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ACCO BRANDS Corp 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

ACCO BRANDS Corp

Filing date:

02/21/2025

TLDR:

ACCO Brands Corp experienced a challenging year with declining net sales and a significant net loss. The company is undergoing restructuring and cost reduction initiatives to address these challenges.

ELI5:

ACCO Brands, a company that makes school and office supplies, had a tough year with sales going down and losing money. They’re trying to fix things by cutting costs and changing how they do business.

Accession #:

0000950170-25-024931

Published on

Analyst Summary

  • Net sales decreased by 9.1% in 2024 to $1,666.2 million.
  • Net loss per share was $(1.06), a substantial decline from $(0.23) in the previous year.
  • Gross profit margin improved slightly to 33.3%.
  • Operating income turned into a loss of $(37.0) million due to significant impairment charges.
  • Total assets decreased significantly due to goodwill and intangible asset impairments.
  • Debt-to-Equity Ratio is high at 2.68, indicating a significant reliance on debt financing.
  • Interest Coverage Ratio is negative at -0.70, indicating that the company is not generating enough operating income to cover its interest expenses.
  • Asset Turnover is low at 0.75, indicating that the company is not efficiently using its assets to generate sales.
  • ROA is negative at -4.6%, indicating underperformance compared to its peers.
  • ROE is negative at -16.8%, indicating underperformance compared to its peers.

Opportunities and Risks

  • Risk: Customer concentration with a significant portion of net sales attributed to a limited number of large customers.
  • Risk: Sales are materially affected by general economic and business conditions globally.
  • Risk: Fluctuations in foreign currency rates can significantly impact sales, profitability, and cash flow.
  • Risk: The company operates in a highly competitive environment with low barriers to entry for certain products.
  • Risk: Continued declines in the use of certain paper-based products pose a risk.
  • Risk: Unfunded pension liabilities and changes in government regulations could affect pension plan expenses and funding requirements.
  • Risk: Future events could adversely affect the reported value of goodwill and intangible assets.
  • Risk: Security breaches could compromise confidential information and disrupt business operations.
  • Opportunity: Innovation and new product development.
  • Opportunity: Expansion into new markets.
  • Opportunity: Restructuring and cost savings initiatives.

Potential Implications

Company Performance

  • Continued restructuring and cost reduction initiatives are crucial for improving profitability.
  • The company needs to address its high level of debt to improve its financial stability.
  • Focus on innovation and new product development to drive revenue growth.
  • Expansion into new markets can help diversify revenue streams.
  • Comparable sales decreased by 8.0% year-over-year, indicating a decline in underlying sales performance.
  • ACCO Brands Americas experienced a significant decline in segment operating income.

Stock Price

  • Negative earnings per share (EPS) may negatively impact investor sentiment.
  • High debt levels could increase financial risk and negatively affect the stock price.
  • Successful execution of restructuring plans could improve investor confidence.
  • The P/E ratio is not meaningful due to negative EPS.
  • The Price-to-Book Ratio is low at 0.70, indicating that the company may be undervalued.
  • The Price-to-Sales Ratio is low at 0.25, indicating that the company may be undervalued.
  • The EV/EBITDA ratio is high at 30.94, indicating that the company may be overvalued.

ACCO Brands Corp (ACCO) – 2024 10-K Filing Report

Executive Summary

This report analyzes ACCO Brands Corp’s 2024 10-K filing. The company experienced a challenging year with declining net sales and a significant net loss, primarily driven by softer global demand, lower back-to-school sales, and goodwill/intangible asset impairment charges. While gross margin improved slightly due to cost reduction initiatives, the overall financial performance raises concerns about the company’s ability to navigate the current economic environment. A ‘Hold’ rating is suggested, pending further evidence of successful restructuring and a rebound in demand.

Company Overview

ACCO Brands Corporation is a global consumer, technology, and business branded products company. It operates through two segments: Americas and International, offering a wide range of products used in schools, homes, and offices. The company’s key brands include AT-A-GLANCE, Five Star, Kensington, and Mead. Recent developments include a reorganization into two operating segments and a multi-year restructuring program aimed at cost reduction.

Detailed Analysis

Financial Statement Analysis

Income Statement

Net sales decreased by 9.1% in 2024, driven by lower volume and adverse foreign exchange impacts. The gross profit margin improved slightly, but operating income turned into a loss due to significant impairment charges. The net loss per share was $(1.06), a substantial decline from $(0.23) in the previous year.

Key Metric 2024 2023 Change
Net Sales (Millions) $1,666.2 $1,832.8 -9.1%
Gross Profit Margin 33.3% 32.6% +0.7 pts
Operating Income (Millions) $(37.0) $44.7 NM
Net Loss Per Share $(1.06) $(0.23) NM

Balance Sheet

Total assets decreased significantly, primarily due to the goodwill and intangible asset impairments. Total liabilities also decreased, reflecting debt repayments. Stockholders’ equity declined substantially due to the net loss.

Cash Flow Statement

Cash flow from operating activities increased slightly, driven by improvements in working capital management. Financing activities resulted in a net cash outflow, primarily due to debt repayments and dividend payments.

Management’s Discussion and Analysis (MD&A) Insights

  • Management acknowledges the impact of soft global demand and geopolitical uncertainties on the company’s performance.
  • The company is focused on improving innovation, expanding distribution, and managing mature product categories.
  • A balanced capital allocation strategy is prioritized, including debt reduction, dividends, share repurchases, and opportunistic M&A.
  • A multi-year restructuring program is underway, targeting significant cost savings.

Risk and Opportunity Assessment

Risks

  • Customer concentration: A significant portion of net sales is attributed to a limited number of large customers.
  • Economic conditions: Sales are materially affected by general economic and business conditions globally.
  • Foreign currency exposure: Fluctuations in foreign currency rates can significantly impact sales, profitability, and cash flow.
  • Competition: The company operates in a highly competitive environment with low barriers to entry for certain products.
  • Declining product demand: Continued declines in the use of certain paper-based products pose a risk.
  • Pension plan liabilities: Unfunded pension liabilities and changes in government regulations could affect pension plan expenses and funding requirements.
  • Goodwill and intangible asset impairment: Future events could adversely affect the reported value of goodwill and intangible assets.
  • Cybersecurity breaches: Security breaches could compromise confidential information and disrupt business operations.

Opportunities

  • Innovation and new product development: The company is focused on generating new and differentiated products.
  • Expansion into new markets: Growth in emerging geographies presents opportunities for expansion.
  • Restructuring and cost savings initiatives: The multi-year restructuring program aims to improve operational efficiencies and reduce costs.

Red Flags and Uncommon Metrics

  • Significant goodwill and intangible asset impairment charges raise concerns about the valuation of these assets.
  • The company participates in a multi-employer pension plan with significant underfunded liabilities.

Conclusion and Actionable Insights

ACCO Brands faces significant challenges in the current economic environment, as evidenced by declining sales and a net loss. While the company is taking steps to address these challenges through restructuring and cost reduction initiatives, the effectiveness of these measures remains to be seen. The high level of debt and the risk of further goodwill impairments are also concerns. Therefore, a ‘Hold’ rating is recommended. Investors should monitor the company’s progress in executing its restructuring plan and its ability to generate sustainable growth in a challenging market.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Calculation: Gross Profit / Net Sales = $555.4 / $1,666.2 = 33.3%
    • Trend: 2023: 32.6%. Percentage Change: (33.3% – 32.6%) / 32.6% = 2.15%
    • Industry: The office supplies industry typically sees gross profit margins between 30% and 40%. ACCO’s margin of 33.3% is within this range.
  • Operating Profit Margin

    • Calculation: Operating (Loss) Income / Net Sales = -$37.0 / $1,666.2 = -2.2%
    • Trend: 2023: 2.4%. Percentage Change: (-2.2% – 2.4%) / 2.4% = -191.67%
    • Industry: The industry average operating profit margin is typically between 5% and 10%. ACCO’s negative operating margin indicates underperformance compared to its peers.
  • Net Profit Margin

    • Calculation: Net Loss / Net Sales = -$101.6 / $1,666.2 = -6.1%
    • Trend: 2023: -1.2%. Percentage Change: (-6.1% – (-1.2%)) / -1.2% = 408.33%
    • Industry: The industry average net profit margin is typically between 3% and 7%. ACCO’s negative net profit margin indicates underperformance compared to its peers.
  • Return on Assets (ROA)

    • Calculation: Net Loss / Total Assets = -$101.6 / $2,228.4 = -4.6%
    • Trend: 2023: -$21.8 / $2,644.8 = -0.8%. Percentage Change: (-4.6% – (-0.8%)) / -0.8% = 475%
    • Industry: The industry average ROA is typically between 5% and 10%. ACCO’s negative ROA indicates underperformance compared to its peers.
  • Return on Equity (ROE)

    • Calculation: Net Loss / Total Stockholders’ Equity = -$101.6 / $606.1 = -16.8%
    • Trend: 2023: -$21.8 / $787.0 = -2.8%. Percentage Change: (-16.8% – (-2.8%)) / -2.8% = 500%
    • Industry: The industry average ROE is typically between 10% and 15%. ACCO’s negative ROE indicates underperformance compared to its peers.
  • Earnings Per Share (EPS)

    • Basic: $(1.06)
    • Diluted: $(1.06)
    • Trend: 2023 Basic and Diluted EPS: $(0.23). Percentage Change: ((-1.06) – (-0.23)) / (-0.23) = 360.87%
    • Industry: Given the negative EPS, ACCO is underperforming compared to competitors with positive EPS.

Liquidity

  • Current Ratio

    • Calculation: Total Current Assets / Total Current Liabilities = $731.5 / $490.3 = 1.49
    • Trend: 2023: $855.4 / $542.0 = 1.58. Percentage Change: (1.49 – 1.58) / 1.58 = -5.7%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. ACCO’s current ratio of 1.49 is slightly below the ideal range.
  • Quick Ratio (Acid-Test Ratio)

    • Calculation: (Total Current Assets – Inventories) / Total Current Liabilities = ($731.5 – $270.4) / $490.3 = 0.94
    • Trend: 2023: ($855.4 – $327.5) / $542.0 = 0.97. Percentage Change: (0.94 – 0.97) / 0.97 = -3.09%
    • Industry: A quick ratio of 1 or greater is generally considered healthy. ACCO’s quick ratio of 0.94 is slightly below the ideal range.
  • Cash Ratio

    • Calculation: (Cash and Cash Equivalents) / Total Current Liabilities = $74.1 / $490.3 = 0.15
    • Trend: 2023: $66.4 / $542.0 = 0.12. Percentage Change: (0.15 – 0.12) / 0.12 = 25%
    • Industry: A cash ratio of 0.5 or greater is generally considered healthy, but this varies greatly by industry. ACCO’s cash ratio of 0.15 is low, indicating a reliance on other current assets to meet short-term obligations.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Calculation: Total Liabilities / Total Stockholders’ Equity = $1,622.3 / $606.1 = 2.68
    • Trend: 2023: $1,857.8 / $787.0 = 2.36. Percentage Change: (2.68 – 2.36) / 2.36 = 13.56%
    • Industry: The industry average is around 1.0 to 1.5. ACCO’s ratio of 2.68 is high, indicating a significant reliance on debt financing.
  • Debt-to-Assets Ratio

    • Calculation: Total Liabilities / Total Assets = $1,622.3 / $2,228.4 = 0.73
    • Trend: 2023: $1,857.8 / $2,644.8 = 0.70. Percentage Change: (0.73 – 0.70) / 0.70 = 4.29%
    • Industry: The industry average is around 0.4 to 0.6. ACCO’s ratio of 0.73 is high, indicating a significant portion of assets are financed by debt.
  • Interest Coverage Ratio (Times Interest Earned)

    • Calculation: Operating (Loss) Income / Interest Expense = -$37.0 / $52.6 = -0.70
    • Trend: 2023: $44.7 / $58.6 = 0.76. Percentage Change: (-0.70 – 0.76) / 0.76 = -192.11%
    • Industry: A ratio of 1.5 or greater is generally considered safe. ACCO’s negative ratio indicates that the company is not generating enough operating income to cover its interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Calculation: Cost of Products Sold / Average Inventory = $1,110.8 / (($270.4 + $327.5) / 2) = 3.72
    • Trend: 2023: $1,234.5 / (($327.5 + $348.9)/2) = 3.70. Percentage Change: (3.72 – 3.70) / 3.70 = 0.54%
    • Industry: The industry average is around 4 to 6. ACCO’s ratio of 3.72 is below the industry average, indicating that the company may be holding onto inventory for too long.
  • Days Sales Outstanding (DSO)

    • Calculation: (Accounts Receivable / Net Sales) * 365 = ($348.9 / $1,666.2) * 365 = 76.3 days
    • Trend: 2023: ($430.7 / $1,832.8) * 365 = 85.6 days. Percentage Change: (76.3 – 85.6) / 85.6 = -10.86%
    • Industry: The industry average is around 40 to 50 days. ACCO’s DSO of 76.3 days is high, indicating that the company is taking longer to collect payments from its customers.
  • Days Payable Outstanding (DPO)

    • Calculation: (Accounts Payable / Cost of Products Sold) * 365 = ($167.3 / $1,110.8) * 365 = 54.9 days
    • Trend: 2023: ($183.7 / $1,234.5) * 365 = 54.4 days. Percentage Change: (54.9 – 54.4) / 54.4 = 0.92%
    • Industry: The industry average is around 30 to 45 days. ACCO’s DPO of 54.9 days is high, indicating that the company is taking longer to pay its suppliers.
  • Asset Turnover

    • Calculation: Net Sales / Total Assets = $1,666.2 / $2,228.4 = 0.75
    • Trend: 2023: $1,832.8 / $2,644.8 = 0.69. Percentage Change: (0.75 – 0.69) / 0.69 = 8.7%
    • Industry: The industry average is around 1.0 to 1.5. ACCO’s ratio of 0.75 is low, indicating that the company is not efficiently using its assets to generate sales.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Calculation: Stock Price / EPS = $4.56 / (-$1.06) = -4.30
    • Industry: Given the negative EPS, the P/E ratio is not meaningful. Competitors with positive earnings would have positive P/E ratios.
  • Price-to-Book Ratio (P/B)

    • Calculation: Market Cap / Total Stockholders’ Equity = (92.881008 * $4.56) / $606.1 = 0.70
    • Industry: The industry average is around 1 to 2. ACCO’s ratio of 0.70 is low, indicating that the company may be undervalued.
  • Price-to-Sales Ratio (P/S)

    • Calculation: Market Cap / Net Sales = (92.881008 * $4.56) / $1,666.2 = 0.25
    • Industry: The industry average is around 0.5 to 1.0. ACCO’s ratio of 0.25 is low, indicating that the company may be undervalued.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Calculation: EV = Market Cap + Total Debt – Cash and Cash Equivalents = (92.881008 * $4.56) + $839.7 – $74.1 = $1188.17 million
      EBITDA = Net Loss + Interest Expense + Income Tax Expense + Depreciation and Amortization = -$101.6 + $52.6 + $14.3 + $28.4 + $44.7 = $38.4 million
      EV/EBITDA = $1188.17 / $38.4 = 30.94
    • Industry: The industry average is around 10 to 15. ACCO’s ratio of 30.94 is high, indicating that the company may be overvalued.

Growth Rates

  • Revenue Growth

    • Calculation: (2024 Revenue – 2023 Revenue) / 2023 Revenue = ($1,666.2 – $1,832.8) / $1,832.8 = -9.1%
  • Net Income Growth

    • Calculation: (2024 Net Loss – 2023 Net Loss) / 2023 Net Loss = (-$101.6 – (-$21.8)) / (-$21.8) = 365.14%
  • EPS Growth

    • Calculation: (2024 EPS – 2023 EPS) / 2023 EPS = (-$1.06 – (-$0.23)) / (-$0.23) = 360.87%

Other Relevant Metrics

  • Comparable Sales (Non-GAAP): Comparable sales decreased by 8.0% year-over-year, indicating a decline in underlying sales performance, excluding the impact of currency translation.
  • Segment Performance: ACCO Brands Americas experienced a significant decline in segment operating income, while ACCO Brands International showed an increase. This suggests varying performance across different geographic regions.
  • Restructuring Charges: The company incurred restructuring charges of $16.8 million in 2024, compared to $27.2 million in 2023. These charges relate to employee termination costs and other restructuring activities.
  • Goodwill and Intangible Asset Impairment: The company recognized a significant impairment charge of $165.2 million in 2024, compared to $89.5 million in 2023. This indicates a decline in the value of certain intangible assets, particularly in the ACCO Brands Americas segment.
  • Pension and Post-Retirement Benefit Obligations: The company has significant pension and post-retirement benefit obligations, which impact its financial position and results of operations. Changes in discount rates and expected returns on plan assets can have a material effect on these obligations.

Commentary

ACCO Brands’ financial performance in 2024 was weak, marked by a net loss and declining profitability margins. The significant impairment charges and restructuring costs negatively impacted operating income. While liquidity remains adequate, high leverage and low asset turnover raise concerns about the company’s financial health. The decrease in revenue and comparable sales indicates challenges in the core business, despite some positive performance in the International segment.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️