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AB

ACCO BRANDS Corp (ACCO)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was in line with company outlook on sales and adjusted EPS, but margins compressed on tariff-related disruption; revenue was $394.8M, adj. EPS $0.28, gross margin 32.9% .
  • Estimate comparison: revenue beat but EPS and EBITDA were modest misses versus S&P Global consensus (Rev: $394.8M vs $389.8M*, EPS: $0.28 vs $0.29*, EBITDA: $53.6M vs $58.2M*). Values retrieved from S&P Global.
  • Full-year 2025 guidance was lowered: sales down 7.0–8.5% (reported) and adj. EPS $0.83–$0.90 vs prior $1.00–$1.05; free cash flow now ~ $100M vs $105–$115M prior; leverage expected 3.8–3.9x at year-end vs 3.0–3.3x prior .
  • Key catalysts: tariff mitigation (pricing effective Q3/Q4), Nintendo Switch 2 accessory ramp at PowerA into holiday, and cost savings ($8M in Q2; >$40M cumulative) to support 2H margins as volumes stabilize .

What Went Well and What Went Wrong

  • What Went Well

    • Revenue held within outlook with favorable FX tailwind; revenue decline improved sequentially Q1→Q2; International adj. operating margin rose to 8.5% on pricing and savings .
    • Tariff mitigation progressing: two strategic price increases, renegotiated third-party terms, accelerated “China+1” shifts; ~60% of sales outside U.S. insulated from U.S. tariffs .
    • Gaming accessories grew modestly; Switch 2 launch positions PowerA for stronger 2H holiday sales; management expects more meaningful contribution ahead .

  • What Went Wrong

    • Tariff announcement disrupted Americas purchasing early in Q2; Americas comparable sales -13.9% and adj. operating margin down 420 bps YoY to 17.4% .
    • Gross margin contracted ~200 bps YoY to 32.9% on lower volume and fixed-cost deleverage; adjusted EBITDA fell 27% YoY to $53.6M .
    • Full-year guidance cut (sales, EPS, leverage) reflecting muted demand and tariff uncertainty; leverage covenant increased to add cushion .

Financial Results

Revenue, EPS, Margins, and Profitability

MetricQ2 2024Q1 2025Q2 2025
Revenue ($M)$438.3 $317.4 $394.8
Gross Margin %34.8% 31.4% 32.9%
Operating Income (GAAP) ($M)$(111.2) $(6.7) $33.0
Adjusted Operating Income ($M)$64.6 $6.9 $47.1
Net Income (GAAP) ($M)$(125.2) $(13.2) $29.2
Diluted EPS (GAAP) ($)$(1.29) $(0.14) $0.31
Adjusted EPS ($)$0.37 $(0.02) $0.28
Adjusted EBITDA ($M)$73.4 $20.9 $53.6

Estimate Comparison (Q2 2025)

MetricConsensusActualResult
Revenue ($M)$389.8*$394.8 Beat
Primary EPS ($)$0.29*$0.28 Miss
EBITDA ($M)$58.2*$53.6 Miss

Values retrieved from S&P Global.

Segment Performance (Q2 2025 vs Q2 2024)

SegmentNet Sales Q2’24 ($M)Net Sales Q2’25 ($M)Adj. Op Inc Q2’24 ($M)Adj. Op Inc Q2’25 ($M)Adj. Margin Q2’24Adj. Margin Q2’25
Americas$292.3 $248.5 $63.2 $43.2 21.6% 17.4%
International$146.0 $146.3 $11.7 $12.4 8.0% 8.5%

Key KPIs

KPIQ2 2025 / YTD
Adjusted Free Cash Flow (YTD)$(23.7)M
Operating Cash Flow (YTD)$(33.4)M
Cash & Equivalents (6/30/25)$133.3M
Net Debt (6/30/25)$854.0M
Consolidated Leverage Ratio4.3x at 6/30/25
Dividend$0.075/sh declared 7/25/25

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales (Reported vs prior’s Comparable)FY 2025Comparable sales down 1%–5% Reported sales down 7.0%–8.5% Lowered
Adjusted EPSFY 2025$1.00–$1.05 $0.83–$0.90 Lowered
Free Cash FlowFY 2025$105–$115M ~ $100M (incl. $17M asset proceeds) Lowered
Leverage RatioFY 2025 YE3.0x–3.3x 3.8x–3.9x Higher
SalesQ3 2025N/ADown 5%–8% (FX positive) New
Adjusted EPSQ3 2025N/A$0.21–$0.24 New
DividendOngoing$0.075/qtr $0.075/qtr (declared 7/25/25) Maintained
Credit Agreement2H25–2026Prior leverage covenantCovenant raised by 50 bps (’25) and 25 bps (’26) Amended

Earnings Call Themes & Trends

TopicQ4 2024 (prior)Q1 2025 (prior)Q2 2025 (current)Trend
Tariffs / Trade2025 uncertainty flagged in outlook Elevated uncertainty; withheld FY outlook; supplier management readiness Tariff disruption early Q2; pricing in Q3/Q4 to offset; expect moderation 2H From uncertainty to mitigation actions
Supply ChainCost actions; footprint optimization “China+1” optionality emphasized Accelerated shifts, renegotiated terms; 60% sales ex-U.S. Proactive execution
Gaming / Switch 2Tech accessories growth offset declines Modest early impacts; pipeline improving Switch 2 accessories launched June 5; bigger 2H (holiday) Building to 4Q ramp
Back-to-School (BTS)Brazil BTS soft in 4Q24 Early talk; cautious retail U.S. retailers cautious; <10% sell-through by call; inventory ready for replen Cautious near-term
Regions——Mexico soft; China low-priced competition in LatAm; EMEA demand soft Mixed; watch LatAm/EMEA
Cost Program$25M 2024 savings; target $100M Ongoing execution $8M Q2 savings; >$40M cumulative On track
Capital & LeverageNet debt reduced; 3.4x YE24 3.65x at 3/31/25 4.3x at 6/30/25; covenant raised; ~$200M revolver avail Temporary elevation; added cushion

Management Commentary

  • “We reported second quarter net sales and adjusted EPS in line with our outlook… Our flexible global supply chain is a competitive advantage as we navigate the evolving business environment.” – CEO Tom Tedford .
  • “We are making great progress on our tariff mitigation actions… price increases, improved terms with third-party manufacturing partners, and accelerated production shifts to cost-competitive countries.” – CEO .
  • “Gross profit… margin rate contracting about 200 basis points to 32.9%… driven by tariff announcements and lower fixed-cost absorption.” – CFO Deb O’Connor .
  • “Pricing initiatives… will cover the cost of the tariff as well as maintaining our margin… back-half [gross margin] to modestly improve.” – CFO .
  • “We realized $8 million in cost savings [in Q2]… annualized cost savings totaling more than $40 million” – CEO .
  • “Leverage covenant… increased… by 50 bps for the remainder of 2025 and by 25 bps throughout 2026.” – CFO ; 8-K details .

Q&A Highlights

  • BTS dynamics: Decline driven by Q1 pull-forward, customer order softness/cancellations, modest shift into Q3; <10% of sell-through complete; replenishment dependent on demand; retailers managing inventory tightly .
  • Pricing & elasticity: Blended price increases to offset tariffs; management models modest volume elasticity but declines to quantify; forecast reflects elasticity .
  • PowerA / Switch 2: Minimal Q2 benefit due to June timing; holiday is peak; strong positioning with licensed lineup and anticipated adoption curve .
  • Brazil tax assessments: Liability resolved at ~$7M cash vs $20M reserve; $13M discrete tax benefit recognized .
  • Shelf space & share: Listings roughly constant YoY; cautious retailer inventory approach likely weighs more than shelf allocation .

Estimates Context

  • Q2 2025 vs consensus (S&P Global): Revenue beat ($394.8M vs $389.8M*), EPS slight miss ($0.28 vs $0.29*), EBITDA miss ($53.6M vs $58.2M*). Values retrieved from S&P Global.
  • Implication: Top-line resiliency amid tariff shock, but margin dilution and deleverage drove earnings shortfall vs expectations .

Key Takeaways for Investors

  • Tariff mitigation is underway with pricing effective in 2H; watch for sequential gross margin improvement as price realization and cost savings accrue .
  • Guidance reset lowers FY revenue/EPS and raises YE leverage; focus shifts to execution on FCF (~$100M) and deleveraging in 2H .
  • Americas remains the swing factor (BTS, tariff pass-through); International margins improving on pricing/savings despite soft EMEA demand .
  • Switch 2 accessories are a meaningful 4Q catalyst for PowerA; monitor holiday sell-through and channel inventory signals .
  • Cost program is delivering ($8M in Q2; >$40M cumulative) and should partially offset fixed-cost deleverage if volumes stay pressured .
  • Covenant amendment provides flexibility; ~$200M revolver availability supports liquidity while management prioritizes debt reduction near term .
  • Position sizing should reflect macro/trade volatility and elasticity risk to volumes as price increases roll through; upside if demand stabilizes faster than expected in BTS/holiday .