• Adjusted EPS: $0.03, within outlook range.

• Gross Margin Rate: Expanded by 120 basis points.

• Free Cash Flow: $26 million, a $51 million improvement over last year.

• Leverage Ratio: Ended the quarter at 3.5 times, down from 4.3 times at the end of Q1 last year.

• Comparable Sales: Down 11%, with impacts from planned exit of lower-margin business and softer sales in Brazil.

• Inventory: Down significantly versus Q1 of the prior year.

• Cost Savings: On track to deliver more than $20 million in 2024, with $4 million realized in the quarter.

• Segment Performance: Americas segment comparable sales declined 15%; International segment sales declined 6%.

• Adjusted Operating Income: $16 million, down from $24 million last year.

• Gross Debt: $961 million, $138 million lower than last year.

• Full Year Outlook: Reported sales expected to be down 5% to 7%; Adjusted EPS forecasted to be $1.2 to $1.7 per share.

• Warning! GuruFocus has detected 3 Warning Signs with ACCO.

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ACCO Brands Corp (NYSE:ACCO) reported a healthy free cash flow of $26 million in Q1, a $51 million improvement over the previous year.

• The company successfully expanded its gross margin rate by 120 basis points through disciplined cost management and strategic pricing.

• Inventory management was effectively controlled, with inventory down significantly compared to Q1 of the previous year.

• ACCO Brands Corp (NYSE:ACCO) achieved a leverage ratio of 3.5 times, well below the 4.3 times ratio at the end of Q1 last year, demonstrating improved financial stability.

• The company is seeing positive sales trends and market share stability in its technology accessories categories, with new product launches exceeding initial expectations.

Negative Points

• First quarter comparable sales were down 11%, with declines driven by the planned exit of lower-margin business and softer sales at the end of the back-to-school season in Brazil.

• The demand environment for ACCO Brands Corp (NYSE:ACCO)'s office products in the US and Canada remains weak, impacted by structural shifts in work environments since the pandemic.

• ACCO Brands Corp (NYSE:ACCO) faces ongoing global headwinds from softer consumer and business demand, affecting sales across various segments.

• The company's full-year outlook has been tempered due to a sales shortfall in the first quarter and ongoing soft demand trends in the office product category.

• While ACCO Brands Corp (NYSE:ACCO) is exiting lower-margin private label products, this strategy is expected to impact top-line sales, particularly in the second quarter.

Q & A Highlights

Q: In terms of the low margin business you've been exiting, how much more is there to go, or is what you're projecting just going to be the impact of what you've already done, or is there more pruning to be done on that front? A: (Tom Tedford, President & CEO, ACCO Brands Corp) - The largest part of the impact from exiting low-margin businesses is yet to be felt, particularly in Q2, which will be the most affected. Moving forward, we've optimized our product portfolio, improved our gross margin rates, and do not anticipate significant product pruning or business exits after this year.

Q: Can you provide more color on what occurred in Brazil to make the last part of the back-to-school season weaker than anticipated? A: (Tom Tedford, President & CEO, ACCO Brands Corp) - The timing of the back-to-school season in Brazil was different than anticipated, which was a significant factor in the weaker performance in the latter part of the season. Persistent inflation and cautious late-season demand fulfillment by our retail partners also contributed, but overall, the season was strong, and we are well-positioned for next year.

Q: Are any of your distribution channels performing better than expected? A: (Tom Tedford, President & CEO, ACCO Brands Corp) - E-commerce continues to perform better than most channels, and we are focusing our investments towards e-commerce and retail globally to ensure we meet consumer demand effectively across all channels.

Q: What are the drivers that could cause your core office products category to return to growth or at least stabilize? A: (Tom Tedford, President & CEO, ACCO Brands Corp) - Key drivers include new product introductions addressing the needs of a changing work environment, international expansion, and strategic price increases. We are also focusing on innovation, particularly in ergonomics and wellness, to meet the evolving needs of professionals in various work settings.

Q: In terms of innovation, are there certain product categories where you see more opportunity? A: (Tom Tedford, President & CEO, ACCO Brands Corp) - We see significant opportunities across many categories to support end-users wherever they work, particularly in ergonomics and wellness. We are also focusing on leveraging our strong brand portfolio to introduce new products that meet emerging consumer needs.

Q: How did gaming accessories perform, and what is driving the increase there? A: (Tom Tedford, President & CEO, ACCO Brands Corp) - Our gaming accessories brand, PowerA, returned to growth globally with a 14% increase, driven by expansion internationally and restocking of products that were out of stock last year. Despite the uncertain market, we are optimistic about the growth prospects for PowerA.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.