ACCO Brands Corporation (NYSE:ACCO), one of the world’s largest designers, marketers and manufacturers of branded business, academic and consumer products, today reported its third quarter results for the period ended September 30, 2016. In a separate release, the company also today announced it has entered into a definitive agreement to acquire Esselte Group Holdings AB (“Esselte”).
“We are excited to add Esselte, its talented employees and its portfolio of products and brands to the ACCO Brands family,” said Boris Elisman, Chairman, President and Chief Executive Officer of ACCO Brands. “We are also pleased to report solid third quarter results, driven by a strong back-to-school season in North America and continued effective operational execution. With the completion of the Pelikan Artline acquisition earlier in the year and the anticipated closing of the Esselte transaction in early 2017, our company is well positioned to deliver strong free cash flow as well as sales and earnings growth. After performing well for the first nine months, we are raising our 2016 guidance.”
Third Quarter Results
Net sales increased 4% to $431.3 million from $413.6 million in the prior-year quarter. The acquisition of Pelikan Artline, which was completed May 2, 2016, added 7% to sales. Comparable sales declined3%, as strong growth during back-to-school was more than offset by lower sales and destocking at certain customers and reduced volume in certain international markets. Operating income increased to$55.7 million from $54.8 million in the prior-year quarter despite one-time and restructuring charges of $5.2 million in the current quarter. Adjusted operating income increased to $60.9 million from $54.8 million in the prior year primarily due to the Pelikan Artline acquisition and productivity improvements. Net income was $22.7 million, or $0.21 per share, and included a $6.3 million non-cash loss from the refinement of the revaluation to fair value of the company’s previously held equity investment in Pelikan Artline. This compared to a net income of $32.6 million, or $0.30 per share, in the prior-year quarter. Adjusted net income increased 3% to $32.0 million, or $0.29 per share, from $31.1 million, or $0.28 per share, in the prior-year quarter. The improvement was primarily driven by sales growth and improved gross margin.
Business Segment Highlights
ACCO Brands North America – Sales decreased 2% to $273.3 million from $279.8 million in the prior-year quarter. Sales decreased 2% on a constant currency basis as strong sales during back-to-school with mass merchant and e-tail customers were more than offset by declines in the wholesaler and office superstore channels. Operating income increased to $48.6 million from $48.4 million in the prior-year quarter, primarily due to cost savings and productivity improvements.
ACCO Brands International – Sales increased 23% to $128.5 million from $104.3 million in the prior-year quarter. The Pelikan Artline acquisition added 26% to International sales, or $27.6 million, and foreign exchange added 1%. On a comparable basis, sales decreased 4% due to volume declines. Operating income increased to $16.7 million from $11.3 million in the prior-year quarter. Adjusted operating income increased to $17.5 million from $11.2 million in the prior-year quarter due to Pelikan Artline, which contributed $4.5 million, and productivity improvements.
Computer Products – Sales were even with the prior year at $29.5 million. Operating income increased to $3.1 million from $2.7 million in the prior-year quarter due to improved gross margin.
Nine Month Results
Net sales increased 2% to $1.12 billion compared to $1.10 billion in the prior-year nine-month period. The Pelikan Artline acquisition contributed 4% and foreign currency reduced sales by 2%. On a comparable basis, sales were even with the prior year. Net income was $89.4 million, or $0.82 per share, compared to net income of $54.5 million, or $0.49 per share, in the prior-year period. The increase was primarily due to the $28.9 million gain from the revaluation to fair value of the company’s previously held equity investment in Pelikan Artline, as well as a tax benefit of $10.7 million. Adjusted net income increased 10% to $59.5 million, or $0.55 per share, from $53.9 million, or $0.48 per share, in the prior-year period. The improvement was primarily the result of sales growth and gross margin expansion.
The company is increasing its 2016 outlook for adjusted earnings per share and free cash flow. The company now expects adjusted earnings per share of $0.84-$0.86 and free cash flow of approximately $145 million. The company continues to expect 2016 sales to increase low single-digits.
At 8:30 a.m. Eastern Time today, ACCO Brands Corporation will host a conference call to discuss the company’s third quarter results as well as the acquisition of Esselte. 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 in accordance with generally accepted accounting principles in the U.S. (“GAAP”), in this earnings release, we provide investors with certain non-GAAP financial measures, including adjusted operating income, adjusted earnings per share, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), free cash flow and comparable net sales at constant currency. See our Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited), Reconciliation of Net Income to Adjusted EBITDA (Unaudited), Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (Unaudited), Supplemental Business Segment Information and Reconciliation (Unaudited) and our Supplemental Net Sales Change Analysis (Unaudited), for a description of each of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measure for each of the periods presented herein. The Company provides forward-looking financial information on a non-GAAP basis for adjusted earnings per share and free cash flow. However, the Company does not provide a reconciliation of adjusted earnings per share because the GAAP financial measure is not accessible on a forward-looking basis and reconciling information is not available without unreasonable effort due to the inherent difficulty of forecasting and quantifying certain amounts that are necessary for such a reconciliation, including adjustments that could be made for restructuring, integration and acquisition-related expenses, the variability of our effective tax rate and other charges reflected in our historical numbers. The probable significance of each of these items is high and, based on historical experience, could be material.
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. 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 and senior management’s incentive compensation is derived, in part, using certain of these non-GAAP financial measures.
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 such as unusual income tax items, restructuring and integration charges, acquisition-related expenses, goodwill or other asset impairment charges, foreign currency fluctuation, and other one-time or non-recurring items. 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 GAAP. 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 designers, marketers and manufacturers of branded business, academic and consumer products. Our widely recognized brands include Artline®, AT-A-GLANCE®, Derwent®, Five Star®, GBC®, Hilroy®, Kensington®, Mead®, Quartet®, Rexel®, Swingline®, Tilibra®, Wilson Jones® and many others. Our products are sold in more than 100 countries around the world. More information about ACCO Brands can be found at www.accobrands.com.