Acco Brands Corporation

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019 ACCO Brands Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Christine Hanneman. Please go ahead, ma'am.

Good morning. This is Christine Hanneman, Senior Director of Investor Relations. Welcome to ACCO Brands' third quarter 2019 conference call. Speaking on the call today are Boris Ellisman, Chairman, President, and Chief Executive Officer of ACCO Brands Corporation, and Neil Fenwick, 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 quarterly results, we may refer to adjusted results. Adjusted results exclude transaction, integration, and restructuring costs 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 slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking adjusted earnings per share, free cash flow, net leverage ratio, or adjusted tax rate guidance. Forward-looking statements made during the call are based on certain 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 will turn the call over to Boris Ellisman.

Good morning, everyone, and thank you for joining us. I will spend the next few minutes reviewing the highlights of the quarter and commenting on the progress we're making against our strategic imperatives. Neil will follow me with more color and details on the quarter, and then we'll take your questions. We reported good third quarter sales and adjusted EPS, achieving our objectives for the quarter and building on our strong performance of the first half. Third quarter sales were even with last year, and organic sales were up half a percent due to an outstanding back-to-school performance in North America. North America sales were up over 3%, on top of a 9% growth in the second quarter. As we noted last quarter, we had very strong back-to-school sell-in. The actual consumer sales, which take place in the third quarter and are the ultimate measure of the success of the back-to-school season, were also very strong. Our sales grew mid-single digits for the season, a strong improvement over last year's 2% growth. Based on preliminary industry information, Overall, back-to-school sales were roughly flat, so we believe we took share. Our market share growth was led by the Five Star brand, which was the second largest national back-to-school brand in the U.S. and had the highest growth rate of the top 10 brands during the season. Another highlight of the quarter was our working capital management and cash generation. We entered the quarter with high inventory due to strategic pre-buys associated with raw material shortages, anticipated increases in U.S. tariffs on Chinese imports, and strong third quarter forecasts from our North America sales teams. Because of good North America sales and excellent global working capital management, we reduced working capital 141 million sequentially and 20 million versus the same quarter last year. We set a quarterly record with 183 million of free cash flow generation. We feel confident and our ability to reach our target free cash flow range for the year and to grow our free cash flow over the long term. Overall, I'm very pleased with our performance year to date. Our results continue to show that our strategies are working. Now I would like to give you an update on our progress against the six strategic imperatives that we've been working on over the past few years to drive profitable growth and increase shareholder value. We discussed these strategic objectives last quarter, and they include diversifying our geographies and channels, focusing on the end consumer, developing products with end-user driven innovation, reducing unnecessary costs, executing with excellence, and disciplined capital allocation. During the quarter, we purchased Feroni, the leading provider of notebooks and school and office products in Brazil. Feroni expands our presence in the attractive Brazilian market and in faster growing school categories. We now have two leading school product brands in Brazil. The acquisition also further diversifies our customer base. The integration is going well, and we expect Feroni to add $35 million to sales and be marginally accretive to EPS this year. Feroni is our fourth meaningful acquisition in four years, as we are successfully reorienting our portfolio of brands, channels, and geographies to grow faster and with better margins. Slides six and seven in our deck gives you details on Ferroni and the other three acquisitions. We will continue to look for additional acquisitions that will provide growth in geographic or category expansion at a reasonable price. Last time we spoke about end-user driven product innovation. and I mentioned several product ranges that we introduced in 2019. These products include air purifiers, an automatic laminator, a docking station for the Microsoft Surface Pro, and high-end shredders. In the first nine months, we have generated over $7 million in sales for these new products, and we're just beginning to ramp up. Moving on to our productivity initiative, we'll continue to generate substantial savings from our programs. Each year, we target approximately $30 million in productivity improvements. For the third quarter, we're on track to deliver close to $40 million in savings, most of which have been reinvested in the business. Finally, an update on capital allocation. Neil will go through the specifics, but in the quarter, we significantly reduced our debt and continued with share repurchases. Yesterday, our Board of Directors approved an 8% increase in our quarterly dividend to 6.5 cents per share. The increase is payable effective in the fourth quarter. With that, I will turn the call over to Neil for a review of the segments, guidance, and other financial commentary, and then I'll join him in answering your questions. Neil?