the P&L savings to come in 2024. We are in the process of analyzing other global manufacturing and distribution consolidation opportunities and we will announce those as decisions get made after appropriate consultations with works council and other relevant entities. Finally, we are looking at opportunities to reduce our office space upon every commercial lease expiration. Hybrid work arrangements are here to stay, and we believe we can save millions by reducing our office square footage while maintaining or improving the productivity of our workforce. We have recently reduced our office space in California, and have approved a move to a smaller office in the UK with more to come.

Ultimately, we expect these initiatives will create operating efficiencies, improve profitability, enhance productivity, as well as fund future growth initiatives. I will now hand it over to Deb and will come back to answer your questions. Deb?

Deb O’Connor: Thank you, Tom, and good morning, everyone. When we last spoke to you in November, I highlighted significant inventory destocking by retailers with their cautious approach to replenishment. This activity continued in the fourth quarter and actually accelerated throughout the quarter, especially in North America. We have also seen a continued decline in the macroeconomic environment and slowing demand. We reported sales at the low end of our outlook due to these challenges. This lower sales volume, coupled with some one-off expenses and higher non-operating expense caused EPS to be $0.01 below our guidance range. In the fourth quarter of 2022, reported sales decreased 12% as foreign currency was a 5% headwind. Comparable sales were down almost 8%.

The decline was due to lower volumes in our North America and EMEA segments, offsetting solid growth in our International segment. As Boris mentioned, we had stronger first half sales due to the pull forward by retailers, as well as softer demand trends that began in the third quarter. With this stronger first half, our full year comparable sales were up 1%. In the fourth quarter, adjusted operating income was $52 million compared with $79 million last year. Adjusted EPS was $0.32 versus $0.54 in 2021. For the full year, adjusted operating income was $176 million versus the $228 million a year earlier and full year adjusted EPS was $1.04 versus $1.41 in 2021. In the fourth quarter, our adjusted operating income decline was greater than the reduction in our sales volume as the lagging effect of significant inflation contained.

While inflationary costs are beginning to come down, their lagging effect on our P&L will continue to impact our gross profit in the first quarter of 2023, but we expect it will improve as we progress through the year. Given the lower sales overall, we have also experienced fixed cost deleveraging in some of our facilities. In the quarter, there were some unfavorable one-off items, a Canadian operating tax catch-up, excessive fines related to demurrage, and the comparative impact of a favorable inventory reserve release last year. The total amount of these one-off items accounted for 150 basis point decline in our consolidated operating margin for the fourth quarter. In response to the change in the macroeconomic environment, we initiated a number of cost reduction and restructuring actions in the fourth quarter as Boris and Tom both mentioned earlier.

For the quarter, we booked restructuring charges of approximately $7 million for our North America and EMEA operating segments. We expect annual cost savings from these actions to yield approximately $13 million, which will largely be recognized in 2023. Our ongoing productivity initiatives are expected to yield another $15 million of incremental savings in 2023. The collective sum of these savings will help mitigate the reestablishment of incentive compensation and merit increases in 2023. We are also committed to continue to spend on our go-to-market initiatives, particularly in sales and marketing and invest in product development. Fourth quarter adjusted SG&A expenses were $93 million compared with $99 million in 2021, primarily as a result of lower incentive compensation, cost savings initiatives and the positive benefit of FX, partially offset by continued investment in our go-to-market programs, and increased bad debt expense.

Full year SG&A expenses were 19.3% of sales, consistent with the prior year. Now let’s turn to our segment results. Fourth quarter comparable net sales in North America decreased 16% to $227 million. The decrease was due to volume declines for gaming accessories, lower inventory replenishment by retailers, and a slowing demand environment. In the third quarter, we discussed with you that retailers began to reduce their inventory levels for our products. These actions increased in the fourth quarter, creating even more of a headwind in the period. For the full year, comparable net sales were down 4%, which includes the stronger first half of the year. Growth in many of our brands and categories was offset by the decline in gaming accessories.

North America adjusted operating income margin in the fourth quarter decreased due to negative fixed cost leverage from the volume declines, higher cost of finished goods and specific commodity materials, and higher inbound freight and outbound transportation costs that were not offset by price increases. Adjusted operating income was also negatively impacted by the previously mentioned one-off items, which contributed the equivalent of 340 basis points to margin rate decline in the fourth quarter. For the full year, adjusted operating income was down 21%. Now let’s turn to EMEA. Net sales for the quarter were down 17% to $156 million, 12% of that decline was due to FX. Comparable sales were down 5% to $178 million, mainly due to volume declines offsetting our price increases.

In Europe, the current energy crisis and significant inflation continue to create a challenging demand environment. While inflation has shown early signs of moderating in the region, consumer sentiment remains low. For the full year, comparable net sales were down only 1%, including the impact of the stoppage of sales to Russia. In the fourth quarter, EMEA posted lower adjusted operating income and a margin rate that was 150 basis points behind the prior year. Sequentially, margin rate improved from the third quarter due to our pricing increases and moderating inflation. We expect our January price increase to further mitigate the overall impact of these inflationary cost increases going forward. Adjusted operating income was challenged by inflation and lower sales volumes, which led to deleveraging of fixed costs.

For the full year, adjusted operating income was $37 million, a decline of 52%. Full year margin rate was down 520 basis points compared to the 150 basis point decline in the fourth quarter, supporting the fact that pricing actions are taking hold. Moving to the International segment. Net sales in the fourth quarter increased 6% and comparable sales rose 8%. This segment has been strong throughout the year with 19% capital net sales growth in 2022. Growth was driven by both price increases and volume growth. Growth in Brazil was very strong as schools and businesses returned to in-person education and work. The International segment posted higher adjusted operating income in the fourth quarter as a result of the higher sales. Full year operating income grew over 40% with margin rate improving 310 basis points.

Switching to cash flow and balance sheet items. For the full year, we generated $78 million in adjusted free cash flow, below our outlook of $90 million to $100 million, with the shortfall due to lower EBITDA and a greater proportion of paid inventory given the timing of our inventory receipts. As this timing normalizes, it should provide a tailwind in 2023. For the full year, inventory was down $33 million or 8% despite the higher inflation. This puts us in a good position for a normal working capital cycle in 2023. We are proactively managing our inventory levels given the uncertainty in the environment and demand trends. We ended the year with a consolidated leverage ratio of 4.2x. This was higher than we expected due to lower EBITDA and free cash flow.

Longer term, we are still targeting the 2 to 2.5x. We utilized our free cash flow to fund dividends of $29 million, paid a contingent earn-out of $27 million and repurchased $19 million of shares. At year-end, we had $518 million of remaining availability on our $600 million revolving credit facility. As shown in our earnings slides, more than half of our debt is fixed and not impacted by interest rate increases. We have no maturities until 2026. Turning to our outlook, we are providing both first quarter and full year guidance for 2023. Our 2023 quarterly sales teams will trend differently than in 2022. We had strong first quarter and first half sales growth in 2022 with early back-to-school shipments in North America and good demand. These trends reversed in the second half of the year as a worsening global economy and a higher rate of inflation created demand pressures.

In particular, we saw retailers proactively reduce their inventory beginning in the third quarter of 2022, which continued through year-end. Therefore, we are projecting our sales to be down year-over-year in the first quarter and the first half of 2023. In the second half of 2023, sales growth should mitigate the first half decline as we expect improved economic conditions and inventory replenishment. Our outlook for sales growth in 2023 is for comparable net sales to be down 3% to flat compared to 2022. We expect volume to be down for the year with improved pricing partially or fully offsetting the decline. Foreign exchange at current rates is expected to be neutral. For the first quarter of 2023, we expect comparable sales to decline 7% to 10%, primarily due to the later shipments for North America back-to-school and due to demand related to the economic environment.

At the higher end of our first quarter outlook, comparable sales would be up 3% on a 2-year basis. First quarter adjusted EPS is expected to be $0.05 to $0.07 with lower operating income, reflecting fixed cost deleveraging along with higher interest and non-cash non-operating pension expenses. Full year adjusted EPS is projected to increase 4% to 8% to $1.08 to $1.12, approaching low double-digit growth in adjusted operating income, partially offset by higher interest costs of $6 million and higher non-cash non-operating pension expenses of $5 million. For the full year, we expect our gross margins to increase and be similar to our 2021 margin rate, and we continue to target a long-term range within 32% to 33%. While we have reduced our overall cost structure from our fourth quarter restructuring actions, the restoration of our annual incentive compensation expense, as well as increases in merit and go-to-marketing spending will lead to higher SG&A levels in 2023.

In total, we expect improvement in our adjusted operating income margin rate to approach 100 basis points. The adjusted tax rate is expected to be approximately 29%. Intangible amortization for the full year is estimated to be $43 million, which equates to approximately $0.32 of adjusted EPS. We expect our adjusted free cash flow to be at least $100 million after CapEx of $20 million. Looking at cash uses in 2023, we expect to continue to prioritize dividends and debt reduction. Now let’s move on to questions, where Boris, Tom and I will be happy to take them. Operator?

Q&A Session

Operator: Thank you. Our first question today comes from Greg Burns with Sidoti & Company. Greg, please go ahead.

Greg Burns: Good morning. Just in regards to the inventory destocking issues. What are the level of channel inventories right now? And historically, in other cyclical downturns, have you seen similar patterns? And how do they €“ how does this play out over the next couple of quarters? Because I’m assuming they can only take inventory down to €“ they can only take it down so low. So how should we €“ how are you thinking about this issue playing out over the next couple of quarters?

Boris Elisman: Yes. Thanks for the question, Greg. The levels of channel inventory are pretty low right now, historically, at pretty low levels. We see increased levels out of stocks for our products on shelf. We saw an improvement. We saw less destocking over the last few weeks compared to what we saw in Q4. But right now, what we expect is retailers will just buy to just replenish to POS. We don’t think they are going to bringing in additional inventory until they see macroeconomic improvements. Obviously, that excludes back-to-school because they will have to bring product for back-to-school in the second part of Q2. But if you look at Q1, it’ll probably likely be just POS replenishment and not stocking up on more inventory.

Greg Burns: Okay, great. And then the growth in the international segment was a little lower than we were looking for and I guess what the growth rate was for the first three quarters of the year. So was there any change in any of the markets there in particular that maybe led to a little bit slower growth?

Boris Elisman: Yes, the growth was around 7%. And for the year, they were 19% and then we just some compare issues. Specifically, Brazil continues to perform well, but we had slower growth outside of Brazil. Some of that is due to just macro issues in Australia and Asia specifically. And in Mexico, we actually didn’t have enough product to shift. So that was more of an inventory issue, and we expect to make that up in the first quarter of €˜23.

Greg Burns: And then the $13 million in cost savings, how should we think about that in terms of the timing of the realization of that? Is it back half loaded, ratable throughout the year? What’s the timing?

Deb O’Connor: Yes. It’s pretty ratable. I’d say there is a little bit of it back-end loaded as we’ve instituted some of the actions later in the year, but it goes pretty much throughout the year, I would say, Greg.

Greg Burns: Okay, thank you.

Boris Elisman: Thanks, Greg.

Operator: Your next question comes from Joe Gomes with NOBLE Capital. Joe, please go ahead.

Joe Gomes: Good morning. Thanks for taking my questions.

Boris Elisman: Good morning, Joe.

Joe Gomes: You mentioned in the release, part of what impacted the sales in the quarter were weaker gaming sales, lower inventory replenishment, some reduced volume. Can you kind of size that up as to what each one of the impact was from each one of those for the quarter?

Boris Elisman: Will you have that one?

Deb O’Connor: Well, I think for the quarter, if you look, a lot of a big proportion would be the inventory destocking that was pretty pervasive as you looked across North America, by many of our customers. And then I would say gaming is a smaller piece of the total, but it declined 26% for the year, so when you take that into account, it had a pretty significant impact in the quarter.

Boris Elisman: Yes, I would agree with that, because gaming is the biggest quarter of the year, Joe, so

Deb O’Connor: That’s right. And expectations were higher for it.

Boris Elisman: Yes. In Q4, those two draw a predominant decrease in sales, inventory destocking and gaming.

Joe Gomes: Okay, because I think in the previous quarter, you were looking for the gaming to be down about 15% for the year. So that’s a pretty significant decline in the quarter. And so

Deb O’Connor: Can I?

Joe Gomes: You’re looking at PowerA €“ I’m sorry?

Deb O’Connor: No, go ahead. I was just going to say for strategy. It’s a big season for gaming that fourth quarter.

Joe Gomes: Right. So I mean I think you touched a little bit on it, but Boris, you’re still looking on a longer-term basis for that PowerA to show some double-digit long-term growth. And I know you’ve mentioned moving into EMEA are expanding into EMEA more. Kind of what €“ maybe you could give us a little more color on what are your expectations for PowerA in €˜23?

Boris Elisman: Well, we certainly expect growth in PowerA in €˜23, and we expect the industry to rebound. It will be back half loaded just from a compare standpoint because Q1 of last year was still pretty good. Overall, plenty of supply and demand was pretty good. So the comps will still be difficult in the first quarter, but starting with the second quarter and going forward, they get better, and we expect growth overall for the year. It will be led by our EMEA and International segments. Overall, even in €˜22, despite PowerA being down 26% overall, we saw growth outside of North America. So that will just continue and accelerate. We are hiring people, both in EMEA and international segment to take PowerA direct to our customers in most places.

And that, along with a broader product assortment and streamline distribution that Tom referred to should enable continued PowerA growth in EMEA and international. In fact, we expect some acceleration in those two segments. In North America, we just expect a rebound from what has been a very difficult year in €˜22. And you saw reporting from other companies in North America, other public companies, including from Nvidia yesterday, which indicates just how difficult gaming has been in 2022. So while we are disappointed by our performance, we’re not unique in what we saw with gaming institute.

Joe Gomes: Okay, thank you for that. And last one for me. I mean you’ve given a lot of great detail for €˜23. What could possibly, in your mind, drive results above expectations? What would be the most likely things that could happen that would help potentially drive results above expectations? Thank you.

Boris Elisman: Well, probably a couple of things, Joe. One is if back-to-school is really good. That should definitely be good for us. I mean if you look at what’s happening in €˜23, the retailers are being conservative with upfront load-ins and then we’re going to chase inventory during the season. And if we have a good season, that should benefit us because we have domestic manufacturing, unlike most of our competitors. So they need more product than they plan on, and we should be able to fulfill it when others cannot. So a good back-to-school season will serve us well. And then just a strong economic recovery in the second half of the year, everybody is expecting a slowdown in the first half and that’s what’s in our guidance. We expect some recovery in the second half. We wanted to keep it stronger than anticipated, that should benefit our global sales and profit overall.

Joe Gomes: Great. Thanks guys. Appreciate it.

Boris Elisman: Thanks Joe.

Operator: Our next question comes from Kevin Steinke with Barrington Research. Kevin, please go ahead.

Kevin Steinke: Good morning. In terms of the flat to 3% decline in sales you are expecting in 2023, could you maybe just walk through expectations for your three segments, if you would be willing to share any detail on that?

Deb O’Connor: Yes. I think we are thinking about EMEA and North America down slightly, with international trending kind of in that mid-single digits like the fourth quarter.

Boris Elisman: Growth.

Deb O’Connor: Growth, international growth.

Boris Elisman: And North America and EMEA down slightly.

Kevin Steinke: Okay. Well, understood. Thank you, let’s hope for. So, I guess you had the January 1st price increase. Do you think that price increase covers all €“ at least the known inflationary headwinds that you are currently seeing, or are there plans for additional price increases as we move throughout the year?

Boris Elisman: We believe the price increase mostly covers all of the now inflation that we are seeing. The only exception that would be some of our smaller foreign countries where they may have to do more just due to exchange rate changes. But as far as North America and EMEA, that increase should cover now the inflation.

Deb O’Connor: And I think we have mentioned before, we have been covering the dollar throughout the year, but we have really taken a bite out of the margin, and that’s what we need to get back.

Kevin Steinke: Right. Understood. Can you just talk a little bit about the plan to eliminate SKUs? And I assume you have identified some less relevant or underperforming SKUs that maybe aren’t necessarily need to be part of the portfolio, and just kind of how you arrived at those conclusions or went through that process?

Tom Tedford: Yes, Kevin, this is Tom Tedford. I will take that question. Yes, we go through a fairly robust SKU analysis annually. And we look at the profitability, the demand of those SKUs, the complexity of managing those SKUs. And each one of the segments has accelerated that analysis. So, they should result €“ that analysis should result in a number of pretty aggressive SKU reduction actions. In addition to what we typically do, we have looked at what we make in our factories and really done an analysis on future demand on those products. And if it doesn’t meet a minimum criteria, we are going to aggressively retire those as well. But this is a part of an ongoing rationalization approach that we take very seriously as we look at inventory turns improvement and profit management. And I think our teams have a strong track record of doing this. We are just putting a little more pressure to accelerate the work in 2023.

Kevin Steinke: Okay. Thank you. Lastly, I just wanted to again, circle back to PowerA. You mentioned improving ship supply as one of the factors behind your expectations for some improvement in PowerA sales in 2023. So, are you seeing kind of a meaningful improvement in ship availability for the €“ going into gaming consoles and therefore, console availability improving as well?

Boris Elisman: We are. We are seeing improvement already on the gaming consoles, and we see better availability of the chips that we need for our accessories. It’s just there is a little bit of a delay due to the supply chain because these are manufactured in Asia, and have to be manufactured and shipped to our countries of sale, and that process takes a couple of months. So, we expect really, at the end of Q1, early Q2, a significant improvement in availability of our products due to the better chip availability.

Kevin Steinke: Alright. Thank you very much for taking the questions.

Boris Elisman: Thanks Kevin.

Operator: The next question comes from William Reuter with Bank of America. Please go ahead.

William Reuter: Good morning. My first question is on the gaming weakness for the year. You mentioned both the industry was down. You also mentioned that you had supply chain issues, and then you also mentioned that you lost a little bit of share. I guess firstly, on the share losses, was it that you had less availability of product than others or what contributed to that? And then if you could try and break down the difference between how much was the industry and how much was specific to you guys?

Boris Elisman: Yes. On the share loss, it was largely because we didn’t have the product. It was wireless accessories for one of the consoles. We had very large market share in that particular category. And because we weren’t able to supply the demand overall, the share shifted to other products where we have a smaller share. So, that’s really what drove majority of the share loss. And then if I look at the reasons for the decline, 95% are industry-related issues and about 5% are kind of our things, such as what I just talked about in terms of lack of chips for our particular wireless accessories.

Deb O’Connor: Yes. PowerA €“ destocking with the retailers as well.

Boris Elisman: To the industry.

Deb O’Connor: Exactly. I fully agree.

William Reuter: Yes. That kind of moves to my second question. It’s I think an earlier question talks about retailer destocking. In the gaming accessories, do you believe that, that destocking effort is done at this point?

Boris Elisman: Yes. Again, just like for our school and business products, we see the stock of gaming accessories being fairly low. I mean it is typically lower at this time of the year. It’s a slow season, but it is very low there as well. And we just like for other products, we have higher levels, a lot of stock for gaming accessories as well. So, it’s the same situation as other products.

William Reuter: Okay. And then just lastly for me on capital allocation, you mentioned you are committed to the dividend. You also talked about debt reduction. Will you consider share repurchases this year, or given the challenging macro backdrop, should we assume that those are off the table until leverage moves closer to our targets?

Deb O’Connor: Yes. I would say we are really focused on the debt pay-down. Never say never to anything, but I guess we need to get that leverage ratio down, and that’s what we are going to be focused on.

William Reuter: Good to hear. Okay. That’s it. Thank you.

Operator: The next question comes from Hale Holden with Barclays. Hale, please go ahead.

Hale Holden: Thank you. Good morning. Boris, you made a comment around and not overly discounting your better brands or best brands like Five Star. So, I was wondering how you think about that versus the weaker consumer and room for private label below you? And how you might fill that lower tier gap?

Boris Elisman: Yes. That’s the benefit of having multiple brands, Hale. So historically, we have been able to position things both for premium price points, better price points, as well as good price points or value price points. And historically, for example, in our school products, Mead played that role of addressing, we already mentioned, price point successfully. Mead’s been a good brand. We saw strong demand in 2022 for that brand. So, that should continue as we position things across the spectrum, depending on what the consumer segment we are targeting. The same thing applies in EMEA. We have Lights, which is more of our premium brand and Esselte, which is more of a mainstream brand. We actually saw growth in €˜22 with Esselte, as consumers are kind of more attractive to those more value price points.

So, pretty much in every region, we have this multiple tier approach with our brands. And historically, we have been successful. And I also believe we can be successful in 2023 as we go through this economic slowdown.

Hale Holden: And I was wondering what was embedded for back-to-school in the full year revenue guidance, if you were sort of thinking flat to slight volume declines on weaker consumer or if there was something else that might happen?

Boris Elisman: Right now, we are assuming a flattish back-to-school, and this is really driven by NPD forecast for back-to-school. And that flattish assumption includes lower load-ins, people being less aggressive in bringing inventory upfront and then chasing it as they see the demand being fulfilled.

Hale Holden: So, we really won’t know until 3Q, how that turns out.

Boris Elisman: That is correct. Yes.

Deb O’Connor: That’s right.

Boris Elisman: We will be asking you to bear with us.

Hale Holden: And I just I had one other question on debt repayment, which was as you are thinking about debt repayment, obviously, you have two choices, right? You can take the loan, which is floating rate or you could potentially try to purchase the bond at a discount and accelerate the notional amount. And I was wondering how you were thinking about that trade-off or balance?

Deb O’Connor: Yes. So we think about it. And I would tell you with the rates that those bonds carry right now. They are nice to have and to keep in the portfolio. So, we will consistently look at it, but it keeps us with a good fixed rate.

Hale Holden: Great. Thank you so much.

Boris Elisman: Thanks Hale.

Operator: Our final question comes from Hamed Khorsand with BWS Financial. Hamed, please go ahead.

Hamed Khorsand: Hi. Good morning. Could you just talk a little bit more about this back-to-school, the delay in ordering? I thought your mass merchant retailers usually give you pretty good insights to what their ordering habits are. So, are they just holding off and giving you any clarity, or are they just holding so much inventory from last year that they just are still nervous about giving you any kind of order clarity?

Boris Elisman: No. They are pretty clear and they don’t have much inventory. They are just deciding to bring in less this year as they are concerned about the macro environment. So, they are loading in less than last year. And obviously, last year, they loaded in more than typical because they were concerned about supply chain issues. So, on a comparable basis, it’s substantial. That’s why our Q1 guidance is so much lower. Revenue guidance is so much lower than last year because there is a lot of pull forwards last year that were happening that we will not see. So, the timing of their orders is very similar to what we see historically. But the amount that they will be bringing in will be a lot less than last year, due to things I just mentioned.

Hamed Khorsand: Okay. And my other question was just on your SKU strategy and just product strategy in general. How are you incorporating more of a hybrid work environment? Does that mean the changes you made last year for people going back to the office you are reverting back to more of being consumer oriented?

Tom Tedford: Yes. Hamad, this is Tom Tedford. And our teams have responded already to that change in work behavior very successfully. Our team in Europe, in particular, during the pandemic, we saw sales growth as they shifted more of their product solutions to a hybrid or fully work-from-home remote environment. Our Kensington business has responded quite well with that. So, really across the majority of our brands that are focused on work solutions, we have already implemented a nice balance between remote work, hybrid work, and office solutions for our consumers.

Hamed Khorsand: I guess what I am trying to ask is the office solutions you used to have were high price tag and pretty recurring as far as your expectations over several years. What are your expectations on the new work-from-home kind of supplies that you are producing?

Tom Tedford: Yes. I think Boris alluded to it earlier with the portfolio approach that we have and the multiple brands that we have supporting each category, we are able to meet the consumer where they are. And if they are able to purchase a premium product, we have solutions for them. If they choose to have a more value solution, we also have brands and solutions that meet the consumer at that price point. So, I think over time, we will continue to see a good mix of our business, but it will continue to shift modestly towards more consumer solutions. But that profit profile really isn’t all that significantly different. We just have to sell more units to offset the ASP declines.

Boris Elisman: Let me add a little bit more color here just on the environment. So, we believe that the hybrid workplace is here to stay. We see actually a quite stable environment with most companies working hybrid or in the office, and very few still are fully remote. We are seeing a positive trickle back to the office. So, it started a year ago, and it continues and its slow, but it’s continuing as more companies demand more presence in the office. So, the product portfolio that we have is able to meet all of those three environments. We did a lot of work back in 2020 and 2021 to kind of restructure our portfolio so that we can supply both in the office and hybrid workers, and that will continue. And then just my other comment on the environment, the inventory reductions that we referred to throughout our discussion today, are more significant in retail than it is in the business-to-business side, as we are seeing our business-to-business focused channel partners continued to support this return to office, a trickle that we talked about.

So, the sales there are doing better. And certainly, the inventory situation there is better than it is on the purely retail consumer side.

Hamed Khorsand: Okay. That’s helpful. Thank you.

Boris Elisman: Thanks Hamed.

Operator: We have no further questions. So, I will turn the call back to the management team for any concluding remarks.

Boris Elisman: Thanks Emily and thank you everybody for your interest in ACCO Brands. Previously, we have managed well in difficult environments and are confident in our ability to navigate current economic challenges. We are also confident that we have the right strategy and believe we are well positioned to continue to deliver organic sales growth, compelling market performance, and improved financial results as global economies recover. We look forward to talking with you in a couple of months to report on our first quarter results. Thank you.

Operator: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.