Q3 2025 Earnings Call Contradictions: Brazil and North America Back-to-School, Tariff Pricing, and Strategic Shifts

Date of Call: October 31, 2025

Financials Results

• Revenue: Reported sales decreased 9% in Q3 (including a favorable foreign exchange impact of ~2%); sales slightly below prior outlook
• EPS: Adjusted EPS for Q3 was in line with outlook; full-year adjusted EPS guidance $0.83 to $0.90
• Gross Margin: 33%, improved 50 basis points (gross profit $127M, down 8% year-over-year)
• Operating Margin: Adjusted operating income $39M vs $45M prior year; segment margins: Americas 14.4%, International 10.2%; overall margin rate pressured by lower volumes and SG&A deleverage

Guidance:

• Full-year reported sales expected down 7% to 8.5%.
• Full-year adjusted EPS guidance $0.83 to $0.90.
• Adjusted free cash flow expected approximately $90M to $100M (includes $17M from asset sales).
• Anticipate net leverage of ~3.9x at year-end; primary focus on debt paydown; no maturities until 2029.
• Expect Q4 improvement driven by positive FX, growth in technology accessories (Switch 2/Kensington), and delayed price realization to cover tariff costs.

Business Commentary:

* Sales and Market Conditions: - ACCO Brands reported third-quarter sales slightly below their outlook, with global demand challenged by softer demand and trade down in certain categories. - The decline was attributed to the slower implementation of tariff-related price increases and the timing of forecasted revenue that moved out of the third quarter.

• Cost Reduction and Operational Efficiency:
• ACCO Brands realized an additional $10 million in savings in the third quarter, bringing the cumulative program total to approximately $50 million.

• The progress is part of their multiyear cost reduction program to manage global spending and preserve profitability and cash flow.

• Technology Accessories and Gaming:

• Kensington computer accessories sales declined modestly in the quarter due to delayed business spending.

• Gaming accessories, specifically PowerA, also saw a decline due to reduced demand for legacy consoles and the timing for Nintendo Switch 2 accessories.

• Brazil Market and Inventory Levels:

• In Brazil, sales were weaker than expected due to a constrained consumer, with trade down prevalent in the quarter.
• The back-to-school season in Brazil was slow to start, with customers deferring purchasing decisions, and retailers managing inventory tightly.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledged Q3 sales missed outlook but noted cost actions allowed meeting adjusted EPS and improving gross margin by 50 bps. They reaffirmed full-year guidance and highlighted expectations for Q4 improvement driven by FX, tech accessories and delayed price realization, while warning demand remains constrained by tariffs and cautious spending.

Q&A:

• Question from Joseph Gomes (NOBLE Capital Markets, Inc., Research Division): What underpins your confidence for Q4?
  Response: Confidence rests on expected Q4 growth in technology accessories (Switch 2 momentum and Kensington end-user pipeline), delayed price realizations shifting into Q4, and timing of orders that moved from Q3 into Q4.

• Question from Joseph Gomes (NOBLE Capital Markets, Inc., Research Division): Can you give more color on trade down dynamics?
  Response: Widespread consumer trade-down across geographies; ACCO's broad brand portfolio covers multiple price points so they can capture lower-price sales, but it reduces top-line and modestly pressures profitability.

• Question from Joseph Gomes (NOBLE Capital Markets, Inc., Research Division): Are you pursuing strategic opportunities—acquisitions or otherwise?
  Response: Yes—management is evaluating accretive, highly synergistic M&A, licensing agreements and OEM/partner expansions that reposition the portfolio into faster-growing categories, channels or markets.

• Question from Gregory Burns (Sidoti & Company, LLC): Has Brazil's back-to-school picked up?
  Response: Brazil started slow as expected; customers deferred purchases later into the season and it's still early to draw season conclusions.

• Question from Gregory Burns (Sidoti & Company, LLC): How do you manage trade-down without cannibalizing higher-end lines?
  Response: New product introductions are generally above fleet gross margin averages, so they should be incremental to margins; some cannibalization is unavoidable but strong brands captured share at both premium and value tiers.

• Question from Gregory Burns (Sidoti & Company, LLC): Are you in the right distribution spots or are there opportunities to expand?
  Response: There are opportunities—management is targeting vertical expansion (e.g., healthcare), leveraging Kensington's end-user sales organization, and pursuing channel/geographic expansion.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): Was North American sell-through soft and how meaningful was trade-down in back-to-school?
  Response: Sell-through met or exceeded customer targets; supply chain was in-stock and execution was strong, so back-to-school sell-through was solid despite cautious retailer replenishment.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): Can you quantify revenue pushed from Q3 to Q4?
  Response: Management declined to quantify publicly, stating the shift was sizable enough to note and was a factor in missing the low end of guidance.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): How meaningful were the tariff-related price increases (percentage)?
  Response: Price increases taken to market were roughly mid-single-digits on average; implementation timing delayed, with benefits expected in Q4.

• Question from Kevin Steinke (Barrington Research Associates, Inc.): What types of Kensington product launches give you confidence for Q4?
  Response: The primary driver is a large, robust end-user pipeline and strong close rates; product launches are supported by that pipeline, underpinning expected Q4 growth.

• Question from William Reuter (BofA Securities, Research Division): Are you overexposed to struggling channels (e.g., pharmacies) and is channel mix a headwind?
  Response: Exposure to those channels is minimal; North American channels are balanced (e-commerce largest), and management sees more opportunity in verticals and end-user deals rather than worrying about pharmacy exposure.

• Question from William Reuter (BofA Securities, Research Division): Did you pass tariff-related costs dollar-for-dollar?
  Response: The objective was full pass-through, but not all pricing was implemented in Q3; the Q3 margin improvement mostly came from footprint rationalization and cost reductions (roughly half savings in COGS, half in SG&A).

• Question from William Reuter (BofA Securities, Research Division): Given Brazil macro challenges, have you seen acceleration there recently?
  Response: Management is cautious; order entry has improved modestly over the last 4–5 weeks, but it's still early in the back-to-school season and customers remain cautious on inventory.

Contradiction Point 1

Brazil's Back-to-School Season Performance

It involves differing expectations and assessments of the back-to-school season in Brazil, which can impact regional sales and overall company performance.

Have you seen any increase in Brazil's back-to-school season? - Gregory Burns(Sidoti & Company, LLC)

2025Q3: Results are consistent with expectations. The season started slow, with customers deferring purchases. We anticipate this trend to continue, aligning with our projections. - Thomas Tedford(CEO)

Can you quantify the decline in the back-to-school season due to Q1 prebuying and tariff demand? Also, how are channel inventories positioned, and will the back-to-school season be spread over Q2 and Q3? - Gregory John Burns(Sidoti & Co.)

2025Q2: We're seeing a very soft demand in the market and some deferral of orders that we believe may partially be due to the tax payment and maybe due to just the cautiousness in the market. - Thomas W. Tedford(CEO)

Contradiction Point 2

Price Increase Implementation and Timing

It involves the timing and implementation of price increases due to tariffs, which directly impacts margins and costs, crucial for investor expectations.

How has the revenue shift impacted Q4 sales? - Kevin Steinke (Barrington Research Associates, Inc., Research Division)

2025Q3: Revenue shift was sizable, affecting Q3 outlook. We're unable to quantify specifically due to other dynamics in play. The shift is significant enough to impact guidance. - Thomas Tedford(CEO)

Could you elaborate on the international segment's price increases and the Americas' anticipated price hikes driven by tariffs? - Joe Gomes (Noble Capital)

2025Q1: The goal was to pass increases on a dollar-for-dollar basis. Not all pricing was implemented in Q3, affecting margin improvement. Cost savings in COGS and SG&A were significant in Q3. - Deborah O'Connor(CFO)

Contradiction Point 3

Kensington's Growth Impact from One-Time Contract

It relates to the impact of a one-time contract on Kensington's growth, which affects revenue expectations and growth strategies.

How significant was the product trade-down during the North American back-to-school season? - Kevin Steinke (Barrington Research Associates, Inc., Research Division)

2025Q3: Our products sold through as planned. Supply chain managed disruptions well, with strong sell-through. We're well-positioned for 2026 with effective supply chain management. - Thomas Tedford(CEO)

Will the large B2B contract you discussed have additional impact in Q2 or Q3, or was it fully realized in Q1? What would Kensington's growth have been if the contract hadn't occurred? - Joe Gomes (Noble Capital)

2025Q1: If the contract had not been realized, Kensington's growth would have been roughly flat, but it had a mid-single-digit increase due to this contract. - Thomas Tedford(CEO)

Contradiction Point 4

North American Back-to-School Demand Environment

It relates to the company's assessments and strategies in response to the back-to-school demand environment, affecting market positioning and sales performance.

What was the impact of product trade-down in North American back-to-school? - Kevin Steinke (Barrington Research Associates, Inc., Research Division)

2025Q3: Our products sold through as planned. Supply chain managed disruptions well, with strong sell-through. We're well-positioned for 2026 with effective supply chain management. - Thomas Tedford(CEO)

Can you discuss product assortment adjustments based on the current back-to-school demand environment? - Kevin Mark Steinke(Barrington Research)

2025Q2: We have a good offering of price choices in North America, touching all price points. We collaborate with customers to ensure price targets are met. - Thomas W. Tedford(CEO)

Contradiction Point 5

Strategic Focus on Adjacent Categories

It highlights a potential change in strategic focus, which could impact the company's growth trajectory and M&A priorities.

What types of Kensington products will launch in Q4? - Kevin Steinke(Barrington Research Associates, Inc., Research Division)

2025Q3: Our M&A focus will be on highly accretive, low-risk opportunities, primarily within adjacent or near-adjacent categories. - Thomas Tedford(CEO)

Tom, what’s different this time in your strategy to improve sales trends compared to past efforts like new product development, acquisitions, and brand building, given that 80% of your brands already lead in market share? - Joe Gomez(Noble Capital)

2024Q4: Moving forward, our focus is on expanding into adjacent categories to drive sales growth, beyond our current core markets. - Thomas Tedford(CEO)