Acco Brands Corporation

Good morning or good afternoon all and welcome to the second quarter 2022 ACCO Brands Earnings Call. My name is Adam and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand over to Chris McGinnis to begin. So Chris, please go ahead when you're ready.

Good morning and welcome to ACCO Brands second quarter 2022 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today are Boris Ellsman, Chairman and Chief Executive Officer of Aquabrands Corporation, and Deb O'Connor, Executive Vice President and Chief Financial Officer. Slides of the company's call have been posted to the investor relations section of Aquabrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude transaction, integration, amortization, and restructuring costs, and other non-recurring items, including the change in fair value of the contingent consideration related to the power rate earn out 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 the 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 measures. Forward-looking statements made during the call, including statements concerning the impacts of COVID-19 pandemic on the company, are based on the beliefs and assumptions of management based on information available to us 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 FTC 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'll turn the call over to Boris Alisman.

Good morning, everyone. Thank you for joining us. We delivered our fifth consecutive quarter of strong comparable sales growth driven by the strength of our brands, demand for our innovative products, and our channel and geographic diversity. However, our results were effective by a more difficult macroeconomic environment than previously anticipated, mainly reflecting slow economic growth, very high inflation, and a stronger U.S. dollar that led to greater than expected adverse currency translation effects. I will give a short overview of our successes and challenges in the quarter, and then Deb will comment on each of the segment results in greater detail. Let me begin with successes. Comfortable sales increased 5% driven by improved pricing, great back-to-school selling in North America, strong post-COVID recovery in Latin America, and return to office momentum in many of our markets. I'm very pleased with the 5% comparable sales growth since it was achieved despite a slower overall rate of economic growth and continued supply chain challenges. Our sales performance speaks to the strength, breadth, and balance of our global product portfolio and its orientation towards sustainable organic growth. Excluding gaming, comparable sales were up 9% in the quarter, led by BTS shipments in the U.S. and a strong recovery in Brazil and Mexico. Not only did we grow sales, we also increased market share in many of our categories. Shares were up for Five Star, At a Glance, Quartet, Swingline, and Kensington Brands in the US, Leitz Shredders in Germany, and Powerade products in the US and UK. With inflation pressure and gross margins, we did a good job managing expenses and capital investments in the quarter. Both reported and comparable expenses were down compared to last year. even after investments in your product development and to drive go-to-market activities associated with higher sales. Now let's shift to challenges. The pace of inflation was higher in the second quarter than we anticipated. We took pricing actions globally in April to defend profitability, but they were not enough given the magnitude of commodity and especially energy cost increases. We pass through additional price increases on July 1st and expect that the cumulative effect of all price increases, combined with moderating inflationary pressures in the remainder of the year, will lead to gross margin expansion in the second half. Likewise, foreign currency impacts are proving to be a greater headwind than originally anticipated, given the strength of the U.S. dollar. This is particularly true in EMEA. where currency translation reduced sales by 13% of $20 million in the second quarter. We expect unfavorable currency impacts to continue for the remainder of the year. Now I'd like to make some comments regarding video gaming accessories. PowerRay has been a great addition to our company. Over the long term, we believe it will substantially increase our organic growth rate. This year, as for the rest of the gaming industry, Powerways demand is resetting from the high levels of demand during the pandemic, and supply continues to be challenged by the lack of semiconductor chips. We expect these temporary demand and supply chain issues to largely remain in place for the remainder of 2022, with gradual improvement throughout the rest of the year. As a result, we now expect powerway sales to be down approximately 10% to 15% for the full year. Our long-term expectation is for this product line to return to pre-pandemic growth of the industry, which historically were low double-digit growth rates. In summary, we continue to be confident in our strategy to transform our company to be more consumer-centric and to leverage the strength of our brand to accelerate organic growth. The breadth of our product categories and our geographically diverse footprint how to mitigate a difficult operating environment. I'm pleased with the execution of our team in such challenging circumstances. We're controlling what we can control, and while we will be prudent with spending, we will continue to appropriately invest in our brands and marketing programs to innovate with our new products and be the best partner to our customers. I will now hand it over to Deb, and we'll come back to answer your questions.