ACCO Brands Posts Strong Third Quarter 2021 Sales and Profit Increases; Raises Dividend

ACCO Brands Corporation (NYSE: ACCO) today announced its third quarter results for the period ended September 30, 2021.

• Net sales were $527 million, up 19 percent; comparable sales up 4 percent, all segments up
• EPS was $0.21 versus $0.20 in prior year; adjusted EPS was $0.33 versus $0.25 in 2020
• Higher tax rate impacted EPS and adjusted EPS by $(0.02) and $(0.03), respectively
• Gross margin improved 120 bps
• Generated 3Q operating cash flow of $99 million; reduced debt $117 million
• Raised dividend 15 percent

"We posted another solid quarter based on improving demand worldwide, with organic sales growth in all segments. EMEA posted double-digit comparable sales growth; back-to-school sell-out was strong in North America; International showed improvement; and PowerA added $57 million. We are managing inflation and the supply chain disruptions well, and expanded our gross margin in the quarter. We remain confident in our strategy and believe that we will deliver record sales and strong profit performance in 2021," said Boris Elisman, Chairman and Chief Executive Officer of ACCO Brands.

Third Quarter Results

Net sales increased 18.6 percent to $526.7 million from $444.1 million in 2020 primarily due to $56.8 million from PowerA, solid organic growth, and favorable foreign exchange of $6.6 million, or 1.5 percent. Comparable sales were $463.3 million, up 4.3 percent as a result of improving consumer demand, more schools and offices reopening, and higher pricing.

Gross profit rose as a result of higher volume and cost savings. Gross margin increased 120 basis points, primarily from a better sales mix and cost savings, partially offset by higher logistics and commodity costs, which were not fully offset by price increases.

The Company reported operating income of $38.6 million compared with $34.3 million in 2020. The increase primarily was due to higher sales, an improved gross margin, and favorable foreign exchange of $0.8 million, partially offset by more normalized expenditure levels. PowerA's operating contribution was $9.3 million before a charge of $4.9 million related to the change in fair value of the contingent consideration related to the earnout, as well as $4.1 million of additional amortization from the acquisition.

Adjusted operating income was $57.0 million, excluding amortization and contingent consideration, compared with $42.8 million in 2020, primarily due to PowerA.

Net income was $20.2 million, or $0.21 per share, compared with $18.8 million, or $0.20 per share, in 2020, due to higher operating income, partially offset by higher taxes. Adjusted net income was $31.7 million, or $0.33 per share, compared with $23.9 million, or $0.25 per share, in 2020 due to higher adjusted operating income, partially offset by higher taxes.

The Company is raising its forecasted adjusted effective tax rate for 2021 to 31 percent from 29 percent. The higher rate is primarily driven by increased GILTI taxes and changes in the projected geographic mix and level of overall earnings. The third quarter adjusted tax rate of 34.8 percent was primarily driven by the year-to-date true-up, due to the increase in the projected rate.

Business Segment Results

ACCO Brands North America - Sales of $287.5 million increased 20.5 percent from $238.5 million in 2020, primarily due to the PowerA acquisition, which added $45.1 million. Favorable foreign exchange added $2.0 million, or 0.8 percent. Comparable sales of $240.4 million increased 0.8 percent primarily due to higher back-to-school replenishment and improved commercial product sales. Computer accessory sales were lower as the prior-year period benefited from a very large order that did not repeat this year.

The segment operating income was $34.6 million versus $22.9 million in 2020. The increase primarily was due to higher sales and gross margin, $2.5 million from PowerA, and $0.5 million of lower restructuring charges, partially offset by more normalized expenses. (The change in the fair value of the contingent consideration for PowerA is not allocated against segment results.) Adjusted operating income of $41.6 million increased from $26.0 million in 2020, primarily for the reasons cited above.

ACCO Brands EMEA - Sales of $161.1 million increased 18.1 percent from $136.4 million in 2020, primarily from higher demand due to economic recovery and market share gains that included sales of new products. PowerA added $8.3 million and favorable foreign exchange added $2.3 million, or 1.7 percent. Comparable sales were $150.5 million, up 10.3 percent, mainly due to volume growth.

Operating income of $13.4 million decreased from $16.7 million in 2020. Adjusted operating income was $17.3 million compared with $20.1 million in 2020. Both decreases were due to lower gross margin from higher logistics and commodity costs, as well as increased SG&A expenses as the prior period benefited from many pandemic-related, short-term cost reduction measures, including $1.1 million of higher government assistance. Most price increases in EMEA became effective October 1 and therefore did not benefit the third quarter. Favorable foreign exchange added $0.2 million and PowerA contributed $1.8 million.

ACCO Brands International - Sales of $78.1 million increased 12.9 percent from $69.2 million in 2020 due to price increases, partial demand recovery, $3.4 million from PowerA, and favorable foreign exchange of $2.3 million. Comparable sales were $72.4 million, up 4.7 percent due to higher pricing and recovering demand.

Operating income of $7.3 million increased from $3.7 million in 2020, due to long-term cost reductions, some benefit of higher pricing, and PowerA, which added $0.9 million. Adjusted operating income of $9.8 million increased from $5.7 million due to cost reductions, higher pricing, and $0.5 million of lower bad debt reserves. These factors were partially offset by higher expenses as the prior year benefited from many pandemic-related, short-term cost reduction measures, including $1.7 million of higher government assistance. Foreign exchange increased operating income $0.2 million.

Nine Months Results

Net sales increased 21.7 percent to $1,455.0 million from $1,195.1 million in 2020 primarily because of the PowerA acquisition, which added $170.2 million, or 14.2 percent. Comparable sales increased 3.7 percent driven by higher consumer demand and offices and schools reopening for in-person activity. Favorable foreign exchange added $46.0 million, or 3.8 percent.

Operating income was $87.4 million versus $70.2 million in 2020. Adjusted operating income was $148.8 million compared with $102.4 million last year. Both increases were due to organic sales growth and improved gross margin. PowerA's operating contribution was $29.3 million before the charge of $16.5 million related to the change in fair value of the contingent consideration related to the earnout, and $12.3 million of amortization. Favorable foreign exchange added $5.9 million, and restructuring charges were $3.1 million lower.

Net income was $48.4 million, or $0.50 per share, compared with $32.2 million, or $0.34 per share, in 2020 due to higher operating income and lower taxes, partly offset by $7.3 million of higher interest expense. Adjusted net income was $83.7 million compared with $54.4 million in 2020 due to higher adjusted operating income. Adjusted earnings per share were $0.86 compared with $0.57 in 2020.

Capital Allocation and Dividend Increase

For the third quarter, the company generated $99.1 million in cash from operating activities, spent $4.6 million in capital expenditures, paid $6.2 million in dividends, and reduced debt $117 million.

Year to date, the Company had $44.0 million of cash flow from operating activities, spent $13.9 million in capital expenditures and paid $18.6 million in dividends. The Company's near-term strategy is to use cash to fund its dividend and reduce debt. The Company's long-term strategy remains to deploy cash to fund dividends, reduce debt, repurchase stock and make acquisitions.

ACCO Brands today announced that its board of directors declared a regular quarterly cash dividend of $0.075 per share, reflecting an increase of $0.01 per share, or 15.4 percent, over the previous quarter's dividend. The dividend will be paid on December 15, 2021, to stockholders of record as of the close of business on November 24, 2021.

Full Year Outlook

"We have good momentum in all of our segments and expect continued organic growth in the fourth quarter. We also have taken several price increases across all of our businesses globally to help offset the higher costs we are seeing. We are reducing the top end of our sales outlook to reflect the impact of console availability on PowerA's sales and modifying our adjusted EPS outlook because of the higher full year tax rate," concluded Elisman.

For the full year, sales are expected to be in a range of $2.0 billion to $2.04 billion, with PowerA contributing $240 million to $260 million. Adjusted earnings per share are expected to be in a range of $1.30 to $1.40, using a 31-percent adjusted effective tax rate (up from 29 percent in the prior outlook), and a favorable foreign exchange impact of 2.5 percent on sales and $0.05 on adjusted earnings per share.

The Company is confident in its ability to generate at least $135 million of free cash flow ($160 million in operating cash flow minus capital expenditures of approximately $25 million). Due to the Company's normal seasonality, it generates the majority of its cash flow in the fourth quarter. The Company expects its full year adjusted EBITDA will be in a range $285 million to $300 million, and its bank pro forma net leverage ratio at year end will be 3.5x or less.

Beginning with the first quarter of 2021, the Company changed the way it calculates and reports its adjusted non-GAAP measures by excluding non-cash amortization of acquisition-related intangible assets. For the full year that impact is expected to be $0.33 per share.

Webcast

At 8:30 a.m. EDT on October 27, 2021, ACCO Brands Corporation will host a conference call to discuss the Company's third quarter 2021 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 following the event.

About ACCO Brands Corporation

ACCO Brands Corporation is one of the world's largest designers, marketers and manufacturers of branded academic, consumer and business products. Our widely recognized brands include AT-A-GLANCE^®, Esselte^®, Five Star^®, GBC^®, Kensington^®, Leitz^®, Mead^®, PowerA^®, Quartet^®, Rapid^®, Rexel^®, Swingline^®, Tilibra^®, and many others. Our products are sold in more than 100 countries around the world. More information about ACCO Brands, the Home of Great Brands Built by Great People, can be found at www.accobrands.com.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided certain non-GAAP financial information in this earnings release to aid investors in understanding the Company's performance. Each non-GAAP financial measure is defined and reconciled to its most closely related GAAP financial measure in the "About Non-GAAP Financial Measures" section of this earnings release.

Forward-Looking Statements

Statements contained in this earnings release, other than statements of historical fact, particularly those anticipating future financial performance, business prospects, growth, operating strategies and similar matters, results of operations, liquidity and financial condition, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management based on information available to us at the time such statements are made. These statements, which are generally identifiable by the use of the words "will," "believe," "expect," "intend," "anticipate," "estimate," "forecast," "project," "plan," and similar expressions, are subject to certain risks and uncertainties, are made as of the date hereof, and we undertake no duty or obligation to update them. Because actual results may differ materially from those suggested or implied by such forward-looking statements, you should not place undue reliance on them when deciding whether to buy, sell or hold the company's securities.

Our outlook is based on certain assumptions, which we believe to be reasonable under the circumstances. These include, without limitation, assumptions regarding both the near-term and long-term impact of the COVID-19 pandemic on the economy and our business, our customers and the end-users of our products, and other changes in the macro environment; changes in the competitive landscape, including ongoing uncertainties in the traditional office products channels; as well as the impact of fluctuations in foreign currency and acquisitions and the other factors described below.

Among the factors that could cause our actual results to differ materially from our forward-looking statements are: the scope and duration of the COVID-19 pandemic, government actions and other third-party responses to it and the consequences for global and regional economies, uncertainties regarding when the risks of the pandemic will subside and how geographies, distribution channels and consumer behaviors will evolve over time in response to the pandemic, and the adequacy of our cost-savings measures and our other actions to manage the business through this uncertain period; the impacts of global supply chain disruptions, inflationary, commodity, and raw material cost increases and shortages of computer chips on our operations, sales and profitability; a relatively limited number of large customers account for a significant percentage of our sales; risks associated with shifts in the channels of distribution for our products; issues that influence customer and consumer discretionary spending during periods of economic uncertainty or weakness; risks associated with foreign currency fluctuations; challenges related to the highly competitive business environment in which we operate; our ability to develop and market innovative products that meet consumer demands and to expand into new and adjacent product categories; our ability to successfully expand our business in emerging markets and the exposure to greater financial, operational, regulatory, compliance and other risks in such markets; the continued decline in the use of certain of our products; risks associated with seasonality; the sufficiency of investment returns on pension assets, risks related to actuarial assumptions, changes in government regulations and changes in the unfunded liabilities of a multi-employer pension plan; any impairment of our intangible assets; our ability to secure, protect and maintain our intellectual property rights; our ability to grow profitably through acquisitions; our ability to successfully integrate acquisitions and achieve the financial and other results anticipated at the time of acquisition, including planned synergies; the failure, inadequacy or interruption of our information technology systems or supporting infrastructure; risks associated with a cybersecurity incident or information security breach, including that related to a disclosure of personally identifiable information; risks associated with outsourcing production of certain of our products, information technology systems and other administrative functions; risks associated with changes in the cost or availability of raw materials, labor, transportation and other necessary supplies and services and the cost of finished goods; the bankruptcy or financial instability of our customers and suppliers; product liability claims, recalls or regulatory actions; risks associated with our indebtedness, including limitations imposed by restrictive covenants, our debt service obligations, our ability to comply with financial ratios and tests, and the phase out of the London Interbank Offered Rate; a change in or discontinuance of our stock repurchase program or the payment of dividends; risks associated with the changes to U.S. trade policies and regulations, including increased import tariffs and overall uncertainty surrounding international trade relations; the impact of negative and unexpected tax consequences; the impact of litigation or other legal proceedings; our failure to comply with applicable laws, rules and regulations and self-regulatory requirements, the costs of compliance and the impact of changes in such laws; our ability to attract and retain key employees; the volatility of our stock price; risks associated with circumstances outside our control, including those caused by public health crises, such as the occurrence of contagious diseases like COVID-19, war, terrorism and other geopolitical incidents; and other risks and uncertainties described in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020, "Part I, Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and in other reports we file with the Securities and Exchange Commission.

About Non-GAAP Financial Measures

This earnings release contains non-GAAP financial measures. We explain below how we calculate and use each of these non-GAAP financial measures and a reconciliation of our current period and historical non-GAAP financial measures to the most directly comparable GAAP financial measures follows.

We use our non-GAAP financial measures both to explain our results to stockholders and the investment community and in the internal evaluation and management of our business. We believe our non-GAAP financial measures provide management and investors with a more complete understanding of our underlying operational results and trends, facilitate meaningful period-to-period comparisons and enhance an overall understanding of our past and future financial performance.

Our non-GAAP financial measures exclude certain items that may have a material impact upon our reported financial results such as restructuring charges, transaction and integration expenses associated with material acquisitions, the impact of foreign currency fluctuation and acquisitions, unusual tax items and other non-recurring items that we consider to be outside of our core operations. These measures should not be considered in isolation or as a substitute for, or superior to, the directly comparable GAAP financial measures and should be read in connection with the company’s financial statements presented in accordance with GAAP.

Our non-GAAP financial measures include the following:

Comparable Net Sales: Represents net sales excluding the impact of material acquisitions with current-period foreign operation sales translated at prior-year currency rates. We believe comparable net sales are useful to investors and management because they reflect underlying sales and sales trends without the effect of acquisitions and fluctuations in foreign exchange rates and facilitate meaningful period-to-period comparisons. We sometimes refer to comparable net sales as comparable sales.

Adjusted Gross Profit: Represents gross profit excluding the effect of the amortization of the step-up in inventory from material acquisitions. We believe adjusted gross profit is useful to investors and management because it reflects underlying gross profit without the effect of inventory adjustments resulting from acquisitions that we consider to be outside our core operations and facilitates meaningful period-to-period comparisons.

Adjusted Selling, General and Administrative (SG&A) Expenses: Represents selling, general and administrative expenses excluding transaction and integration expenses related to our material acquisitions. We believe adjusted SG&A expenses are useful to investors and management because they reflect underlying SG&A expenses without the effect of expenses related to acquiring and integrating acquisitions that we consider to be outside our core operations and facilitate meaningful period-to-period comparisons.

Adjusted Operating Income/Adjusted Income Before Taxes/Adjusted Net Income/Adjusted Net Income Per Diluted Share: Represents operating income, income before taxes, net income, and net income per diluted share excluding restructuring charges, the amortization of intangibles, the amortization of the step-up in value of inventory, the change in fair value of contingent consideration, transaction and integration expenses associated with material acquisitions, non-recurring items in interest expense or other income/expense such as expenses associated with debt refinancing, a bond redemption, or a pension curtailment, and other non-recurring items as well as all unusual and discrete income tax adjustments, including income tax related to the foregoing. We believe these adjusted non-GAAP financial measures are useful to investors and management because they reflect our underlying operating performance before items that we consider to be outside our core operations and facilitate meaningful period-to-period comparisons. Senior management’s incentive compensation is derived, in part, using adjusted operating income and adjusted net income per diluted share, which is derived from adjusted net income. We sometimes refer to adjusted net income per diluted share as adjusted earnings per share.

Adjusted Income Tax Expense/Rate: Represents income tax expense/rate excluding the tax effect of the items that have been excluded from adjusted income before taxes, unusual income tax items such as the impact of tax audits and changes in laws, significant reserves for cash repatriation, excess tax benefits/losses, and other discrete tax items. We believe our adjusted income tax expense/rate is useful to investors because it reflects our baseline income tax expense/rate before benefits/losses and other discrete items that we consider to be outside our core operations and facilitates meaningful period-to-period comparisons.

Adjusted EBITDA: Represents net income excluding the effects of depreciation, stock-based compensation expense, amortization of intangibles, the change in fair value of contingent consideration, interest expense, net, other (income) expense, net, and income tax expense, the amortization of the step-up in value of inventory, transaction and integration expenses associated with material acquisitions, restructuring charges, non-recurring items in interest expense or other income/expense such as expenses associated with debt refinancing, a bond redemption, or a pension curtailment and other non-recurring items. We believe adjusted EBITDA is useful to investors because it reflects our underlying cash profitability and adjusts for certain non-cash charges, and items that we consider to be outside our core operations and facilitates meaningful period-to-period comparisons.

Free Cash Flow: Represents cash flow from operating activities less cash used for additions to property, plant and equipment, plus cash proceeds from the disposition of assets. We believe free cash flow is useful to investors because it measures our available cash flow for paying dividends, funding strategic material acquisitions, reducing debt, and repurchasing shares.

Net Leverage Ratio: Represents total debt, less debt origination costs and cash and cash equivalents divided by adjusted EBITDA. We believe that net leverage ratio is useful to investors since the company has the ability to, and may decide to use a portion of its cash and cash equivalents to retire debt.

This earnings release also provides forward-looking non-GAAP adjusted earnings per share, free cash flow, adjusted EBITDA, net leverage ratio and adjusted tax rate. We do not provide a reconciliation of forward-looking adjusted earnings per share, free cash flow, adjusted EBITDA, net leverage ratio or adjusted tax rate to GAAP 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 tax rate and the impact of foreign currency fluctuation and material acquisitions, 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.

ACCO Brands Corporation and Subsidiaries

Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited)

(In millions, except per share data)

The following tables set forth a reconciliation of certain Consolidated Statements of Income information reported in accordance with GAAP to adjusted Non-GAAP Information for the three months ended September 30, 2021 and 2020.

ACCO Brands Corporation and Subsidiaries

Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited)

(In millions, except per share data)

The following tables set forth a reconciliation of certain Consolidated Statements of Income information reported in accordance with GAAP to adjusted Non-GAAP Information for the nine months ended September 30, 2021 and 2020.