ACCO Brands Corporation (ACCO) Q4 2022 Earnings Call Transcript

ACCO Brands Corporation (NYSE:ACCO) Q4 2022 Earnings Conference Call February 24, 2023 8:30 AM ET

Company Participants

Chris McGinnis - Investor Relations

Boris Elisman - Chairman and Chief Executive Officer

Tom Tedford - President and Chief Operating Officer

Deb O’Connor - Executive Vice President and Chief Financial Officer

Conference Call Participants

Greg Burns - Sidoti & Company

Joe Gomes - NOBLE Capital

Kevin Steinke - Barrington Research

William Reuter - Bank of America

Hale Holden - Barclays

Hamed Khorsand - BWS Financial

Operator

Hello and invited to nan ACCO Brands 4Q 2022 Earnings Conference Call. My sanction is Emily, and I’ll beryllium coordinating today’s call. [Operator Instructions] I would now move nan telephone complete to ACCO Brands’ Senior Director of Investor Relations, Chris McGinnis. Please spell ahead, Chris.

Chris McGinnis

Good greeting and invited to ACCO Brands 4th fourth 2022 convention call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking connected nan telephone coming are Boris Elisman, Chairman and Chief Executive Officer of ACCO Brands Corporation; Tom Tedford, President and Chief Operating Officer; and Deb O’Connor, Executive Vice President and Chief Financial Officer.

Slides that travel this telephone person been posted to nan Investor Relations conception of accobrands.com. When speaking astir our results, we whitethorn mention to adjusted results. Adjusted results exclude transaction, integration, amortization, and restructuring costs, a non-cash goodwill impairment complaint and nan alteration successful adjacent worth of nan contingent information related to nan PowerA earn-out and different non-recurring items and bespeak an adjusted taxation rate. Schedules of adjusted results and different non-GAAP financial measures and a reconciliation of these measures to nan astir straight comparable GAAP measures are successful nan net merchandise and nan slides that travel this call. Due to nan inherent trouble successful forecasting and quantifying definite amounts, we do not reconcile our forward-looking non-GAAP measures.

Forward-looking statements made during nan telephone are based connected nan beliefs and assumptions of guidance based connected accusation disposable to america astatine nan clip nan statements are made. Our forward-looking statements are taxable to risks and uncertainties, and our existent results could disagree materially. Please mention to our net release and SEC filings for an mentation of definite of these consequence factors and assumptions. Our forward-looking statements are made arsenic of today, and we presume nary responsibility to update them going forward. Following our prepared remarks, we will clasp a Q&A session

Now I’ll move nan telephone complete to Boris Elisman.

Boris Elisman

Thank you, Chris and bully greeting everyone. Thank you for joining us. Before I talk astir our 2022 capacity and priorities for 2023, I want to opportunity that nan coagulated fundamentals of our business are intact and we judge we person nan correct strategy and squad to upwind nan existent economical slowdown and proceed to present sustained integrated gross maturation arsenic nan system improves. The transformative actions we person taken complete nan past fewer years to beryllium much consumer-centric and geographically divers helped america execute grounds comparable income and support aliases turn marketplace stock successful galore of our cardinal brands successful 2022.

2022 was a communicative of 2 halves. We began nan twelvemonth beardown arsenic customers move to america for surety of merchandise for nan important back-to-school season, and arsenic agency occupancy rates rebounded successful North America. In our EMEA segment, we had beardown measurement maturation for machine and business products pinch income search supra pre-pandemic levels done nan first half of nan year. The inclination successful EMEA began to alteration successful nan summertime of ‘22 arsenic precocious levels of inflation, nan warfare successful Ukraine, and nan power situation dampened user and business demand.

In North America, retailers became concerned astir an impending economical slowdown. And they began to return an fierce stance connected reducing inventory levels successful nan 3rd 4th that continued passim nan 4th quarter, starring to little wide request successful our North America segment. These actions were connected apical of nan impacts from pulling orders guardant into nan first half of nan year. All of these factors reduced our income measurement successful nan backmost half of 2022.

Profit successful 2022 followed a akin inclination arsenic nan complaint of ostentation continued to summation passim 2022, for earthy materials, vanished equipment and transportation, and outpaced our fierce pricing actions, which included galore value increases passim nan year. We person been progressive connected nan costs front, constricted discretionary spending, implementing agency hiring freezes, flexing nonstop labour headcount pinch measurement and intimately managing our SG&A costs building passim nan year.

In Q4, we actioned further costs savings and restructuring activities successful North America and EMEA, intended to grow separator done initiatives focused connected improving operating ratio and reducing costs. Importantly, we’re seeing deflation successful water freight rates and moderating rates of ostentation successful different merchandise costs. We judge that nan lessening complaint of ostentation mixed pinch our pricing and costs actions, including our January 1 value summation amended position america to grow margins successful 2023. While 1 period does not make a 4th aliases a year, we are encouraged by nan gross separator improvements we saw successful January.

As mostly reflected by nan remainder of nan industry, our income of gaming accessories were down 26% for nan year. In 2022, nan gaming marketplace faced a number of challenges and a difficult comparison to 2020 and 2021, erstwhile consumers walk much connected in-home intermezo activities owed to pandemic, arsenic request for nan class softened pinch nan reopening of experiential activities, galore retailers prosecute successful fierce inventory destocking. The gaming marketplace besides knowledgeable semiconductor shortages passim 2022, which constricted some video gaming consoles and gaming accessories production.

While we proceed to clasp nan starring marketplace stock position for third-party gaming accessories, we temporarily mislaid immoderate marketplace stock successful nan 4th fourth owed to deficiency of merchandise readiness and a very competitory and promotional vacation season. Despite these challenges, we proceed to judge successful nan semipermanent maturation opportunity for gaming accessories and are executing our plans to grow our merchandise assortment and accelerate maturation successful our EMEA and International segments. In 2023, we expect nan manufacture backdrop to stabilize and amended arsenic nan twelvemonth progresses and our semiconductor spot proviso and caller console accumulation improves. In addition, location are respective caller crippled titles coming to marketplace successful 2023, which historically has spurred greater gamer engagement and nan income of associated gaming accessories.

Now fto maine stock pinch you immoderate highlights from 2022. Outside of gaming accessories comparable merchandise income accrued 5%, fueled by nan spot of our brands. Kensington, our machine accessories marque grew 10% successful North America during nan 4th fourth and was up complete 13% globally for nan afloat year, arsenic we proceed to bring caller products to marketplace and grow our endeavor sales. This is our 5th consecutive twelvemonth of maturation for nan Kensington business. We person continued to heighten nan offering, introducing a big of caller products, mostly related to connectivity and security. During nan 2022 back-to-school season, our Five Star marque gained 2 points of stock and grew 10% for nan year. It was nan 2nd largest back-to-school marque successful nan U.S. during nan season. We demonstrated nan spot of our proviso concatenation capabilities to support customers pinch on-time deliveries during highly seasonal and high-volume engagement.

Our International conception had an exceptional year, posting 19% comparable income maturation for nan afloat twelvemonth and delivered complete 40% betterment successful adjusted operating profit. This maturation was fueled by our market-leading Tilibra and Foroni brands successful Brazil arsenic in-personal acquisition continues its betterment successful Latin America. These successes and beardown marque performances from GBC, Quartet, Noble and Barrilito, among others, springiness america assurance that our committedness to bring successful innovative, value-added caller products to market; and investing down our brands, operations, and customer work is transforming our institution towards faster integrated income growth.

As we look to 2023, we are focused connected 4 cardinal priorities. First, we are laser-focused connected restoring our gross margin. As I mentioned earlier, we person implemented aggregate rounds of value increases, including our astir caller information connected January 1 of this year. And we person nan expertise to proceed to raise prices to offset inflation, if warranted. Our ongoing productivity programme delivered $20 cardinal successful mostly COGS savings successful 2022. This included actions to amended our proviso concatenation processes and consolidate our manufacturing and distribution footprints successful North America.

We besides scheme to trim nan number of SKUs we connection globally to simplify nan manufacturing and distribution processes, amended our sourcing capabilities and reengineer existent merchandise specs for little cost. These actions will meaningfully mitigate nan inflationary pressures we person knowledgeable complete nan past 18 months and amended our gross margin. We will proceed to measure further costs simplification measures, including accommodation consolidations successful consequence to existent macroeconomic situation and secular trends.

Our 2nd privilege is to profitably negociate nan apical statement and what is expected to beryllium a slow economical environment, particularly successful nan first half. We person a complementary assortment of products and brands that inhabit worth to premium value points and met pinch profitable position for various customer segments, including nan worth segment. Historically, we person been capable to do that pinch Five Star and Mead brands, Five Star and Hilroy, and Lights and Esselte brands, arsenic examples. We request to guarantee that we are disciplined successful offering nan correct assortment for nan value constituent and not discounting our premium characteristic scope brands.

Third, we will proceed to put successful nan merchandise innovation, cardinal brands and maturation initiatives. Innovation and caller merchandise improvement person been a cardinal facet down successes of our brands and their expertise to turn aliases support our starring marketplace stock positions. We person a big of caller merchandise introductions that will proceed to thrust our maturation successful 2023.

Fourth, we will proceed to negociate our SG&A walk to amended guidance of headcounts and discretionary expenses. Offsetting these actions successful ‘23 will beryllium nan restoration of nan yearly inducement plans. While ACCO Brands is not immune to existent changes successful economical conditions, we person nan correct strategy and an knowledgeable guidance squad to navigate nan existent operating environment. We stay assured successful our translator to thrust semipermanent sustainable integrated gross maturation and are good capitalized pinch nary indebtedness maturities until 2026 and debased fixed liking rates for complete half of our outstanding debt. We proceed to make accordant beardown rate travel and we’ll prioritize dividend payments and indebtedness reductions successful 2023.

As I mentioned earlier, nan separator description is simply a apical privilege for nan company. Our guidance of value and costs will find really successful it will beryllium successful achieving separator description goals. Pricing will beryllium mostly established successful nan marketplace, but our value-added costs is thing we tin power and manage.

I person asked Tom Tedford, ACCO Brands’ President and Chief Operating Officer, to lead a multiyear effort to amended nan ratio of our beingness assets successful superior investments. Tom has been pinch ACCO Brands for 13 years and successful his existent domiciled for nan past 18 months.

I will now move nan telephone complete to Tom to stock pinch you nan specifications of this initiative.

Tom Tedford

Thank you, Boris and bully greeting everyone. During nan 4th fourth of 2022, we initiated restructuring plans for some our North America and EMEA segments. The actions are intended to grow 2023 margins done initiatives focused connected improving operating efficiency, and reducing costs while continuing to support cardinal seasonal merchandise sets, for our unit partners and category-leading work levels for each of our customers. In North America, our actions are focused connected streamlining and simplifying nan statement done consolidation of proviso concatenation operations, SKU simplification and automating our income support process. In EMEA, we are focused connected reducing redundancy and enhancing productivity pinch SKU simplification and different sourcing initiatives.

We expect to recognize $13 cardinal successful yearly costs savings from these actions, nan immense mostly of which will travel successful 2023. We are successful nan mediate of a multiyear travel to rationalize our accommodation footprint. Last year, we closed 1 distribution halfway successful California, and rebalanced our manufacturing and distribution capabilities successful nan U.S. These actions will prevention america $2.5 cardinal per year. We are looking astatine further opportunities to leverage our existing footprint successful nan U.S. and displacement much outsourced distribution into our facilities.

In EMEA, we precocious completed nan move from a third-party distribution installation successful nan UK and consolidated shipments to our UK warehouse. Earlier this month, we approved a manufacturing installation closure successful Continental Europe. And will consolidate its accumulation into different ACCO Brands mill successful Europe. This task will beryllium executed this twelvemonth pinch nan P&L savings to travel successful 2024. We are successful nan process of analyzing different world manufacturing and distribution consolidation opportunities and we will denote those arsenic decisions get made aft due consultations pinch useful assembly and different applicable entities.

Finally, we are looking astatine opportunities to trim our agency abstraction upon each commercialized lease expiration. Hybrid activity arrangements are present to stay, and we judge we tin prevention millions by reducing our agency quadrate footage while maintaining aliases improving nan productivity of our workforce. We person precocious reduced our agency abstraction successful California, and person approved a move to a smaller agency successful nan UK pinch much to come. Ultimately, we expect these initiatives will create operating efficiencies, amended profitability, heighten productivity, arsenic good arsenic money early maturation initiatives.

I will now manus it complete to Deb and will travel backmost to reply your questions. Deb?

Deb O’Connor

Thank you, Tom, and bully morning, everyone. When we past said to you successful November, I highlighted important inventory destocking by retailers pinch their cautious attack to replenishment. This activity continued successful nan 4th fourth and really accelerated passim nan quarter, particularly successful North America. We person besides seen a continued diminution successful nan macroeconomic situation and slowing demand. We reported income astatine nan debased extremity of our outlook owed to these challenges. This little income volume, coupled pinch immoderate one-off expenses and higher non-operating disbursal caused EPS to beryllium $0.01 beneath our guidance range.

In nan 4th fourth of 2022, reported income decreased 12% arsenic overseas rate was a 5% headwind. Comparable income were down almost 8%. The diminution was owed to little volumes successful our North America and EMEA segments, offsetting coagulated maturation successful our International segment. As Boris mentioned, we had stronger first half income owed to nan propulsion guardant by retailers, arsenic good arsenic softer request trends that began successful nan 3rd quarter. With this stronger first half, our afloat twelvemonth comparable income were up 1%.

In nan 4th quarter, adjusted operating income was $52 cardinal compared pinch $79 cardinal past year. Adjusted EPS was $0.32 versus $0.54 successful 2021. For nan afloat year, adjusted operating income was $176 cardinal versus nan $228 cardinal a twelvemonth earlier and afloat twelvemonth adjusted EPS was $1.04 versus $1.41 successful 2021. In nan 4th quarter, our adjusted operating income diminution was greater than nan simplification successful our income measurement arsenic nan lagging effect of important ostentation contained.

While inflationary costs are opening to travel down, their lagging effect connected our P&L will proceed to effect our gross profit successful nan first 4th of 2023, but we expect it will amended arsenic we advancement done nan year. Given nan little income overall, we person besides knowledgeable fixed costs deleveraging successful immoderate of our facilities. In nan quarter, location were immoderate unfavorable one-off items, a Canadian operating taxation catch-up, excessive fines related to demurrage, and nan comparative effect of a favorable inventory reserve merchandise past year. The full magnitude of these one-off items accounted for 150 ground constituent diminution successful our consolidated operating separator for nan 4th quarter.

In consequence to nan alteration successful nan macroeconomic environment, we initiated a number of costs simplification and restructuring actions successful nan 4th fourth arsenic Boris and Tom some mentioned earlier. For nan quarter, we booked restructuring charges of astir $7 cardinal for our North America and EMEA operating segments. We expect yearly costs savings from these actions to output astir $13 million, which will mostly beryllium recognized successful 2023.

Our ongoing productivity initiatives are expected to output different $15 cardinal of incremental savings successful 2023. The corporate sum of these savings will thief mitigate nan reestablishment of inducement compensation and merit increases successful 2023. We are besides committed to proceed to walk connected our go-to-market initiatives, peculiarly successful income and trading and put successful merchandise development.

Fourth 4th adjusted SG&A expenses were $93 cardinal compared pinch $99 cardinal successful 2021, chiefly arsenic a consequence of little inducement compensation, costs savings initiatives and nan affirmative use of FX, partially offset by continued finance successful our go-to-market programs, and accrued bad indebtedness expense. Full twelvemonth SG&A expenses were 19.3% of sales, accordant pinch nan anterior year.

Now let’s move to our conception results. Fourth 4th comparable nett income successful North America decreased 16% to $227 million. The alteration was owed to measurement declines for gaming accessories, little inventory replenishment by retailers, and a slowing request environment. In nan 3rd quarter, we discussed pinch you that retailers began to trim their inventory levels for our products. These actions accrued successful nan 4th quarter, creating moreover much of a headwind successful nan period.

For nan afloat year, comparable nett income were down 4%, which includes nan stronger first half of nan year. Growth successful galore of our brands and categories was offset by nan diminution successful gaming accessories. North America adjusted operating income separator successful nan 4th fourth decreased owed to antagonistic fixed costs leverage from nan measurement declines, higher costs of vanished equipment and circumstantial commodity materials, and higher inbound freight and outbound proscription costs that were not offset by value increases. Adjusted operating income was besides negatively impacted by nan antecedently mentioned one-off items, which contributed nan balanced of 340 ground points to separator complaint diminution successful nan 4th quarter. For nan afloat year, adjusted operating income was down 21%.

Now let’s move to EMEA. Net income for nan 4th were down 17% to $156 million, 12% of that diminution was owed to FX. Comparable income were down 5% to $178 million, chiefly owed to measurement declines offsetting our value increases. In Europe, nan existent power situation and important ostentation proceed to create a challenging request environment. While ostentation has shown early signs of moderating successful nan region, user sentiment remains low. For nan afloat year, comparable nett income were down only 1%, including nan effect of nan stoppage of income to Russia.

In nan 4th quarter, EMEA posted little adjusted operating income and a separator complaint that was 150 ground points down nan anterior year. Sequentially, separator complaint improved from nan 3rd 4th owed to our pricing increases and moderating inflation. We expect our January value summation to further mitigate nan wide effect of these inflationary costs increases going forward. Adjusted operating income was challenged by ostentation and little income volumes, which led to deleveraging of fixed costs. For nan afloat year, adjusted operating income was $37 million, a diminution of 52%. Full twelvemonth separator complaint was down 520 ground points compared to nan 150 ground constituent diminution successful nan 4th quarter, supporting nan truth that pricing actions are taking hold.

Moving to nan International segment. Net income successful nan 4th fourth accrued 6% and comparable income roseate 8%. This conception has been beardown passim nan twelvemonth pinch 19% superior nett income maturation successful 2022. Growth was driven by some value increases and measurement growth. Growth successful Brazil was very beardown arsenic schools and businesses returned to in-person acquisition and work.

The International conception posted higher adjusted operating income successful nan 4th fourth arsenic a consequence of nan higher sales. Full twelvemonth operating income grew complete 40% pinch separator complaint improving 310 ground points.

Switching to rate travel and equilibrium expanse items. For nan afloat year, we generated $78 cardinal successful adjusted free rate flow, beneath our outlook of $90 cardinal to $100 million, pinch nan shortfall owed to little EBITDA and a greater proportionality of paid inventory fixed nan timing of our inventory receipts. As this timing normalizes, it should supply a tailwind successful 2023. For nan afloat year, inventory was down $33 cardinal aliases 8% contempt nan higher inflation. This puts america successful a bully position for a normal moving superior rhythm successful 2023. We are proactively managing our inventory levels fixed nan uncertainty successful nan situation and request trends.

We ended nan twelvemonth pinch a consolidated leverage ratio of 4.2x. This was higher than we expected owed to little EBITDA and free rate flow. Longer term, we are still targeting nan 2 to 2.5x. We utilized our free rate travel to money dividends of $29 million, paid a contingent earn-out of $27 cardinal and repurchased $19 cardinal of shares. At year-end, we had $518 cardinal of remaining readiness connected our $600 cardinal revolving in installments facility. As shown successful our net slides, much than half of our indebtedness is fixed and not impacted by liking complaint increases. We person nary maturities until 2026.

Turning to our outlook, we are providing some first 4th and afloat twelvemonth guidance for 2023. Our 2023 quarterly income teams will inclination otherwise than successful 2022. We had beardown first 4th and first half income maturation successful 2022 pinch early back-to-school shipments successful North America and bully demand. These trends reversed successful nan 2nd half of nan twelvemonth arsenic a worsening world system and a higher complaint of ostentation created request pressures. In particular, we saw retailers proactively trim their inventory opening successful nan 3rd 4th of 2022, which continued done year-end. Therefore, we are projecting our income to beryllium down year-over-year successful nan first 4th and nan first half of 2023. In nan 2nd half of 2023, income maturation should mitigate nan first half diminution arsenic we expect improved economical conditions and inventory replenishment.

Our outlook for income maturation successful 2023 is for comparable nett income to beryllium down 3% to level compared to 2022. We expect measurement to beryllium down for nan twelvemonth pinch improved pricing partially aliases afloat offsetting nan decline. Foreign speech astatine existent rates is expected to beryllium neutral. For nan first 4th of 2023, we expect comparable income to diminution 7% to 10%, chiefly owed to nan later shipments for North America back-to-school and owed to request related to nan economical environment. At nan higher extremity of our first 4th outlook, comparable income would beryllium up 3% connected a 2-year basis.

First 4th adjusted EPS is expected to beryllium $0.05 to $0.07 pinch little operating income, reflecting fixed costs deleveraging on pinch higher liking and non-cash non-operating pension expenses. Full twelvemonth adjusted EPS is projected to summation 4% to 8% to $1.08 to $1.12, approaching debased double-digit maturation successful adjusted operating income, partially offset by higher liking costs of $6 cardinal and higher non-cash non-operating pension expenses of $5 million.

For nan afloat year, we expect our gross margins to summation and beryllium akin to our 2021 separator rate, and we proceed to target a semipermanent scope wrong 32% to 33%. While we person reduced our wide costs building from our 4th fourth restructuring actions, nan restoration of our yearly inducement compensation expense, arsenic good arsenic increases successful merit and go-to-marketing spending will lead to higher SG&A levels successful 2023. In total, we expect betterment successful our adjusted operating income separator complaint to attack 100 ground points.

The adjusted taxation complaint is expected to beryllium astir 29%. Intangible amortization for nan afloat twelvemonth is estimated to beryllium $43 million, which equates to astir $0.32 of adjusted EPS. We expect our adjusted free rate travel to beryllium astatine slightest $100 cardinal aft CapEx of $20 million. Looking astatine rate uses successful 2023, we expect to proceed to prioritize dividends and indebtedness reduction.

Now let’s move connected to questions, wherever Boris, Tom and I will beryllium happy to return them. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first mobility coming comes from Greg Burns pinch Sidoti & Company. Greg, please spell ahead.

Greg Burns

Good morning. Just successful regards to nan inventory destocking issues. What are nan level of transmission inventories correct now? And historically, successful different cyclical downturns, person you seen akin patterns? And really do they – really does this play retired complete nan adjacent mates of quarters? Because I’m assuming they tin only return inventory down to – they tin only return it down truthful low. So really should we – really are you reasoning astir this rumor playing retired complete nan adjacent mates of quarters?

Boris Elisman

Yes. Thanks for nan question, Greg. The levels of transmission inventory are beautiful debased correct now, historically, astatine beautiful debased levels. We spot accrued levels retired of stocks for our products connected shelf. We saw an improvement. We saw little destocking complete nan past fewer weeks compared to what we saw successful Q4. But correct now, what we expect is retailers will conscionable bargain to conscionable replenish to POS. We don’t deliberation they are going to bringing successful further inventory until they spot macroeconomic improvements. Obviously, that excludes back-to-school because they will person to bring merchandise for back-to-school successful nan 2nd portion of Q2. But if you look astatine Q1, it’ll astir apt likely beryllium conscionable POS replenishment and not stocking up connected much inventory.

Greg Burns

Okay, great. And past nan maturation successful nan world conception was a small little than we were looking for and I conjecture what nan maturation complaint was for nan first 3 quarters of nan year. So was location immoderate alteration successful immoderate of nan markets location successful peculiar that possibly led to a small spot slower growth?

Boris Elisman

Yes, nan maturation was astir 7%. And for nan year, they were 19% and past we conscionable immoderate comparison issues. Specifically, Brazil continues to execute well, but we had slower maturation extracurricular of Brazil. Some of that is owed to conscionable macro issues successful Australia and Asia specifically. And successful Mexico, we really didn’t person capable merchandise to shift. So that was much of an inventory issue, and we expect to make that up successful nan first 4th of ‘23.

Greg Burns

And past nan $13 cardinal successful costs savings, really should we deliberation astir that successful position of nan timing of nan realization of that? Is it backmost half loaded, ratable passim nan year? What’s nan timing?

Deb O’Connor

Yes. It’s beautiful ratable. I’d opportunity location is simply a small spot of it back-end loaded arsenic we’ve instituted immoderate of nan actions later successful nan year, but it goes beautiful overmuch passim nan year, I would say, Greg.

Greg Burns

Okay, convey you.

Boris Elisman

Thanks, Greg.

Operator

Your adjacent mobility comes from Joe Gomes pinch NOBLE Capital. Joe, please spell ahead.

Joe Gomes

Good morning. Thanks for taking my questions.

Boris Elisman

Good morning, Joe.

Joe Gomes

You mentioned successful nan release, portion of what impacted nan income successful nan 4th were weaker gaming sales, little inventory replenishment, immoderate reduced volume. Can you benignant of size that up arsenic to what each 1 of nan effect was from each 1 of those for nan quarter?

Boris Elisman

Will you person that one?

Deb O’Connor

Well, I deliberation for nan quarter, if you look, a batch of a large proportionality would beryllium nan inventory destocking that was beautiful pervasive arsenic you looked crossed North America, by galore of our customers. And past I would opportunity gaming is simply a smaller portion of nan total, but it declined 26% for nan year, truthful erstwhile you return that into account, it had a beautiful important effect successful nan quarter.

Boris Elisman

Yes, I would work together pinch that, because gaming is nan biggest 4th of nan year, Joe, so…

Deb O’Connor

That’s right. And expectations were higher for it.

Boris Elisman

Yes. In Q4, those 2 tie a predominant alteration successful sales, inventory destocking and gaming.

Joe Gomes

Okay, because I deliberation successful nan erstwhile quarter, you were looking for nan gaming to beryllium down astir 15% for nan year. So that’s a beautiful important diminution successful nan quarter. And so…

Deb O’Connor

Can I?

Joe Gomes

You’re looking astatine PowerA – I’m sorry?

Deb O’Connor

No, spell ahead. I was conscionable going to opportunity for strategy. It’s a large play for gaming that 4th quarter.

Joe Gomes

Right. So I mean I deliberation you touched a small spot connected it, but Boris, you’re still looking connected a longer-term ground for that PowerA to show immoderate double-digit semipermanent growth. And I cognize you’ve mentioned moving into EMEA are expanding into EMEA more. Kind of what – possibly you could springiness america a small much colour connected what are your expectations for PowerA successful ‘23?

Boris Elisman

Well, we surely expect maturation successful PowerA successful ‘23, and we expect nan manufacture to rebound. It will beryllium backmost half loaded conscionable from a comparison standpoint because Q1 of past twelvemonth was still beautiful good. Overall, plentifulness of proviso and request was beautiful good. So nan comps will still beryllium difficult successful nan first quarter, but starting pinch nan 2nd 4th and going forward, they get better, and we expect maturation wide for nan year. It will beryllium led by our EMEA and International segments. Overall, moreover successful ‘22, contempt PowerA being down 26% overall, we saw maturation extracurricular of North America. So that will conscionable proceed and accelerate. We are hiring people, some successful EMEA and world conception to return PowerA nonstop to our customers successful astir places. And that, on pinch a broader merchandise assortment and streamline distribution that Tom referred to should alteration continued PowerA maturation successful EMEA and international. In fact, we expect immoderate acceleration successful those 2 segments. In North America, we conscionable expect a rebound from what has been a very difficult twelvemonth successful ‘22. And you saw reporting from different companies successful North America, different nationalist companies, including from Nvidia yesterday, which indicates conscionable really difficult gaming has been successful 2022. So while we are disappointed by our performance, we’re not unsocial successful what we saw pinch gaming institute.

Joe Gomes

Okay, convey you for that. And past 1 for me. I mean you’ve fixed a batch of awesome item for ‘23. What could possibly, successful your mind, thrust results supra expectations? What would beryllium nan astir apt things that could hap that would thief perchance thrust results supra expectations? Thank you.

Boris Elisman

Well, astir apt a mates of things, Joe. One is if back-to-school is really good. That should decidedly beryllium bully for us. I mean if you look astatine what’s happening successful ‘23, nan retailers are being blimpish pinch upfront load-ins and past we’re going to pursuit inventory during nan season. And if we person a bully season, that should use america because we person home manufacturing, dissimilar astir of our competitors. So they request much merchandise than they scheme on, and we should beryllium capable to fulfill it erstwhile others cannot. So a bully back-to-school play will service america well. And past conscionable a beardown economical betterment successful nan 2nd half of nan year, everybody is expecting a slowdown successful nan first half and that’s what’s successful our guidance. We expect immoderate betterment successful nan 2nd half. We wanted to support it stronger than anticipated, that should use our world income and profit overall.

Joe Gomes

Great. Thanks guys. Appreciate it.

Boris Elisman

Thanks Joe.

Operator

Our adjacent mobility comes from Kevin Steinke pinch Barrington Research. Kevin, please spell ahead.

Kevin Steinke

Good morning. In position of nan level to 3% diminution successful income you are expecting successful 2023, could you possibly conscionable locomotion done expectations for your 3 segments, if you would beryllium consenting to stock immoderate item connected that?

Deb O’Connor

Yes. I deliberation we are reasoning astir EMEA and North America down slightly, pinch world trending benignant of successful that mid-single digits for illustration nan 4th quarter.

Boris Elisman

Growth.

Deb O’Connor

Growth, world growth.

Boris Elisman

And North America and EMEA down slightly.

Kevin Steinke

Okay. Well, understood. Thank you, let’s dream for. So, I conjecture you had nan January 1st value increase. Do you deliberation that value summation covers each – astatine slightest nan known inflationary headwinds that you are presently seeing, aliases are location plans for further value increases arsenic we move passim nan year?

Boris Elisman

We judge nan value summation mostly covers each of nan now ostentation that we are seeing. The only objection that would beryllium immoderate of our smaller overseas countries wherever they whitethorn person to do much conscionable owed to speech complaint changes. But arsenic acold arsenic North America and EMEA, that summation should screen now nan inflation.

Deb O’Connor

And I deliberation we person mentioned before, we person been covering nan dollar passim nan year, but we person really taken a wound retired of nan margin, and that’s what we request to get back.

Kevin Steinke

Right. Understood. Can you conscionable talk a small spot astir nan scheme to destruct SKUs? And I presume you person identified immoderate little applicable aliases underperforming SKUs that possibly aren’t needfully request to beryllium portion of nan portfolio, and conscionable benignant of really you arrived astatine those conclusions aliases went done that process?

Tom Tedford

Yes, Kevin, this is Tom Tedford. I will return that question. Yes, we spell done a reasonably robust SKU study annually. And we look astatine nan profitability, nan request of those SKUs, nan complexity of managing those SKUs. And each 1 of nan segments has accelerated that analysis. So, they should consequence – that study should consequence successful a number of beautiful fierce SKU simplification actions. In summation to what we typically do, we person looked astatine what we make successful our factories and really done an study connected early request connected those products. And if it doesn’t meet a minimum criteria, we are going to aggressively discontinue those arsenic well. But this is simply a portion of an ongoing rationalization attack that we return very earnestly arsenic we look astatine inventory turns betterment and profit management. And I deliberation our teams person a beardown way grounds of doing this. We are conscionable putting a small much unit to accelerate nan activity successful 2023.

Kevin Steinke

Okay. Thank you. Lastly, I conscionable wanted to again, circle backmost to PowerA. You mentioned improving vessel proviso arsenic 1 of nan factors down your expectations for immoderate betterment successful PowerA income successful 2023. So, are you seeing benignant of a meaningful betterment successful vessel readiness for nan – going into gaming consoles and therefore, console readiness improving arsenic well?

Boris Elisman

We are. We are seeing betterment already connected nan gaming consoles, and we spot amended readiness of nan chips that we request for our accessories. It’s conscionable location is simply a small spot of a hold owed to nan proviso concatenation because these are manufactured successful Asia, and person to beryllium manufactured and shipped to our countries of sale, and that process takes a mates of months. So, we expect really, astatine nan extremity of Q1, early Q2, a important betterment successful readiness of our products owed to nan amended spot availability.

Kevin Steinke

Alright. Thank you very overmuch for taking nan questions.

Boris Elisman

Thanks Kevin.

Operator

The adjacent mobility comes from William Reuter pinch Bank of America. Please spell ahead.

William Reuter

Good morning. My first mobility is connected nan gaming weakness for nan year. You mentioned some nan manufacture was down. You besides mentioned that you had proviso concatenation issues, and past you besides mentioned that you mislaid a small spot of share. I conjecture firstly, connected nan stock losses, was it that you had little readiness of merchandise than others aliases what contributed to that? And past if you could effort and break down nan quality betwixt really overmuch was nan manufacture and really overmuch was circumstantial to you guys?

Boris Elisman

Yes. On nan stock loss, it was mostly because we didn’t person nan product. It was wireless accessories for 1 of nan consoles. We had very ample marketplace stock successful that peculiar category. And because we weren’t capable to proviso nan request overall, nan stock shifted to different products wherever we person a smaller share. So, that’s really what drove mostly of nan stock loss. And past if I look astatine nan reasons for nan decline, 95% are industry-related issues and astir 5% are benignant of our things, specified arsenic what I conscionable talked astir successful position of deficiency of chips for our peculiar wireless accessories.

Deb O’Connor

Yes. PowerA – destocking pinch nan retailers arsenic well.

Boris Elisman

To nan industry.

Deb O’Connor

Exactly. I afloat agree.

William Reuter

Yes. That benignant of moves to my 2nd question. It’s I deliberation an earlier mobility talks astir retailer destocking. In nan gaming accessories, do you judge that, that destocking effort is done astatine this point?

Boris Elisman

Yes. Again, conscionable for illustration for our schoolhouse and business products, we spot nan banal of gaming accessories being reasonably low. I mean it is typically little astatine this clip of nan year. It’s a slow season, but it is very debased location arsenic well. And we conscionable for illustration for different products, we person higher levels, a batch of banal for gaming accessories arsenic well. So, it’s nan aforesaid business arsenic different products.

William Reuter

Okay. And past conscionable lastly for maine connected superior allocation, you mentioned you are committed to nan dividend. You besides talked astir indebtedness reduction. Will you see stock repurchases this year, aliases fixed nan challenging macro backdrop, should we presume that those are disconnected nan array until leverage moves person to our targets?

Deb O’Connor

Yes. I would opportunity we are really focused connected nan indebtedness pay-down. Never opportunity ne'er to anything, but I conjecture we request to get that leverage ratio down, and that’s what we are going to beryllium focused on.

William Reuter

Good to hear. Okay. That’s it. Thank you.

Operator

The adjacent mobility comes from Hale Holden pinch Barclays. Hale, please spell ahead.

Hale Holden

Thank you. Good morning. Boris, you made a remark astir and not overly discounting your amended brands aliases champion brands for illustration Five Star. So, I was wondering really you deliberation astir that versus nan weaker user and room for backstage explanation beneath you? And really you mightiness capable that little tier gap?

Boris Elisman

Yes. That’s nan use of having aggregate brands, Hale. So historically, we person been capable to position things some for premium value points, amended value points, arsenic good arsenic bully value points aliases worth value points. And historically, for example, successful our schoolhouse products, Mead played that domiciled of addressing, we already mentioned, value constituent successfully. Mead’s been a bully brand. We saw beardown request successful 2022 for that brand. So, that should proceed arsenic we position things crossed nan spectrum, depending connected what nan user conception we are targeting. The aforesaid point applies successful EMEA. We person Lights, which is much of our premium marque and Esselte, which is much of a mainstream brand. We really saw maturation successful ‘22 pinch Esselte, arsenic consumers are benignant of much charismatic to those much worth value points. So, beautiful overmuch successful each region, we person this aggregate tier attack pinch our brands. And historically, we person been successful. And I besides judge we tin beryllium successful successful 2023 arsenic we spell done this economical slowdown.

Hale Holden

And I was wondering what was embedded for back-to-school successful nan afloat twelvemonth gross guidance, if you were benignant of reasoning level to flimsy measurement declines connected weaker user aliases if location was thing other that mightiness happen?

Boris Elisman

Right now, we are assuming a flattish back-to-school, and this is really driven by NPD forecast for back-to-school. And that flattish presumption includes little load-ins, group being little fierce successful bringing inventory upfront and past chasing it arsenic they spot nan request being fulfilled.

Hale Holden

So, we really won’t cognize until 3Q, really that turns out.

Boris Elisman

That is correct. Yes.

Deb O’Connor

That’s right.

Boris Elisman

We will beryllium asking you to carnivore pinch us.

Hale Holden

And I conscionable I had 1 different mobility connected indebtedness repayment, which was arsenic you are reasoning astir indebtedness repayment, obviously, you person 2 choices, right? You tin return nan loan, which is floating complaint aliases you could perchance effort to acquisition nan enslaved astatine a discount and accelerate nan notional amount. And I was wondering really you were reasoning astir that trade-off aliases balance?

Deb O’Connor

Yes. So we deliberation astir it. And I would show you pinch nan rates that those bonds transportation correct now. They are bully to person and to support successful nan portfolio. So, we will consistently look astatine it, but it keeps america pinch a bully fixed rate.

Hale Holden

Great. Thank you truthful much.

Boris Elisman

Thanks Hale.

Operator

Our last mobility comes from Hamed Khorsand pinch BWS Financial. Hamed, please spell ahead.

Hamed Khorsand

Hi. Good morning. Could you conscionable talk a small spot much astir this back-to-school, nan hold successful ordering? I thought your wide merchant retailers usually springiness you beautiful bully insights to what their ordering habits are. So, are they conscionable holding disconnected and giving you immoderate clarity, aliases are they conscionable holding truthful overmuch inventory from past twelvemonth that they conscionable are still tense astir giving you immoderate benignant of bid clarity?

Boris Elisman

No. They are beautiful clear and they don’t person overmuch inventory. They are conscionable deciding to bring successful little this twelvemonth arsenic they are concerned astir nan macro environment. So, they are loading successful little than past year. And obviously, past year, they loaded successful much than emblematic because they were concerned astir proviso concatenation issues. So, connected a comparable basis, it’s substantial. That’s why our Q1 guidance is truthful overmuch lower. Revenue guidance is truthful overmuch little than past twelvemonth because location is simply a batch of propulsion forwards past twelvemonth that were happening that we will not see. So, nan timing of their orders is very akin to what we spot historically. But nan magnitude that they will beryllium bringing successful will beryllium a batch little than past year, owed to things I conscionable mentioned.

Hamed Khorsand

Okay. And my different mobility was conscionable connected your SKU strategy and conscionable merchandise strategy successful general. How are you incorporating much of a hybrid activity environment? Does that mean nan changes you made past twelvemonth for group going backmost to nan agency you are reverting backmost to much of being user oriented?

Tom Tedford

Yes. Hamad, this is Tom Tedford. And our teams person responded already to that alteration successful activity behaviour very successfully. Our squad successful Europe, successful particular, during nan pandemic, we saw income maturation arsenic they shifted much of their merchandise solutions to a hybrid aliases afloat work-from-home distant environment. Our Kensington business has responded rather good pinch that. So, really crossed nan mostly of our brands that are focused connected activity solutions, we person already implemented a bully equilibrium betwixt distant work, hybrid work, and agency solutions for our consumers.

Hamed Khorsand

I conjecture what I americium trying to inquire is nan agency solutions you utilized to person were precocious value tag and beautiful recurring arsenic acold arsenic your expectations complete respective years. What are your expectations connected nan caller work-from-home benignant of supplies that you are producing?

Tom Tedford

Yes. I deliberation Boris alluded to it earlier pinch nan portfolio attack that we person and nan aggregate brands that we person supporting each category, we are capable to meet nan user wherever they are. And if they are capable to acquisition a premium product, we person solutions for them. If they take to person a much worth solution, we besides person brands and solutions that meet nan user astatine that value point. So, I deliberation complete time, we will proceed to spot a bully operation of our business, but it will proceed to displacement modestly towards much user solutions. But that profit floor plan really isn’t each that importantly different. We conscionable person to waste much units to offset nan ASP declines.

Boris Elisman

Let maine adhd a small spot much colour present conscionable connected nan environment. So, we judge that nan hybrid workplace is present to stay. We spot really a rather unchangeable situation pinch astir companies moving hybrid aliases successful nan office, and very fewer still are afloat remote. We are seeing a affirmative trickle backmost to nan office. So, it started a twelvemonth ago, and it continues and its slow, but it’s continuing arsenic much companies request much beingness successful nan office. So, nan merchandise portfolio that we person is capable to meet each of those 3 environments. We did a batch of activity backmost successful 2020 and 2021 to benignant of restructure our portfolio truthful that we tin proviso some successful nan agency and hybrid workers, and that will continue. And past conscionable my different remark connected nan environment, nan inventory reductions that we referred to passim our chat today, are much important successful unit than it is successful nan business-to-business side, arsenic we are seeing our business-to-business focused transmission partners continued to support this return to office, a trickle that we talked about. So, nan income location are doing better. And certainly, nan inventory business location is amended than it is connected nan purely unit user side.

Hamed Khorsand

Okay. That’s helpful. Thank you.

Boris Elisman

Thanks Hamed.

Operator

We person nary further questions. So, I will move nan telephone backmost to nan guidance squad for immoderate concluding remarks.

Boris Elisman

Thanks Emily and convey you everybody for your liking successful ACCO Brands. Previously, we person managed good successful difficult environments and are assured successful our expertise to navigate existent economical challenges. We are besides assured that we person nan correct strategy and judge we are good positioned to proceed to present integrated income growth, compelling marketplace performance, and improved financial results arsenic world economies recover. We look guardant to talking pinch you successful a mates of months to study connected our first 4th results. Thank you.

Operator

Thank you everyone for joining america today. This concludes our telephone and you whitethorn now disconnect your lines.