Good day, ladies and gentlemen and welcome to the Quarter One 2015 ACCO Brands Corporation Earnings Conference Call. My name is Tracy, and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And I’d now like to turn the call over to Jennifer Rice, Vice President of Investor Relations. Please proceed ma’am.

Good morning, and welcome to our first quarter 2015 conference call. Speaking on the call today are Boris Elisman, President and Chief Executive Officer of ACCO Brands Corporation; and Neal Fenwick, Executive Vice President and Chief Financial Officer. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. These slides provide detailed information to supplement this call. When speaking to quarterly results, we may refer to adjusted results. Adjusted results exclude restructuring, and apply a normalized effective tax rate of 35%. 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 this morning’s press release. Forward-looking statements made during the call are based on certain risks and uncertainties, and our actual plans, actions and results could differ materially. Please refer to our press release and SEC filings for an explanation of certain of these risk factors and assumptions. Our forward-looking statements are made as of today’s date and we assume no obligation to update them going forward. Following our prepared remarks, we will hold a Q&A session. Now, it’s my pleasure to turn the call over to Boris Elisman.

Thank you, Jennifer, and good morning, everyone. As we remind you each year at this time, due to sales seasonality, the first quarter is typically our lowest revenue quarter, as well as one that generates a small loss. We earn all of our profit in the second through fourth quarters. With that in mind, I'll keep my comments relatively brief on this call. In total, the quarter came in about where we expected. North American computer products were in line or even slightly better than our expectations. But international results were worse than expected. Overall, net sales declined 12% versus the prior year, and on a constant currency basis, sales decrease 6%. Our adjusted loss improved to $0.04 a share from $0.05 a share a year ago, primarily because of our continuing disciplined approach to managing costs. On as segment basis, North America sales were down 3% or down 1% on a constant currency basis. The 1% decline was achieved despite more than 300 retail store closures by our two largest customers and the U.S. West Coast port disruption, which impacted many companies importing finished goods from Asia, in which impacted both, our North America and computer product segments. Profits in North America improved significantly by $6 million, driven by cost reduction in productivity initiatives. In the U.S., sales were flat, as growth with wholesalers, independents, mass and e-tail offset declines in the office super stores. Looking forward, we’re expecting as good back-to-school season from sell-in perspective, at least comparable to what we experienced last year in North America. The international segment was the biggest driver of the quarter sales decline. Total sales were down 24% or 12% on a constant currency basis. Brazil accounted for the majority of the decline. We saw a small decline in Europe and Asia-Pacific…

Thank you, Boris, and good morning, everyone. Our first quarter performance is recapped on Pages 2 and 3 of our slide deck. Q1 sales decrease 12% or 6% on constant currency. The underlying decline was driven primarily by our international business, due to Brazil as Boris noted. Adjusted loss was $4 million or negative $0.04 per share, an improvement from a loss of $6.2 million or negative $0.05 cents in the prior year quarter. Foreign currency translation at a $0.01 per share adverse impact. Looking at the specifics. Gross margin improved 80 basis points in the quarter to 27.7%. The improvement in gross margin was primarily driven by cost savings and productivity initiatives, which contributed 140 basis points to gross margin and more than offset adverse impacts from mix in foreign exchange, as detailed on Page 3 of our slide deck. SG&A expenses were down 11% in the quarter. Foreign exchange translation reduced SG&A by $3.9 million or 5%. The underlying decline was due to the benefits from our ongoing cost reduction and productivity initiatives, and lower pension costs of $1.7 million. As a percentage of sales, SG&A increased modestly 20 basis points, as sales deleveraging of 160 basis points more than offset benefit from our cost savings and productivity improvements. Turning to an overview of our segments for the quarter. In North America, sales decreased 3% or 1% on a constant currency. The decline was primarily, the office super store channel. North America adjusted operating income improved $6 million to $5.1 million from a loss of $1.2 million in the prior year quarter, the result of cost savings and productivity improvements. In our international segment, net sales decreased 24% or 12% on a constant currency basis. The decline was primarily in Brazil were volumes declined due to economic slowdown,…

Thank you. [Operator Instructions] Please standby for your first question. And your first question comes from the line of Bill Chappell from SunTrust. Please proceed.

Good morning. Thank you.

Good morning, Bill.

Good morning. Just, I guess first on maybe talking on the international side and Brazil. I think, we were kind of finished the back-to-school season or just finished there. And so, I mean, have you seen things actually deteriorate or are we kind of at just a stable level in terms of the office supplies and back-to-school supplies?

The season is finished. The overall season was down probably mid-single-digits as far as the sell-out is concerned. Right now in Q2 and Q3 those are pretty low quarters, where we just supply regular office business. At the end of Q3, it starts to build up again for sell-in for next year's back-to-school. But things are relatively back to normal. As we mentioned during the prepared remarks, our customers chose to carry a very, very little inventory not to replenish at the end of the season. So right now the channel is pretty dry, and the sales in April are actually pretty strong due to that very low inventory.

Okay. And then switching gears, kind of looking towards costs and pricing, I would imagine you got some cost benefit already from lower commodities this quarter. I imagine that will pick-up as we move through the back half of the year, but at the same point just trying to understand as you do kind of mid-year pricing adjustments, whether you'll be able to hold on to those gains, or whether you expect to have to take price drops and kind of what you’ve factored in, in terms of sales?

Commodity costs are fairly benign. Some are down and some are up. We’re incurring a few extra costs due to the West Coast port disruptions in the U.S. We have to ship through the East and that is more expensive for our back-to-school. And then on the international front, the very high appreciation of U.S. dollar versus most of the international currencies is causing some pain for us, and it will take us a while to catch up with the price increases to make us margin neutral.

Okay. And then last one for me, just on the share repurchase. It's certainly nice to see, but I'm trying to understand on what your capacity constraint is probably not the right word, but what you're allowed to do in terms of share repurchase under the current agreement and what would need to happen and what constraints you have from expanding that going forward?

We are allowed to purchase up to $60 million a year, as long as our net debt to the EBITDA ratio stays between 2.5 and 4. We finished last year at 2.9. So within that range, we can purchase up to 60 million shares or $60 million worth of shares. And then if it goes below 2.5, it’s unlimited.

So, is there a rollover from last year, or is it kind of…

No, it's an annual bucket.

Okay. Perfect. Thanks so much.

Thanks, Bill.

Thank you for your question. Your next question comes from the line of Jason Campbell from KeyBanc. Please proceed.

Hey guys. How are you doing?

Good morning, Jason.

I wanted to talk about how much of a drag the office super store channel was for you in your North American, and then it seems like you did pretty well there mitigating those losses. Just wondering where some of your gains and wins were outside that channel?

Sure. I won't give a number for the quarter. Overall we said that during the year, we expect about $40 million in sales reduction due to super store channel consolidation and store closures, and we’re on track to be roughly in that range. The decrease in that channel was mitigated by growth pretty much everywhere else, our independents channel and I'm including the whole channel and the wholesalers that supply them did pretty well and we saw positive sales growth there. The e-tailers did really well. We saw big growth there. We’re seeing growth in drugstores and that's a change from last year, so we're gaining share in that channel. And then our mass did really well. So it’s really across the board outside of the office super stores that we were able to mitigate all of the sales declines in that channel.

And then real quick, when - you mentioned some pricing increases on the international side. Can you talk about where those price increases were geographically, and when they went into effect?

Yes, they are happening everywhere. The international currencies weakened pretty much everywhere and we had to take pricing action in January across the board. We had taken pricing actions or have taken pricing actions in the spring, and February and March in some of our countries to try to catch up. And then we are taking additional pricing in some countries in July. So given that on average, the U.S. dollar is 15% stronger right now than it was a year ago. We can't catch up just with one pricing action given that magnitude. So it will take us a couple of price increases to get there, and we are in the process of implementing all of that.

Okay. And then lastly, can you remind us when you kind of lapped the decision to kind of deemphasize these commoditized products in your computer products division? And then once you get past some of those headwinds what's your outlook for fourth quarter and into next year for that category?

We should lap all of that in the second half of the year beginning in Q3. Our assumptions are that the first half of the year will still see a negative sales growth in computer products as we get out of some of those tablet accessories, and we'll see single-digit growth in the second half of the year and a significant profit improvement as well.

All right, thank you very much.

Thank you, Jason.

Thank you for your question. Your next question comes from the line of Jack O'Brien from CJS securities. Please proceed.

Good morning.

Good morning, Jack.

I just want to take a quick question and talk about back-to-school and any detail you guys have on how that's shaping up for North America?

Yes. As we stated in our prepared remarks, we’re pleased with the current state of back-to-school sell-in. We believe that we will be able to at least comp what we did last year. And last year if you remember, we had a very successful back-to-school. So it looks promising. But remember, we don't know how much it’s going to be Q2 versus Q3. So that’s not known. And then the sell-out is the important part and that has to be still delivered. But from a sell-in perspective, we're very, very pleased how it looks right now.

Okay, great. Thank you very much.

Thank you for your question. Your next question comes from William Reuter from Bank of America. Please proceed.

Good morning guys.

Good morning, Bill.

I'm not - I don't have history with you guys in price increases. Can you talk to me about historically when you guys have increased price on a per unit basis? What that does - sorry, out of - yes, on a per unit basis, what that does to your units?

You mean do the units go down?

Yes. I'm wondering what's the net effect on revenues, meaning - yes.

Yes, typically we only increase prices to recover costs. So we're not trying to enhance our margins from a power pricing perspective. And given that, both, us and all of our competitors and most of our customers’ source from the same geographic regions, the cost increases that we are seeing are being seen across the board. So we don't really see a volume decrease as a result of that. Our products are very inexpensive from a consumer perspective. So you expect to be some price elasticity, but it's not huge even just the low cost of our products. So we don't really anticipate as a result of the price increases that we will see a volume decrease.

Okay. And then previously when you guys had talked about acquisitions, you had mostly been talking emerging markets. I guess can you talk a little bit about what you're seeing there and the breadth of opportunities and what the probability is if you guys are executing something this year?

Bill, I can't give you any probabilities and numbers on that. That’s just too uncertain. Just to remind you, we do believe that acquisitions are an important part of our growth strategy. We’re looking at three types of acquisitions. You mentioned emerging markets. We believe those are important. We’re also looking at some consolidation opportunities if and when those come about, and we're also looking to expand to some of the near adjacencies in some of our mature markets. So all of those types of acquisitions are on the table, but the timing is too uncertain to comment on.

Okay. And then just lastly for me with regard to your restructuring, which is expected to save $30 million this year. I guess it sounds like you're on pace to achieve that. And just to make sure, that's what will be realized during the year, not the run rate at the end of the year. Is that correct?

That's correct. We have roughly $16 million of restructuring benefits that will be achieved during the year and we have an additional $14 million, $15 million of Lean Six Sigma productivity initiatives that will be achieved during the year. So the total is not $30 million.

Okay. Thank you very much.

Thank you, Bill.

Thank you for your question. Your next question comes from Chris McGinnis from Sidoti & Company.

Good morning. Thanks for taking my question.

Thank you, Chris.

I guess just a follow-up on the last question. If trends - I guess at this level of sales trends, do you see any need for additional cuts or restructurings?

No, we are comfortable. Our guidance or reiteration of guidance includes all of the puts and takes that we see. So we’re comfortable with the current level of trends. As I mentioned, we’re actually pretty pleased with the back-to-school sell-in trends that we're seeing. Some of the FX effect that were so pronounced in the first quarter should mitigate as we go into the year, unless something else changes. And if something else changes that we will take the appropriate action. But right now given what we know, we believe that the - our current cost structure is appropriate.

Sure. And then I guess just a question on market share and Brazil and any expectation. Obviously, you had a laundry list of issues there. But just how your comfortability on your market share there, and maybe growth even in that kind of difficult environment?

Overall, we think we held onto market share in the meat of the market. We, on purpose chose not to compete at the very low-end of the market last year, which we deem not to be a good return on investment. But in the meat of the market which is the mid-price point, high-end price points, we believe that we held onto market share. The decline in demand in Brazil is just a function of the overall market. It's not the function of our performance. And we think that the economic conditions in Brazil will stay difficult in the foreseeable future and we’ll have to manage it to that effect.

Sure. Thank you.

Thanks, Chris.

Thank you for your question. Your next question comes from the line of Kevin Steinke from Barrington Research. Please proceed.

Good morning everyone

Hi, Kevin.

Hi. So it sounds like on currency, you're not really materially changing your expectations for the headwinds in the year. I think before you were talking about a 5 percentage point in headwind?

Yes, we talked about exactly, and in that range. Currencies got a little bit worse since our initial guidance, but we think both through operational performance improvements as well as through the share buybacks, we should be able to hold to the EPS guidance range that we provided.

Okay. And then Neal talked about in his prepared comments employee benefit savings from, I believe lower pension costs. Was that kind of a one-time thing, or is that something that's changed going forward?

Our pension costs will be lower each quarter by a similar amount, so the amount that showed up in the first quarter. It's fundamentally part of the strategy we've been following for a while to de-risk our pension plans and also to get them into situation where they’re less of a burden from a cash contribution. And that's obviously already rolled into all of the guidance that we gave.

Okay. Should we still think about the advertising and SG&A expenses roughly flat as a percent of revenue, and then you think if you can get some gross margin improvement this year?

We think we will get gross margin improvement this year comparable to what we saw last year, and SG&A should be up a little bit versus prior year.

Okay, great. Thanks for taking my questions.

Kevin, the dollars will be down, but the percent will be up.

Okay. Perfect. Thank you.

Thank you, Kevin.

Thank you for your question. Your next question comes from the line of Sam Reid from Barclays. Please proceed.

Thank you so much for taking my question. A quick question with respect to cost savings and productivity improvements. Obviously, you did a great job of kind of levering those expenses on the gross margin line in 1Q. Curious sort of how that plays out over the balance of the year from a relative standpoint. Any thoughts around that? And then I've got one follow-up.

We don't have a view of how this will go quarter-by-quarter, Sam. Overall, we should see your 40 to 50 basis point improvement in our gross margin, but how it will play out it’s difficult to say.

Got you. And then circling back to some earlier questions around raising pricing in international markets. Looking at that question from a different vantage point, could you give us a sense to the size of those pricing mechanisms relative to those currency moves? Just trying get a sense as to what those puts and takes are. Thanks.

As I mentioned, currencies increased anywhere from 8% for the pound versus a dollar or dollar versus pound to 17%.

18% of the euro.

Yes, 18% for the euro, 17% for the Brazilian reals. And given the magnitude of those changes, it's a couple of price increases. And some of the range 2% to 3% at one time and then 5% to 7% the second time and others range from 6% one-time and then 12% the second time. So we work with our customers. We see what the market is doing. What the conditions are and we put the prices increases through. The important thing is that we put price increases through. We have to recover our costs and everybody - every one of our managers knows that, and we have a disciplined approach for doing that and we are well on our way to execute it in 2015.

Awesome. Thank you so much. I appreciate that.

Thanks Sam.

Thank you for your question. I would now like to turn the call over to Boris Elisman, President and CEO for closing remarks.

Thank you, Tracy. In closing, I'd like to thank all of you for being on the call this morning. While we’re pleased with our performance in the quarter, it is clear to us that foreign exchange and customer consolidation will continue to be challenging for the rest of the year. Nevertheless, I'm confident in our ability to meet these challenges through strong execution against our business plans. I look forward to speaking with you on our next call and hope you have a great day. Thank you.