Good day, ladies and gentlemen, and welcome to the Q2 2015 ACCO Brands Corporation Earnings Conference Call. My name is Catherine, 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 second 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, costs associated with debt refinancing 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. We announced our second quarter results earlier this morning and I’m pleased to report they exceeded our expectations. Net sales decreased 8% but only 1% on a constant currency basis. The majority of our sales decline was due to a large customer that merged. Adjusted operating income increased by $5.5 million to $49.4 million despite a $3.1 million hit from foreign currency translation. Adjusted net income improved 19% to $27 million or $0.24 per share. Our continuing expense management discipline and Lean Six Sigma initiatives helped offset the impact of the strong dollar versus most other currencies. During the quarter, we reduced the number of our fully diluted shares by $3.1 million. Overall, we had a great quarter characterized by a stronger than expected top line and better operational performance across many of our businesses. Most of the things that could have gone well for us in the second quarter did go well. In North America, we benefited from a solid back-to-school sell in with incremental placements in the mass channel and continued growth with retailers. Our international segment performed relatively well rebounding after a weak first quarter. Constant currency sales increased 5% largely the result of price increases and increased volume in inventory replenishment. We believe that some of the volume increase was fueled by prebuys ahead of additional price increases associated with continuing U.S. dollar strength. In computer products, our strategy to de-emphasize commoditized tablet accessories continued to pay off. Sales declined only 1% on a constant currency basis as we saw strength in our security and laptop accessories categories particularly in North America. We are optimistic about new product introductions in the latter half of the year that will take advantage of our leadership position in security and our reputation for product quality and innovation in desktop accessories. The six months of results now behind us, we are confident that the full year results will exceed our initial revenue and earnings guidance. We now expect a full year sales decline of high single digits and adjusted earnings per share of between $0.75 and $0.78. It is important to note that our new guidance is based on recent spot rates which are more negative than at the beginning of the year. Our guidance now assumes a negative impact from currency translation of $0.10 per share which is $0.02 worse than at the beginning of the year. The year has gotten off to a good start but the majority of our earnings are yet to come and we will remain focus on our execution. With that, I’ll ask Neal to give us some additional detail on the second quarter results. Neal?

Thank you, Boris, and good morning everyone. Our second quarter performance is recapped on page 2 of our slide deck. Q2 sales decreased 8% but only 1% at constant currency. The underlying decline was driven primarily by our North American business related to the large customer that merged. Adjusted net income increased 19% to $26.8 million or $0.24 per share from $22.6 million or $0.19 in the prior year quarter. Foreign currency translation had a $0.02 per share adverse impact. Looking at the specifics, gross margin improved 140 basis points in the quarter to 32.1%. The improvement in gross margin was primarily driven by cost savings and productivity initiatives which contributed 150 basis points to gross margin. We also had an 80 basis point benefit due to the prior year [indiscernible] last quarter had a large inventory charge associated with the exiting of certain commoditized tablet and smartphone accessories. These and some other small positive factors offset the adverse impact from mix of 130 basis points. The full detail is on page 3 of our slide deck. Adjusted SG&A expenses were down 11% in the quarter and as a percentage of sales was down 80 basis points. The improvement was primarily due to lower expenses and a one-time $2.3 million recovery of a disputed indirect tax in Brazil, which combined resulted in 130 basis points of improvement. Cost savings were favorable by 10 basis points and these factors more than offset the impact from foreign exchange, sales deleveraging and higher compensation costs. Turning to an overview of our segments for the quarter, in North America, sales decreased 5% or 4% on a constant currency basis. The decline was primarily due to the large customer that merged. North America adjusted operating income improved to $50.1 million from $49.2 million in the…

Thank you. [Operator Instructions] Please standby for your first question which is from the line of Brad Thomas from KeyBanc Capital Markets. Please go ahead.

Yes. Good morning, Boris, Neal and Jennifer, and congratulations on a great quarter.

Good morning, Brad. Thank you.

I wanted to ask to back-to-school and then about just the overall outlook for the balance of the year in general. First with respect to back-to-school, it sounds like you’ve had a very good sell in. Maybe Boris, could you give us a little bit more color on how you are thinking about back-to-school in general?

Yes, Brad. As you said and we hinted that at the end of our Q1 earnings discussion that we believe we would have a good back-to-school sell in and we did. We continued to have very good presence in the mass channel specifically with Wal-Mart which took a different strategy as you remember last year and was very successful with us in their back-to-school, so they are repeating that this year. So we have a very broad set in Wal-Mart for all of our school products specifically featuring five star notebooks. We continue to have great presence with Target now for several years and they are continuing to feature us in their back-to-school set. And then a couple of years ago, Amazon got really serious about back-to-school and really expanded their marketing efforts and their assortment for back-to-school. It started last year and it’s continuing this year and we have very, very good share with Amazon. So those three in addition to I would say Walgreens, which is a big difference versus prior year. Walgreens was much more private label focus in last year but is setting up our five star back-to-school products this year. Those four are probably the major drivers of our very, very strong back-to-school sell in this year.

Great. Sounds like a good outlook here. So with that being the case, just as I look at your guidance and do the analysis on the back half of the year, we are coming off of both 1Q and 2Q where you’ve had better operating income and better earnings year-over-year and your guidance for the balance of the year, if you have done the math right implies a decline in earnings and operating income in the back half. Could you maybe just frame up maybe the headwinds maybe coming from or maybe the potential for upside if you continue to have the momentum that you have right now.

Sure. The major headwind is coming from foreign exchange. Foreign exchange is going to be significantly negative going into the year but right now it is turning more negative. If you look at the three major currencies which affect us that have taken a negative turn, that’s the Canadian dollar, the Australian dollar and the Brazilian Real. Those three are significantly weaker right now versus U.S. dollar versus when they were in the beginning of the year and that’s a major revenue driver for us in the second half. That’s what affecting our guidance. In addition, we still have three quarters of earnings to achieve. So we don’t want to count on that until we get there. And finally, we are seeing continued weakness in the international especially Brazil, macro has got worst in Brazil so we are continuing to be nervous about the situation there. We are executing well and we are taking share, but I think it’s important for us to wait until we finish the year before we count on our results.

Gotcha and of course international becoming having more important quarters in the back half. So just to that point, can you tell us how much timing may have affected international here in 2Q from the price increase that you’re going to put through?

Yes. It was a little bit with a couple of customers, but also we had some delays in North America still and the customers wanted to take the inventory. Overall from an enterprise perspective, I don’t think it’s a meaningful number on the revenue. In the international, it’s maybe a couple of million dollars but again from an overall ACCO Brands perspective it’s a wash I would say.

Great. Congratulations again. Good luck with back-to-school and I’ll turn it over to someone else.

Thank you, Brad.

Thank you. The next question is from the line of Jack O'Brien from CJS Securities. Please go ahead, Jack.

Good morning and congratulations on the quarter.

Thank you, Jack.

Just quickly, you said in your prepared remarks that it was majority, but I was hoping you could quantify how much of the sales decrease in North America was attributable to the customer merger?

It was essentially all of it.

Okay. And then you guys continue to purchase shares. Given your current leverage standing, do you expect to purchase the full 60 million available to you this year?

We don’t comment specifically on when we will or will not purchase shares, but I would say that we said at the beginning of the year that our strategy this year is to be more balanced between share repurchases and debt pay down. If nothing happens on the acquisition front, we will continue to be balanced. So I would expect us to utilize our full available capacity to repurchase shares, but it’s July and things may still happen so I don’t want to commit to that yet.

Let me ride to my next question. I was wondering if you could just comment on the acquisition pipeline and any progress you are making there.

I can’t say anything specific obviously but we are very aggressive evaluating opportunities and looking at possibilities and if something that align strategically with our objective is a good investment for our shareholders and we will do that. But on the other hand, we think that our stock right now is of great value and we could also use our cash to repurchase our own stock. So I can’t tell you anything more specific than that.

Okay. Thank you, Boris.

Thank you, Jack.

Thank you. The next question is from the line of Chris McGinnis from Sidoti & Co. Please go ahead, Chris.

Good morning. Thanks for taking my questions and congrats on a good quarter.

Thank you, Chris.

Just a follow-up on the back-to-school, you had pointed out four large customers, have they changed your strategy in the last few years or is that you are just gaining share in a tougher environment? Can you maybe just dig into the success you are having?

I think it’s just a follow-up on the success that we’ve had in 2014. I think we have really introduced new products support for our brands, we have advertising campaign, especially on Five Star, we have new locker accessories, and we expand our assortments that targeting the kids. But I think more prominent of that will be accessible with those customer that we may have seen that when they give us the position in their set. They are driving traffic. They are driving their revenue and margin. And success will be success. So have given us more and more share in the set and I think that’s what driving it – give full credit to our marketing and product development and sales teams in first gaining that position and then expanding that position to where we are this year.

Great. And then just quickly on the computer products for the back half of the year. Does that seem like it will go to the positive territory finally, it looks like you made some good progress obviously?

Yeah, that’s our objective. As I mentioned, we still expected negative comps in the first half of the year due to the sun-setting of the commoditized tablet accessories. [Audio dip] we are actually behind that in the U.S. I still expect a little bit of drag in the international and the third quarter, but overall certain our objective is to have a revenue growth in the second half of the year for computer accessories.

Great. Congratulations. Thank you.

Thank you, Chris.

Thank you. The next question is from the line of Kevin Steinke from Barrington Research. Please go ahead.

Good morning, everyone.

Good morning, Kevin.

Wanted to talk about some of the other international markets, you mentioned Brazil, but how are things trending in Europe and Australia and elsewhere?

Both Europe and Australia are fairly stable, slow and stable. We are not seeing the deterioration that we saw in the last couple of years, but certainly they are not showing any kind of a robust growth that you are seeing in the U.S. environment.

Okay. And it sounds like you have at least another round of price increases that you are going to do internationally. Just talk about what’s going to happen on the pricing front for the remainder of the year internationally?

Yeah, we just – we just did a price increase in July in several of our regions. This is following a January and a spring increase, we are still catching up. I expect that we will have to do something in January again if the exchange rates don’t change. The magnitude of the change from last year has been so big that we can’t do it in one tranche; we have to do it in several cuts. On average, the currencies depreciate – foreign currency depreciate by an order of 20% or so versus U.S. dollar versus a year ago. So it will take us a few increases to catch up.

Okay. And in terms of cost savings and productivity improvements, are you in line with what you expected at the beginning of the year or are you doing better or are there plans for anything else in the pipeline?

No, we are on track, we had $30 million as the goal for 2015 and we are on track all in to deliver on that goal. The Lean Six Sigma initiatives – our productivity initiatives is an ongoing discipline in our company. So my expectation is that we will have more next year and we will have more the following year. Whether we will need to do something extra will really depend on what happens in our industry and if there is additional consolidation in our industry and if there is additional consolidation in our industry.

Okay. Just a housekeeping question, is the one-time tax recovery, I assume that’s included – that benefit is included in the EPS guidance?

Yes, it is and it shows up as a reduction in S&A in our Q2 results in international.

Okay. Thanks for taking my questions.

Thanks, Kevin.

Thank you. The next question is from the line of Kevin Ziets from Citi. Please go ahead.

Hi, good morning. I guess my first question is on the computer products business and just how dependant is your guidance for that segment on the performance of the desktop in general?

It’s somewhat dependant. Obviously, accessories are primarily bought based on the install base, so we have a fairly large install base. And we are also focusing primarily on the business, customers opposed to consumers, so we are not really at the whims of the vulgarities of Windows 8, Windows 10, et cetera sales to the consumers. So we are – it’s a more stable profile I would say than one would typically expect, but certainly we are dependent on the overall health of the PC market.

And I guess your views on the business side, it’s fairly stable?

Yes, yeah the business side is fairly stable.

Okay, great. And then I guess the margins in that segment, I just wanted to – as you think about the introductions that are coming in the back half of the year, do you think that the segment can get back to sort of a double-digit adjusted operating margin or even back to historical levels or in the 20s?

No, I don’t think we will get back to the historical levels. I think those were super margins that were primarily driven by our protective position in security. But I certainly believe and expect that we will be able to get to double digit operating profit.

Okay, great. And then just exploring the mix effect that you mentioned in the second quarter, is that a function of trade down because of price increases or is that more just the extension of the border assortment that you mentioned happened last back-to-school?

You know it’s a combination of both the country mix, the product mix and the channel mix, so all of that has trended more negative than it was last year.

Okay. And then just – so I understand sort of the – and I’m sure it varies country by country, but just in general the competitive environment outside the U.S., when you take price increases to offset currency, or are your competitors having the same sourcing issue effectively or are the sourcing from the same higher cost areas?

You know typically yes, typically most of our competitors manufacture in the same parts of the world, but there are some situation where that’s not the case and in those situations we’re cognizant in balancing the need for a pricing increases with making sure that we are competitively priced in the market.

And would you describe your positioning in general as a prize leader in the international markets or?

You know, it depends, in some countries where we have a strong market position, we tended to be a price leader, but sometimes we also follow it, it really depends.

Okay. My last question was just on the cost savings. You mentioned I think $20 million to $30 million for this year. Are you run rating at that full rate in the second quarter?

We had – so just to be more specific, we had about $15 million of Lean Six Sigma initiatives for the year and we had about $15 million from all of the restructuring benefits that we have take prior year that we will see this year. So we are on the – on track to achieve that combined $30 million. It’s not that the run rate in Q2 was $30 million, the run rate for the year is $30 million.

Okay. All right, great. Thanks very much. Good luck with back to school.

Thank you. Thank you, Kevin.

Thank you. The next question is from the line of Bill Chappell from SunTrust. Please go ahead, Bill.

Good morning.

Good morning, Bill.

Congratulations on the quarter. It’s nice to see a beat in race.

Thank you.

Wanted to I guess quick question on North America, can you maybe give us a better idea of what North American growth or decline would have looked like excluding the hit from the Office Depot and OfficeMax merger. And then as we look through the rest of the year, I think you’ve always said that it’s the biggest impact, each year kind of in the fourth quarter, is that still the case or kind of percentage basis would you expect it to be similar as we move to the back year?

So the first part of your question, if we are not for the merged customer, North America would be flat to maybe a little bit up in Q2. And the second question, I am not sure I understand, Bill. Could you say it again?

It is still the thought that the biggest impact from the merger will come in the fourth quarter?

Okay.

In terms of inventory destock.

There are two parts to that [indiscernible]. So we expect the drag from the merged customer that is Office Depot, OfficeMax to actually be less in the second half of this year than it was in the first half this year because it would have anniversaried some of the decisions that were made back in 2014. But if Office Depot and Staples were to combine, yes, there would be an incremental drag in Q4 that we did assume in our guidance.

So you would expect say that dealers is announcing the back half, you would actually see some impact this year though. Are you forecasting some impact?

We are probably [indiscernible] just from an inventory perspective. We think that if the deal were to be announced, there wouldn’t be actual decisions made by Staples on line reviews etc. but we would think that people will start pulling down their inventories and this is both combined Staples and Office Depot as well as the wholesalers support them until some of those decisions are made. So we think that uncertainty will drag down revenues a little bit.

Got it. And then if I look at computer products, I mean certainly you’ve made positive strides to stabilize that. Could we actually see growth – are we positioned for growth again or just happy with where we are at this point?

No, we are not happy with where we are. We are on a path to recovery. Recovery means revenue growth and double digits operating profit. And I believe that we are on track to achieve that but again until we achieve that we will not celebrate.

Got it. And then last one from me. I know there have been couple of questions on the share repurchase but does that mean I guess there are less M&A opportunities out there or just it felt like your stock was a better currency or better acquisition at this point.

I think the answer is yes to both. There are opportunities out there, but obviously the things are fairly price right now and our stock does represent a great value and we always said historically said that we’re going to be very disciplined in our approach, so we are making the best decisions for our shareholders and we will continue to do that.

Great. Thanks so much.

Thank you, Bill.

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

Thank you everybody for your participation and for your good questions. As I said in my prepared remarks, we had a great second quarter but we still have two quarters ahead of us to deliver. I look forward to speaking with all of you again after our back-to-school and we’ll report our results of that in the third quarter. Have a great rest of the summer. Thank you. Bye-bye.