Acco Brands Corporation 2026 Q3 Earnings Call

Good morning, and welcome to ACCO Brands Conference Call to review our third quarter results. Speaking on the call today is Tom Tedford, President, Chief Executive Officer of ACCO Brands, 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 amortization and restructuring costs, non-cash goodwill and intangible asset impairment charges, bargain purchase gain, unusual tax items, and other non-recurring items, and include adjustments to reflect the estimated annual tax rate on quarterly earnings. 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 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 financial measures. Forward-looking statements made during the call are based on the beliefs and assumptions of management based on the information we have 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 risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Now, I'll turn the call over to Tom Tedford.

Thank you, Chris. Good morning, everyone, and thank you for joining us today for the ACCO Brands Third Quarter Earnings Call. Our third quarter results demonstrate continued progress against our strategic priorities. Sales were in line with our outlook, underlying operating performance met our expectations, and adjusted EPS benefited from net tariff refunds. Back-to-school performance was solid in North America and Mexico. Workspace Solutions trends continue to stabilize, and we remain disciplined in navigating cautious enterprise and consumer spending in Technology Peripherals. Importantly, we used tariff refund proceeds to reduce debt, and on October 1, completed the acquisition of Trust, our second Technology Peripherals acquisition of the year. Deb will provide additional financial details on the transaction later in the call.

We are executing a clear strategy built around three priorities: scaling Technology Peripherals as a growth platform, stabilizing our Learning & Creative and Workspace Solutions categories, and expanding earnings and cash flow through disciplined cost management and debt reduction. We made meaningful progress on each priority this quarter, and I will address them in turn. The first of our near-term strategic priorities is to scale Technology Peripherals to improve the long-term growth profile of the company. The acquisition of Trust marks another important step in building this growth platform. Trust is a 40-year-old brand that designs and markets computer and gaming peripherals across Europe and Latin America through retail, e-commerce, and B2B channels. The Trust acquisition broadens our portfolio, strengthens our position in consumer channels, and creates attractive cross-selling opportunities across our global platform. Our Technology Peripherals portfolio now includes Kensington, EPOS, PowerA, and Trust.

Together, pro forma sales from these categories will approach $500 million annually, or about 30% of our future sales. We now offer a complete range of computer and gaming accessories with greater scale across both B2B and consumer channels. This provides a strong foundation for organic growth through innovation, broader distribution, market share gains, cross-selling, and disciplined strategic expansion. Over the longer term, we expect Technology Peripherals to deliver mid-single-digit growth. The near-term operating environment remains challenging, and we are managing it with focus and discipline. Higher hardware cost and limited memory availability are affecting computer accessory purchases, while enterprise budgets are shifting towards AI priorities. Gaming accessories are also experiencing pressure from higher console prices and cautious consumer discretionary spending. These conditions do not change our conviction in the long-term growth opportunity. We compete in large technology categories with durable growth drivers.

In computer accessories, hybrid work and duplicate setups, multi-monitor workstations, ergonomics and wellness, and security and privacy continue to support demand. In gaming accessories, the expanding player base, new console launches, technology upgrades, and major AAA game releases provide compelling avenues for growth. As hardware costs normalize and category demand improves, we believe ACCO Brands will be well-positioned to capture the recovery through new product innovation, expanded distribution, and cross-selling across our global channels. We are expecting several positive near-term catalysts, such as the fourth quarter release of "Grand Theft Auto VI" and continued Switch 2 adoption, as well as our own new product introductions. EPOS, our premium audio offering, continues to perform in line with expectations. The integration is progressing well. EPOS is now being sold alongside Kensington in both the U.S. and EMEA, and we are already seeing early cross-selling wins.

Our recent acquisitions have added exceptional industry talent and deep category expertise. We retained key leaders from EPOS and Trust to lead our technology platform, bringing proven knowledge of the markets, consumers, and channels we serve. The platform serves retail and enterprise customers, each with a tailored go-to-market approach, innovation roadmap, and service model. With the right leadership, portfolio, and operating structure now in place, we are confident in our ability to execute with greater focus and speed to unlock the full potential of these businesses and to return the categories to sustainable growth. Our second priority is to stabilize Learning & Creative and Workspace Solutions. In these categories, we are established category leaders with trusted brands, resilient market positions, and strong cash flow generation that supports investment and growth and debt reduction. Learning & Creative represents approximately 30% of pro forma annualized sales.

This back-to-school season, the categories grew in North America and Mexico, with early improvement emerging in Brazil. Over the longer term, we expect the category to remain stable or grow modestly through innovation, market share gains, and pricing actions. In Workspace Solutions, the rate of decline moderated in 2026, and the category now represents approximately 40% of annualized pro forma sales. We are managing the categories for value through SKU rationalization, disciplined cost control, pricing, and a greater emphasis on attractive adjacent categories such as ergonomics and wellness. Our third priority is to improve earnings and cash flow. We remain on track to deliver $100 million multi-year cost reduction target. This program is simplifying our operating platform and strengthening profitability, cash generation, and earnings power.

Additionally, we are realizing EPOS cost synergies, with $6 million of annualized savings expected in 2026 and approximately $15 million expected by the end of 2027. For Trust, we have identified $5 million-$8 million of cost synergies to be realized during the first 18 months of ownership. Our capital allocation priorities remain debt reduction in support of the dividend. We will maintain a disciplined approach to leverage. Any near-term transaction must meet rigorous financial and strategic criteria and be leverage neutral. Let me close with three key takeaways. First, our established categories are stabilizing and generating meaningful cash flow, providing a strong foundation for the company. Second, our cost actions are expanding earnings power and cash flow, making ACCO Brands leaner, more resilient, and better positioned for the future.

Third, we are building a scaled Technology Peripherals platform across Kensington, EPOS, PowerA, and Trust in categories with significant long-term growth and earnings potential. As market conditions improve and hardware costs normalize, we believe we are well-positioned to accelerate performance. I am confident in our strategy, encouraged by our progress, and energized by the opportunities ahead. With that, let me turn the call over to Deb, our Chief Financial Officer, who will review the financial results and our outlook.

Thank you, Tom, and good morning, everyone. We delivered third-quarter sales in line with outlook. EPS was greater than our outlook due to the tariff refund, as underlying adjusted EPS was at the low end of our guidance. Soft market conditions in several of our categories continued, with the timing and mix of sales negatively impacting our margin in the quarter. Our cost management initiatives remain in place with good controls on our spend. During the quarter, we received $21 million in cash tariff refunds. These refunds increased our gross margin rate by 520 basis points, improved adjusted operating income by $15 million, and EPS by $0.11. This week, we received almost $5 million in additional tariff refunds, but have not included them in our outlook.

In the fourth quarter, we acquired Trust, a European-centric Technology Peripherals company, which generates approximately $100 million in annual revenue. Trust has a broad assortment in computer and gaming accessories. We expect the acquisition to be modestly accretive to EPS in the first 12 months, with a seasonally strong fourth quarter. We also expect to realize $5 million-$8 million in synergies within the first 18 months of closing. Turning to our third-quarter results, reported sales declined 1%, while comparable sales decreased nearly 6%. The decline in the quarter was primarily driven by industry headwinds across Technology Peripherals, which were partially offset by growth from the EPOS acquisition and favorable foreign exchange. Adjusted gross profit increased 8% to $136 million, and adjusted gross margin expanded 290 basis points to 35.9%. The tariff refunds increased the margin rate, which more than offset unfavorable product and customer mix.

Our quarterly margin rate was impacted by the disruption from last year's tariff and the timing of other associated costs, as well as the lag in our pricing initiatives. Our rate on a year-to-date basis is more in line with our historical trends, and we anticipate an improved rate in the fourth quarter. Adjusted SG&A expense was $89 million, a modest increase to the prior year, reflecting the addition of EPOS and higher incentive compensation expense. Importantly, our disciplined cost management has offset inflationary pressures. Our cost savings program delivered more than $10 million of savings in the quarter, bringing our year-to-date savings to over $30 million. Adjusted operating income increased to $48 million as tariff refunds and cost savings more than offset the impact of a lower gross margin rate, as well as fixed cost deleveraging from organic volumes.