ACCO Brands Corporation (NYSE:ACCO), a leading manufacturer of office and consumer products, has reported its second quarter 2024 results, surpassing its financial outlook. Despite a decline in certain product categories, the company has seen a moderating rate of decline and is making strides in cost reduction, expecting to realize over $20 million in savings for the year.
ACCO Brands has also successfully lowered its inventory levels by 17% and improved its balance sheet, with a reduced net debt position and a consolidated net leverage ratio of 3.7x. Looking ahead, the company expects to end the year with a leverage ratio of around 3x and is considering a more balanced capital allocation strategy, including share repurchases and mergers and acquisitions (M&A) opportunities. The company anticipates a full-year 2024 sales decline of 8% to 9% and adjusted earnings per share (EPS) in the range of $1.04 to $1.09.
Key Takeaways
- ACCO Brands exceeded its second quarter 2024 financial outlook.
- The company is progressing in cost reduction, with over $20 million in savings expected in 2024.
- Inventory levels decreased by 17%, and the balance sheet improved with a lower leverage ratio.
- Full-year outlook includes an 8% to 9% sales decline and adjusted EPS of $1.04 to $1.09.
- A balanced capital allocation strategy is under consideration, focusing on share buybacks and M&A.
- Free cash flow improved by $43 million in the first half of 2024, with an expectation of approximately $130 million for the year.
- The company is adapting its product development to cater to the hybrid work environment and expects significant revenue from new products by 2026.
Company Outlook
- ACCO Brands provided a full-year 2024 outlook, projecting a sales decline of 8% to 9%.
- Adjusted EPS is forecasted to be between $1.04 and $1.09 per share.
- The company anticipates improved gross margins and reduced SG&A costs.
- Free cash flow is expected to be around $130 million for the year.
- A consolidated leverage ratio of approximately 3x is the target by year-end.
Bearish Highlights
- Sales in office products and back-to-school categories have declined due to soft demand.
- The market for office and consumer products, including gaming accessories, has been softer than anticipated.
Bullish Highlights
- The company is confident in its portfolio of leading brands and strong cash flow generation.
- Expectations are set for a recovery in gaming accessories driven by international expansion.
- New product development tailored to the hybrid work environment is underway, with meaningful revenue expected in 2025 and beyond.
Misses
- Despite beating its outlook, ACCO Brands is experiencing a decline in certain product categories.
Q&A Highlights
- Tom Tedford discussed the anticipated recovery in gaming accessories, particularly in Asia.
- The company is considering smaller, highly synergistic acquisitions to enhance shareholder value.
- ACCO Brands remains confident in its back-to-school business, performing well in the current season.
- The company plans to maintain a leverage ratio of 2x to 2.5x in the long term.
- Current stock value is seen as an opportunity for share repurchases.
ACCO Brands continues to navigate through challenging market conditions with a focus on cost reduction, balance sheet improvement, and strategic capital allocation. The company's efforts to adapt its product offerings to evolving consumer needs, particularly in the hybrid work environment, are expected to yield significant results in the coming years. Despite the current decline in certain product categories, ACCO Brands' confidence in its portfolio and financial strategies positions it for potential growth and value enhancement for its shareholders.
InvestingPro Insights
ACCO Brands Corporation's recent financial performance and strategic initiatives provide a mixed picture for investors. According to InvestingPro data, ACCO's market capitalization stands at $450.46 million, with a price-to-earnings (P/E) ratio of -2.56, indicating that the company has reported negative earnings over the last twelve months as of Q1 2024. However, the adjusted P/E ratio for the same period is 7.27, suggesting that investors may expect profitability improvements in the future.
InvestingPro Tips suggest that while net income is expected to grow this year, caution is advised as two analysts have revised their earnings downwards for the upcoming period. This could signal potential concerns about the company's near-term earnings potential. On the positive side, ACCO's valuation implies a strong free cash flow yield, and the company pays a significant dividend to shareholders, with a yield of 6.02% as of the dividend ex-date in May 2024.
The company's current price is trading near its 52-week low, which could be of interest to value investors, especially considering that analysts predict the company will be profitable this year. Additionally, ACCO's liquid assets exceed its short-term obligations, providing some financial stability in a volatile market environment, as reflected by the stock's price movements.
For investors interested in a deeper analysis, there are additional InvestingPro Tips available on https://www.investing.com/pro/ACCO, which could provide further insights into ACCO's financial health and market position.
Full transcript - Acco Brands Corp (ACCO) Q2 2024:
Operator: Hello, everyone, and welcome to the ACCO Brands Second Quarter 2024 Earnings Conference Call. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions]. I will now hand over to your host Chris McGinnis, Senior Director of Investor Relations to begin. Chris, please go ahead.
Chris McGinnis: Good morning, and welcome to the ACCO Brands second quarter 2024 conference call. This is Chris McGinnis, Senior Director of Investor Relations. Speaking on the call today is Tom Tedford, President and Chief Executive Officer of ACCO Brands Corporation. Tom will provide an overview of our second quarter results and update you on our 2024 priorities. Also speaking today is Deborah O' Connor, Executive Vice President and Chief Financial Officer, who will provide greater detail on our second quarter results and update you on our outlook for the full-year 2024 and the third quarter. We will then open the line for questions. Slides that accompany this call have been posted to the Investor Relations section of accobrands.com. When speaking about our results, we may refer to adjusted results. Adjusted results exclude amortization and restructuring costs, noncash goodwill and intangible asset impairment charges and other nonrecurring items and unusual tax items and adjustments to reflect the estimated annual tax rate on quarterly earnings. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measures are in the earnings release and slides that accompany this call. Due to the inherent difficulty in forecasting and quantifying certain amounts, we do not reconcile our forward-looking non-GAAP measures. Forward-looking statements made during the call are based on the beliefs and assumptions of management based on information available to us at the time the statements are made. Our forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially. Please refer to our earnings release and SEC filings for an explanation of certain risk factors and assumptions. Our forward-looking statements are made as of today, and we assume no obligation to update them going forward. Now I'll turn the call over to Tom Tedford.
Tom Tedford: Thank you, Chris. Good morning, everyone, and welcome to today's call. Last night, we reported second quarter 2024 results with adjusted EPS above our outlook range, improved cash flow, lower inventory balances, gross margin expansion and a lower leverage ratio versus the prior year. I'm pleased with the company's performance as we continue to navigate a challenging business and consumer spending environment. We have good momentum on the cost side of our business and the decisive actions we have taken are resulting in improved financial performance. We've made substantial progress in our cost-reduction efforts and are on track to realize over $20 million in savings this year. Our team remains laser-focused on improving profitability, which resulted in gross margins expanding 150 basis points and a reduction in SG&A up 10% for the quarter. We are strategically investing in new product development, strengthening our partnerships across all our sales channels and implementing targeted initiatives to gain market share. While we are encouraged with the progress we are making on our cost structure and operational footprint, we are actively evaluating additional cost reduction opportunities. Building upon our financial achievements I'd like to highlight another area where we made significant strides on our supply chain. A key focus of our global supply chain team has been inventory management. Through a combination of improved business planning, the use of technology tools and a focus on strategic SKU rationalization, we've successfully reduced our inventory levels by 17% versus the prior year. The improvement in cash flow and our commitment to debt reduction are contributing to an improved balance sheet. We ended the second quarter with a net debt position 13% lower compared to last year and a consolidated net leverage ratio of 3.7x, well below last year. We expect to end 2024 at a leverage ratio of about 3x, as we move into our stronger cash generation cycle of the year. This is a level we have not achieved since 2019, and this improvement provides us more financial flexibility with our capital allocation priorities which I will expand upon later. Now let me share a few insights on our second quarter revenue performance. The year-over-year decline in certain categories has been greater than we projected. Recently, the rate of sales decline is moderating in many categories and our Kensington branded computer accessories category returned to growth. The sales decline and gross margin improvement was partially driven by the exit of lower-margin business in North America, which had a significant impact in the quarter as a large portion of the exits related to back-to-school which falls heavily in the second quarter. We anticipate less of an impact to revenue from these exits in both the third and the fourth quarters. On a segment basis, the Americas segment was down more than the International segment. However, when backing out the business exits, trends were similar for both. Globally, demand for our office product categories remained below our expectations. We continue to work closely with our valued channel partners to maximize incremental revenue opportunities with our category-leading brands and high-quality products. Our market shares are stable and our selling teams are actively pursuing incremental revenue opportunities with an improving sales pipeline and better engagement with our key customers. Within our technology accessories categories, gaming accessories was down as the prior year benefited from a stronger lineup of new game releases. Our computer accessories category returned to growth, driven by new products and improving demand environment. We remain positive about the continued recovery in both of these categories in the second half of the year. Touching on back-to-school for North America. Industry experts are still forecasting sales for the season to be down compared to prior year. It is too early to draw conclusions on the 2024 back-to-school season, but we are seeing good sell-through results for both our Five Star and Mead brands. ACCO Brands has a long history of leading our categories with innovative product solutions that help our customers work, learn and play. Our innovation efforts are pivoting from a strong focus on our traditional core categories as our consumer preferences have changed as work has moved to hybrid environments. We're mining consumer insights for product solutions that solve new consumer pain points. While still early, I'm encouraged by the work we are doing to launch new products that meet the needs of our consumers. Our team's good work has been recently recognized as the Kensington brand was awarded three prestigious Red Dot awards for design and innovation. I am proud of our commitment to bring innovative new product solutions to market and confident that our work will help improving revenue trends in the near term. Before turning it over to Deb, let me share a few comments on our capital allocation priorities. Over the last two years, our focus has been supporting our quarterly dividend and reducing debt. This disciplined approach has served us well, allowing us to strengthen our balance sheet significantly. Given the strong foundation, we are now able to contemplate a more balanced capital allocation strategy. We have the ability to opportunistically buy our shares in the market which will help offset share dilution from our employee equity grants. With our improved balance sheet and consistent cash flow, we will consider M&A as a part of our capital allocation moving forward. We have a strong position in our existing categories and a history of successful M&A integrations. We will target tuck-in acquisitions that provide a quick return on our investment and have realizable synergies. We will remain committed to keeping a low leverage ratio. In closing, I'm confident in the actions we are taking to reset our cost structure and improve future revenue trends. We have a solid foundation with our global portfolio of leading brands and consistent free cash flow generation, as well as an experienced leadership team. Our strong balance sheet with no debt maturities until 2026 and low fixed interest rates on more than half of our debt put us in sound financial condition. I will now hand it over to Deb and we'll come back to answer your questions. Deb?
Deborah O'Connor: Thank you, Tom, and good morning, everyone. When we last spoke in May, we highlighted softer consumer and business demand, especially related to our office product categories. The challenging market conditions we've identified previously persisted throughout the second quarter and were a significant factor contributing to our sales shortfall versus outlook. Offsetting the lower top line, we continue to make progress in improving our operational efficiency. Our gross margin rate expanded by 150 basis points year-over-year, and we lowered our SG&A cost by 10% compared to the same period last year. These improvements came from a combination of moderating product costs, improved product mix and our cost actions. This allowed us to deliver adjusted EPS above our outlook range, underscoring our ability to drive bottom line performance even in a challenging sales environment. In the second quarter, we took a noncash impairment charge of $165 million related to goodwill and intangible assets. The triggering event for the impairment charges included declines in our market capitalization since the start of 2024 as well as reduced volumes in certain product categories. Overall, we remain confident in our portfolio of leading brands and our ability to generate strong cash flow going forward. Now turning to sales. Reported sales in the second quarter of 2024 decreased 11% versus the prior year. Comparable sales, excluding foreign exchange, were down 10%. The planned exit of lower-margin business negatively impacted sales by approximately 4%. We continue to see overall soft global demand for our categories, which was in line with industry trends. Gross profit for the second quarter was $153 million, a decrease of 7% due to the lower sales. SG&A expense of $88 million was down 10% versus the prior year due to our cost reduction actions, timing of certain spends and lower incentive compensation expense in the quarter. Adjusted operating income for the second quarter was $65 million, a similar level to last year. The sales decline was offset by 130 basis points of adjusted operating margin improvement. Now let's turn to our segment results. In the Americas segment, comparable sales declined 13%. The exit of lower-margin business, primarily related to back-to-school accounted for a little more than 5% of the decline. The remaining decline is attributable to lower business and consumer spending for our traditional office products category, and difficult compares for our gaming accessories. This was partially offset by growth in computer accessories. The Americas adjusted operating income margin for the second quarter improved 170 basis points to 21.6% compared to the prior year, with the improvement in the margin rate due to moderating product costs, improved product mix from our planned exit of lower-margin business and our SG&A cost reduction efforts. Now let's turn to our International segment. For the second quarter, comparable sales declined 5% due to volume declines as the demand environment remains soft for our traditional categories. We saw double-digit growth in the computer accessories category, driven by improving demand trends. International adjusted operating income margin for the second quarter increased 60 basis points to 8% with adjusted operating income flat. The improvement in adjusted operating income margin rate was due to moderating product costs and the cumulative effect of our pricing and cost reduction actions. Switching to cash flow and balance sheet items. Historically, due to our seasonality, we generally use cash in the first half of the year, and generate significant cash flow in the second half of the year. Through the first six months of 2024, we have improved our free cash flow by $43 million versus the prior year. This reflects the timing of certain customer collections and vendor payments. The free cash outflow of $2 million through June 30 positions us well to achieve our free cash flow outlook of approximately $130 million for the year. We ended the quarter with total gross debt of $986 million, $100 million lower than the same time last year. Our cash balance was $113 million, which is higher than a year ago due to timing of cash flows in Brazil. At the end of the quarter, we had $501 million of remaining availability on our $600 million revolving credit facility. As shown on our earnings slide, more than half of our debt is at a fixed interest rate of 4.25% and does not mature until 2029. We ended the quarter with a consolidated leverage ratio of 3.7x, down from the 4.3x leverage ratio in Q2 of last year, and well below our 4.5x covenant ratio. Longer term, we are still targeting a ratio of 2x to 2.5x. The company consistently generates strong free cash flow. And as our leverage improves, this will allow us to deploy capital in multiple ways that create value for our shareholders. Our capital allocation priorities are as follows: First, we will continue to invest in our strong brands and product innovation to ensure long-term success. Second, we will support our quarterly dividend program. Third, our focus on debt reduction will remain until we achieve our long-term targeted ratio of 2 to 2.5x. Next, by achieving meaningful debt and leverage reduction over the last two years, we believe our strong cash flow gives us the flexibility to repurchase shares. We will do this opportunistically and to help offset dilution from our employee equity grant. Finally, another potential use of our cash flow will be M&A. ACCO Brands has a long history of successfully integrating acquisitions to expand brand presence, to extend their geographic reach, and to complement our product lines. We have been prudent with purchase prices, and we will remain committed to a low debt leverage. Now let's move to outlook for 2024 and the third quarter. We are updating our full-year outlook, which caused the reported sales to be within a range of down 8% to 9%. For the full-year, we expect adjusted EPS to be in a range of $1.04 to $1.09 per share. We continue to expect full-year gross margin to be improved compared to 2023. SG&A costs will be down to the prior year as savings from our cost actions helped to offset inflationary pressures related to labor and other costs. The adjusted tax rate is expected to be approximately 30%. Intangible amortization for the full-year is estimated to be $45 million, which equates to approximately $0.32 of adjusted EPS. We are updating our free cash flow expectation for the full-year. We now believe it will be approximately $130 million and expect to end 2024 with a consolidated leverage ratio of approximately 3x to 3.2x, a level not reached since 2019. For the third quarter, we expect reported sales to be down 5% to 7%. Important to note that the impact of the exit of lower margin business will be significantly less in the second half of the year. Our third quarter outlook is for adjusted EPS to be in the range of $0.21 to $0.24 per share. Now let's move on to Q&A, where Tom and I will be happy to take your questions. Operator?
Operator: Thank you. [Operator Instructions]. And the first question goes to Greg Burns of Sidoti & Co. Greg, please go ahead.
Gregory Burns: Good morning. Looking at the technology business. I think last quarter, you had mentioned maybe some excess channel inventory for some product categories. Where does the channel inventory now stand? And with Windows -- the Windows update occurring and AI PCs coming out, how do you view the growth prospects for that business as we go into the back half of this year and into 2025? Thank you.
Tom Tedford: Good morning, Greg. This is Tom. Thanks for your question. Yes. So let me first address the inventory part of the question. The channel has made significant progress in reducing inventory really across the globe in the category that was most concerning to us, which was universal docking stations. So we feel pretty good about where inventory positions are within the channel. There's still work to do in certain areas of the business. But for the most part, we're in a much better position today than we were even as we turn the calendar year so we feel good about it. Second, Kensington has historically been a strong growing brand within our portfolio. We anticipate that it will return to growth this year. I'm very encouraged by what we're seeing within the business. I'm encouraged by the trends. I was with a customer yesterday encouraged by the feedback we're getting from our customers and on our engagement, and I think the kind of macro things that you discussed in your comments give us optimism for really good growth in the near term. So we're real pleased with the Kensington business and its performance.
Gregory Burns: Okay. Thanks. And then in terms of M&A, would you be looking to add like a new product category like gaming or would you be more apt to do something, buy smaller brands and maybe existing categories like the office market. How should we think about your M&A strategy, maybe particularly how it might be used to drive growth in the office or some of the more traditional categories?
Tom Tedford: Yes, Greg. So we're going to be very careful with our approach. We're committed to keeping our leverage ratio low. We're going to look for synergistic opportunities, which likely imply that they will be more near in to our current categories. And we've established our criteria. We won't deviate from that. We're going to be very disciplined in our approach moving forward, as we consider opportunities when they present themselves.
Gregory Burns: And then just lastly, when you look at the market, what's the pipeline of opportunity? How do the valuations look? Maybe we could just start there.
Tom Tedford: So it's starting to open up a bit. I think we still have some work to do to fill the pipeline, but it's starting to open up a bit. I think there's some interesting opportunities that we're looking at, but that's about as much as we could say at this point.
Deborah O'Connor: Yes. And Greg, I think historically, we've been able to fill that pipeline and have a lot of different things to look at. And as Tom said, we're going to be pretty disciplined in how we approach it.
Gregory Burns: All right. Thank you.
Operator: Thank you. The next question goes to Joe Gomes of NOBLE Capital. Joe, please go ahead.
Joe Gomes: Good morning. Thanks for taking my question. I wanted to start off this morning. As you mentioned, the market for the -- in the office and back-to-school consumer still remains softer than what you guys were anticipating. I was kind of wondering, maybe if you can -- maybe highlight a few of the things where internally you were projecting X business to grow faster than what it did in the quarter? And what do you -- as you're sitting there today needs to happen on the consumer side or on the office product side, in order for those revenue declines to significantly moderate from where they have been here?
Tom Tedford: Yes, Joe, that's obviously a difficult one for us to ask in terms of kind of what needs to happen at a macro level. Let me first dive into the question about our expectations. So across most of our categories, particularly within our office product categories, the rate of decline in 2024 has been greater than what was forecasted. We use our own trend data. We use external sources such as Circana for example, in the U.S. as we're building out our expectations for any particular year in those categories. And as we turn the calendar year and as the sales trends started to kind of moderate versus expectations. It's clear to us that that's a trend that's here for a bit and that's really the root cause of kind of the mess is just the expectations predominantly in the office products categories. We had some difficult compares in our gaming accessories business in Q2, but we still long term, feel confident that, that business will be a grower for the portfolio. And then as we mentioned, Kensington, we're encouraged. We're seeing some really nice rebound return to growth is encouraging, particularly given the steep declines of prior year. And then within learning and creative, it's really early in our seasons. In Latin America -- or pardon me, in Brazil, back-to-school is later in the year. We're just getting into the big season or big weeks of the season here in North America. So it's a bit early to tell. So the primary drivers of lower sales versus our expectations are really the soft demand in our office products categories. Relative to improvement, I just think general consumer and business sentiment is low at the moment, and we all need that to improve. And when that does, I think there'll be a tailwind in the business.
Joe Gomes: Okay. Great. Thanks for that. And one more, a great job on the gross margin. As you mentioned, the gross margins have improved, I think, sequentially for six quarters. Is this a sustainable number as we go forward here? Or do you think there could either be even more improvement in gross margin, especially given that you've exited a bunch of the low margin product. Thanks.
Deborah O'Connor: Yes. No, Joe, that's a great question. I will tell you, we have a lot of good cost initiative reduction plans. As you know, we've talked about in the past as far as our footprint rationalization and things like that that will help us as we go forward. I think we'll be strategic as we think about the gross margins and where we land. But we're feeling good about the low margin exit. Those are out, they'll stay out. So I think all in all, we expect those margins to improve as we end the year.
Joe Gomes: Great. Thanks for taking my questions.
Tom Tedford: Thank you.
Operator: Thank you. The next question goes to Kevin Steinke of Barrington Research. Kevin, please go ahead.
Kevin Steinke: Thank you. I wanted to start off by asking about gaming accessories. You talked about last quarter, you had some growth. And this quarter was down. You talked about the tough comparable you had noted kind of expected that recovery to be choppy. Although I believe you said in the opening remarks that you expect a recovery in gaming accessories in the second half -- can you just maybe elaborate a little bit more on that? What you would expect would drive that?
Tom Tedford: Yes. So gaming is just in a cyclical low point, just given the lack of console releases over the last couple of years. We also were comping, as we mentioned, some strong new game releases last year and being back in stock with wireless modules. So we had a number of difficult compare issues that we had to work through in Q2. As we look ahead, our international expansion is really what we are excited about. We see opportunities predominantly in Asia to continue to penetrate markets like Japan, which is a very large -- has a very large established gaming market. It's the third largest in the world. And so we see those as really key growth drivers with our initiatives to expand in Asia in the back half of the year. So that's really what gives us confidence in kind of improving the Q2 results in the back half.
Kevin Steinke: Okay. That's helpful. Thanks. And you continue to talk about product development. And while it's -- it sounds like it's still early there. It looks like you had a couple of press releases out over the last couple of months about launches in Kensington. So does that -- do those kind of fit into that product development tailored to the changing world of work and maybe just talk about the overall product development pipeline and when we could start to see products start rolling out in a more meaningful way?
Tom Tedford: Yes. So that has been a very discrete area of focus for our leadership team, Kevin, is getting better outcomes from our product development work. As you know, we're in a disruptive environment with changing preferences from our consumers as many of them have moved to a hybrid work environment. And I think our teams are doing a really nice job mining those insights and finding opportunities for product solutions that meet the changing needs of our consumers. Importantly, there are also products that we can sell through our existing channels. And so there's a really nice line of work that our teams are doing. But we are a bit early. We've had a reset in some of the work that we've done. The Kensington business has done a really nice job of looking at trends. We're launching a line of sustainable products that we feel very confident will be important for that product portfolio as we move forward. We're seeing some really interesting TAMs that we have either know or low market shares, what we think our brands should be competing in. And so there's some exciting developments within the business, but product development, it does take time. And so my hope is as we get more meaningful revenue from new products in 2025. And certainly, by 2026, we should be able to see significant dollars isolated to do product development or attributable to new product development. So excited about it, but we've got some work to do still.
Kevin Steinke: Okay. Sounds good. I'm kind of searching through your 10-K here just to find where you stand with repurchase authorization, but could you update us on what has been authorized or when you might expect to start buying back stock?
Deborah O'Connor: Yes. So we have authorization to your point of $106 million available still authorized and outstanding. We're going to take a good careful approach. We're sort of reverting back if you think about how ACCO has been historically with a balanced allocation of capital. So we're working through some things with our Board now, but we're going to be back on the balanced allocation.
Kevin Steinke: Okay. That makes sense. Well, thanks for taking the questions. I'll turn it back over.
Tom Tedford: Thank you, Kevin.
Operator: Thank you. [Operator Instructions]. And the next question goes to William Reuter of Bank of America (NYSE:BAC). William, please go ahead.
William Reuter: Good morning. My first question is a lot of the comments about the weakness in the office products and back-to-school seems to imply that maybe the category is more less recession resistant than I would have expected. Are you -- how confident are you that the declines are due to weak consumer spending relative to less usage of some of your traditional paper products versus products that may be moving online in some capacity?
Tom Tedford: Yes, Bill, thanks for the question. I think it's a combination of both. Certainly, we've referenced the changing consumer preferences and work habits of consumers as they've migrated to hybrid. That's impacting our business. I think uncertainties, business spending never responds well in certain economic times. And then as you know, consumers are under pressure. I'm really confident in our back-to-school business. Our brands do hold up well in times of economic uncertainties. We proved that last year. In season-to-date, we're performing well in BTS. So I think it's a combination of multiple things. It's not one factor.
William Reuter: Got it. And then in terms of M&A, in the initial discussion, you kind of talk about M&A broadly, then you used the word tuck-in at least once, maybe twice. Would you consider more transformative M&A? Or should we expect that any sort of M&A would be relatively modest in size?
Tom Tedford: I think in the near term, we have to consider all alternatives that enhance shareowner value. But realistically, they're going to be smaller opportunistic highly synergistic incremental EBITDA that enables us to keep our leverage ratio low. And that's the most likely outcome in the near term.
Deborah O'Connor: Yes. I think Tom said it right. We worked too hard to get our leverage where it's at, and we're going to maintain it at those kinds of levels. We're going to look at things that have a good payback in a short payback period.
William Reuter: Got it. And then the decision to kind of reallocate capital to a little more balanced approach between share repurchases and debt reduction, while you guys have made great progress, you're clearly still a little ways away from your target of 2% to 2.5%. I guess why is this the time to kind of change that allocation versus getting leverage down a little more before we do that?
Deborah O'Connor: Yes. No, it's a great question. I think where the stack is today, it's a great value. And I think putting our money to get a return on our own shares is key today. So we're going to have a very balanced approach. We're still targeting the 2% to 2.5%. But given the dilution from some of our employee grants as well as the stock price where it is, it's just a good value right now.
William Reuter: Got it. That makes sense. All right. Thanks. That's all for me.
Tom Tedford: Thank you.
Operator: Thank you. We have no further questions. I'll hand back to Tom for any closing comments.
Tom Tedford: Thank you for your interest in ACCO Brands. We look forward to talking to you in a couple of months to report on our third quarter results.
Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
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