ACCO Brands Corp (ACCO) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter, 2012 ACCO Brands earning conference call. My name is Shenelle, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recording for replay purposes. I would now like to turn the conference over to Miss Jennifer Rice, Vice President, Investor Relations.

Good morning, and welcome to our second quarter 2012 conference call. Speaking on the call today are Bob Keller, Chairman 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 the quarterly results, we are referring to adjusted pro forma results including Mead Consumer and Office Products for all periods but, excluding restructuring and merger related costs and applying a normalized effective tax rate of 30%. Schedules of adjusted pro forma results and a reconciliation of these non-GAAP measures to the most directly comparable measures of GAAP begin on Page 12 of our press release. This morning, we also furnished an 8-K with pro forma annual and quarterly results for 2011 and the first two quarters of 2012. That 8-K is also available on our website, along with today's slides and press release, and includes a reconciliation of pro forma results to our reported results. Based on the final determination of our bond coupon, amortization, and share count, the final 2011 pro forma EPS number is now $1.03. By quarter, the 2011 EPS numbers were as follows, negative $0.03 in the first quarter of 2011, $0.23 in the second quarter, $0.42 in the third quarter, and $041 in the fourth quarter of 2011.

During the call we may make forward-looking statements. And, based on certain risk factors and uncertainties, our actual results could differ materially. We assume no obligation to update our forward-looking statement. Please refer to our press release and SEC filings for an explanation of certain of these factors. Following our prepared remarks, we will hold a Q&A session. Now, it is my pleasure to turn the call over to Bob Keller.

Thank you, Jennifer, and good morning everyone.

Today we reported sales for the second quarter which increased 33% to $439 million. We reported EPS which, excluding charges, increased 73% to $0.26 versus a comparable $0.15 in the prior year quarter. Increase in sales and earnings was a direct result of the merger with Mead Consumer and Office Products business which we acquired on May 1. On a pro forma basis, sales were down 9% driven almost equally by our European performance, FX impact, and the rest of the world. Our adjusted pro forma income was $0.18 per share versus a comparable $0.23 per share in last year's quarter.

The declines resulted from the legacy ACCO Brands businesses, where we saw increasing softness in US demand throughout the quarter, further weakness in Europe, and unfavorable mix in back to school sales and in our computer products business where we continue to see a significant shift in our sales of laptop security products to tablet and smartphone accessories. All of these mask the solid performances we saw in Brazil, Mexico, and the Asia-Pacific region, where sales were all up on a constant currency basis. It's also important to note that the legacy Meade businesses performed well, and in some cases better, than we expected when we acquired them. Looking ahead to the second half, we expect that the operating environment will remain challenging. Although it is too soon to call the back to school season, our early read is that shoppers are buying our lower value products, which, if the trend continues, will put pressure on our margins in the third quarter.

We are, as you would expect, redoubling our focus on the things we can control. We are taking a hard look at the potential for additional synergies, top and bottom line, from our integration activities. We are ramping up our Lean Six Sigma initiatives to take more costs out of the business. In both the US and Europe we expect to take additional restructuring actions that will mitigate some of the risks we see in these markets and we should see some pay off as early as the fourth quarter. In short, we are doing all we can to strengthen this year and to position our business for greater success in 2013.

Even with these initiatives, we now expect sales for the year to be between $1.9 billion and $1.95 billion and adjusted EPS to be in the range of $0.82 to $0.85. In terms of 2013, we still expect to deliver the same level of year over year earnings increase that we discussed in May, about $0.20, as we realize the cost synergies from the merger, see the continued benefit of cost reduction initiatives, and get the reduction of our interest expense. Regardless of the macro challenges we are a much stronger and more resilient business today because of the Mead Consumer and Office Products acquisition. We have better product diversity, a stronger position, and better balance in consumer channels, a larger presence in faster growing geographies, and a more talented leadership team. We are also stronger financially with a better balance sheet and a business that will generate $150 million in free cash next year. We are on or ahead of plan on all of our integration activities and our team remains enthusiastic about both the potential of this business and our ability to deliver significant value to our share-owners going forward.

Now, I'll ask Neal to provide more detail on our financial performance. Neal?

Thank you, Bob. Our second quarter performance is recapped on Slide 3. Reported sales increased 33% to $439 million, driven by the merger with Mead. On a pro forma basis, sales declined 9%. However, if you exclude Europe and currency, the sales decline is closer to 3% which resulted from the legacy ACCO Brands business where we saw unfavorable mix in back to school sales. We did see growth in Brazil, Mexico, and the Asia-Pacific region where sales were all up on a constant currency basis. As Bob also noted, the legacy Mead businesses performed well and we expect that to continue for the remainder of the year.

Heading to our pro forma P&L. Gross margin declined 100 basis points to 30% in the quarter as shown on Slide 4. The decline was due to an adverse sales mix, both product and customer, which had a 160 basis point impact. In North America, we saw consumers trend toward our lower price point products. And, in computer products we had a lower mix of security and other PC related product together with the loss of royalty income.

In terms of SG&A, we were able to improve SG&A as a percent of sales by 20 basis points to 19%. Primarily due to cost reduction initiatives which include lower costs in Europe and the US. These savings helped offset the impact we saw from sales deleveraging. In all, operating income margin decreased 90 basis points to 9.6% from 10.5%. Foreign exchange had a $1.7 million adverse impact to the bottom line.

Heading to an overview of our pro forma segment, North America sales declined 5%, driven by volume and mix. The decline was primarily in the legacy ACCO US business with lower sales in both direct and indirect channels. We saw a reduction in point of sale trends during the quarter, as well as a mix shift to our lower price point products during the back to school season. In addition, we saw additional inventory reduction by some customers.

North America adjusted pro forma operating income declined 3% to $34 million. But, as a percentage of sales, operating margin increased 20 basis points to 11.2%. Lower SG&A due to cost reductions helped offset the unfavorable product mix which reduced gross profit. International segment sales decreased 18% driven by volume, which had a 10% impact, and foreign exchange, which had an 8% impact. The decline in volume was primarily in Europe where we made the decision to exit low margin product and also as a result of the even softer than expected economy. International segment margins declined 120 basis points to 6.8% due to adverse SG&A leverage from the top line decline. As a result, we will take even further actions to reduce costs in part of our international segment.

Computer product sales decreased 8% due to FX and pricing which each had a nearly 4% negative impact. The adverse pricing was mainly due to the loss of royalty income that resulted from the expiration of patents for our legacy security product at the beginning of this year. The expiration of the patents also caused a reduction in average selling prices for our sales of this product. Computer products volume increased modestly as sales of new products related to smartphones and tablets more than offset lower than expected sales of laptop accessories and security products, particularly in the US due it a further slow down in PC purchases during the quarter. Computer products operating margins declined to 22.2%, versus 26.9% in the prior year quarter, due to product mix and the loss of the royalty income.

Turning now to our cash flow. We had net cash outflow year over year in the quarter, which will be a normal seasonal trend for the combined company. On a year-to-date basis, working capital was a use of $103 million, $79 million of which is an increase in accounts receivable. This is due to the seasonality we see with back to school shipments going out in the second half of the quarter. Much of the increase year over year was related to the acquired Mead business. We also had cash payments of $14 million related to the merger and $63 million of cash payments related to the refinancing. Other significant first half cash payments included interest payments of $62 million and contributions to company pension plans of $16 million.

As we move into the third quarter, and more particularly the fourth quarter, the business will generate significant amounts of its annual cash flow. We anticipate by year end having approximately $125 million of excess cash that will likely be deployed for debt reduction. For 2013, we expect free cash flow to be about $150 million. In terms of the revised sales and EPS guidance we provided today a comparison of this guidance to our earlier guidance is on Page 6 of our slides.

Two-thirds of the reduction in sales guidance is due to the further softening we have seen in Europe and in FX and one-third is due to the changes in the US in computer products. In terms of EPS, the change is related to the deleveraging caused by the lower top line as well as mix and FX. We expect mix will be a bigger factor in Q3 than in Q4. The low-end of our guidance assumes normal seasonal sequential improvement but the same year over year trends continue for the remainder of the year. The high-end of our guidance assumes sales decline abate, particularly in Q4.

On Slide 7, we have fine tuned a number of our modeling assumptions, which includes slightly lower capital expenditure in 2012, approximately $40 million and for 2013, $50 million. Longer term we believe CapEx will be around $45 million annually. While cash interest, excluding transaction related, we are now expecting that to be slightly lower this year, around $65 million and stepping down to $58 million next year, assuming debt reduction. Our cash tax assumptions are also lower. We are now assuming $45 million annually for 2012 and 2013, as we will be able to utilize more of our NOLs. Our 2012 assumption for tax rate is that it will be 30% in 2012, but increased to 35% in 2013 and future years as we have reversed our state and certain foreign tax valuation allowances. And, now incorporate state taxes and lower dilution from our foreign operations.

At this point, we will conclude our prepared remarks and Bob and I will be happy to take your questions. Operator?

Thank you.

(Operator instructions)

Bill Chappell, SunTrust.

Good morning.

Good morning, Bill.

Several questions, but I'll start with just the outlook for 2013. And, just trying to understand, there is no change to the $0.20 improvement?

Right.

I understand it is off a smaller base. But, I'm just trying to figure out what is baked into that $0.20. Because it looks like there's at least $0.05, $0.06 that just comes from lower interest expense.

The largest components are the synergies we feel very, very comfortable that we will deliver the $20 million in synergies that we promised. The next biggest component is the interest expense. You are right, that is about $0.06 and there is just a small operating improvement built into that.

It sounds like we can get to $0.20 pretty quickly. I'm trying to understand. Is there anything you have seen over the past three, four months that gets you more excited? How do we look at this new base?

I'm more excited in the limited amount of time we have had to work as part of a unified team with the Mead folks. Because I think we got a great business that gives us an awful lot of opportunities and an even stronger senior management team than we had expected. The risk in all of this is -- if you had asked me, and I could have told you, early in June how we would have delivered Q2, I would have said we were a slam dunk on the $0.20. And, June just went really soft, including the last couple of weeks where people both moved orders out of the quarter and canceled orders. We haven't seen anything in August that would give us an awful lot of confidence that the world's going to turn around. Europe is a little softer than we expected, the US is more soft than we expected. And so, we don't think there is any benefit in being aggressive about expectations, at this point in time.

And, just help me understand again going to '13. What are you expecting? Are you expecting Europe to get worse from here? Are you expecting Brazil to get worse or better from here? I mean, how --.

Europe, we caused -- a bunch of the issues we are having in Europe were things that we did. We exited unprofitable products and customers, and probably two-thirds of the impact in Europe is stuff that we did. We'll lap that early next year. So, our expectations for Europe is it's going to be -- look a lot more flat in 2013 than it is this year. From an operating perspective, Brazil, in constant currency and local currency, performed well. FX has hurt us in Brazil pretty badly. It is off more than the Euro is, frankly.

Okay, and then, my final two. Despite your drop to next year's numbers, I think you said in your prepared remarks you are still expecting $150 million of free cash flow which doesn't sound like that much of a difference. Have there been any other changes there? And then, the other question just on a macro, there had been a comment out of one of our customers a few weeks ago about a drop in cut paper, and maybe the rise of iPads hurting the whole paper business. Can you talk about that and what you are seeing?

Yes, I think we thought coming in, that in the operating environment we were in a few months ago, that cash flow could have been as high as $180 million. So, it was $150 million to $180 million, we are at the low end of that range now. But, we still feel very, very good about that. Our tax rate is up because -- a little bit higher than we expected as we have gone through. But, our cost savings are up pretty significantly as well.

In terms of paper-based secular decline, and the impact of the iPad, it is an impact. We've assumed that all alone. We have categories that we frankly acknowledge are in secular decline. So, our calendaring products are in secular decline. Turns out from a volume point of view they were actually up in Q2. That will happen from time to time.

There are specific products within categories that are more impacted. When we look at ring binders for instance, three inch ring binders which are used for archival storage, they have fallen off a cliff. One inch ring binders, which are used for presentations, the needle hasn't moved at all in terms of the volume on those products. So, there isn't anything out there that, from a paper-base decline perspective, is different than what we expected six months ago or a year ago. I mean, we have assumed all of that into our planning purposes.

The one thing the iPad is doing, though, is it is changing the product mix on our Kensington line. We have basically two major components of that product line. One is physical security for laptops, and the other is accessories for smartphones and tablets. We saw close to a 70% increase in the quarter in smartphone and tablet accessories. But, we saw, of course, a decrease in laptop sales. As you know, there are three pretty significant announcements that are going to impact that product line in the second half of the year. We are not quite sure how to call it yet.

The -- Windows 8 is coming out and we don't know if that is going to generate more interest in the laptop marketplace because of the added functionality. There is obviously high expectation that there is going to be an iPhone 5 with a different form factor. And, potentially a smaller iPad with a different form factor. And, all of those will have an impact on our computer accessories business, our Kensington business.

Great, thanks for the color.

Yes.

Arnold Ursaner, CJS Securities.

Hi, good morning.

Hi, Arnie.

Bob, it sounds like things really moved quite a bit in the last couple of weeks. Maybe you could step back, without providing competitive information, but perhaps give us a better feel for some of the dialogues you are having with customers, what they are having with you. The channels that you are seeing this major change. Maybe just highlight what you experienced the last couple of weeks. And, probably more importantly is any of that -- it sounds like most of that has not changed in July or early August.

I think it is too soon to call. We have been highlighting for more than a couple of years now, that our quarters are really back end loaded. That we tend to have a very soft first month of the quarter, an okay second month, and a strong third month. And, that's frankly how Q2 started. We started slowly, we had an okay second month, we went into June, we had the orders that we expected to be able to deliver the quarter to our expectation and then it just fell off? Across-the-board in the US marketplace we saw a softening of business confidence that tends to get reflected pretty directly into durables purchases. So, we saw softness on the durable side of our business.

On the back to school side, volumes are okay but we see consumers trading down. And, our customers, frankly, have either anticipated that or that's the same sense that they have. Because we track their advertising, and they are up about 21% in terms of ads targeting either private label or value products. Now, some of that's ours. We are providing some of the private label and some of the value products. But, there is clearly a sense out there that people are trading down. The currency weakened for us in the quarter, maybe a little bit more than we had anticipated. And, Europe is just volatile, it's just tough.

And, some of our customers in that marketplace are stretched financially. And so, they are making quarterly decisions about asset allocation. And so, it got more challenging. The -- I guess the challenge we have is given that the first month of the quarter has been soft for years, we are in the first -- we just finished the first month of the quarter. It is not a particularly good indicator for us about what's going to happen. So, we've got the last few weeks of June as the primarily indicator. We don't have a good feel on what August means. It was pretty consistent with what our original expectation was. But, we assumed it was going to be soft.

We've got the most important three weeks coming up for back to school, so we don't have a full read on that. And then, as I mentioned earlier, we've got several announcements that are expected in the next 60 to 75 days on the technology side that have the chance to move the needle for us. But, we don't know what the impact will be. So, given the level of uncertainty, what we are going to do is focus on the things that we can control, we are going to assume that things are going to be challenging for awhile, and take appropriate actions relative to that. If things get better we'll do a little bit better.

Two more real quick questions if I can. The amount of revenue you chose to walk away from, is there a quantification on the annual amount that you have exited of the lower margin revenue?

Yes, we walked away from about $40 million of revenue in Europe.

And, my final question relates to you talked -- and I know you have managed your costs wherever you can. The actions that may need to be taken, have they been taken? Or do you anticipate them being taken fairly rapidly to --?

A combination of Beth. We are accelerating the initiatives that we have got in Lean Six Sigma. We have some restructuring actions we will take in both our European and US business. We are going back over all of the cost synergies associated with the Mead acquisition to see if there might be further opportunities there. And so, some things are in process and some things are about to be in process.

Thank you, very much.

Sure.

Brad Thomas, KeyBanc Capital Markets.

Hey, Brad.

Hi, thanks. Good morning, Bob. Wanted to just follow-up on some of the commentary between ACCO Brands versus Mead. It sounded like Mead performed, at least in some areas, better than you had initially expected. I recognize going forward it will be a combined company, but could you talk a little more about how core ACCO performed versus how the Mead business performed?

Yes, all of the hit was on the ACCO side of the business. We performed as well or better than we expected on the Mead side. And, ACCO has a higher durables content, and that makes it a difference. We have a higher commercial content, and that makes a difference. We have Europe and Mead doesn't, and that makes a difference. We have the Kensington business, and that makes a difference. And, all of those things took a hit.

In the past, Bob, you have talked about the opportunity to get more shelf space for core ACCO to continue to innovate. Where do you guys stand in terms of some of those opportunities?

Actually, we have -- we are looking forward to the back half of this year and the early part of this year. We -- the one thing about the quarter that I'm honestly very excited about is how well the integration has gone. The teams are working together, we have the individuals in the positions that we want them in. Culturally, it's been an absolutely great fit. And, the teams are excited about the opportunities that the merger has brought us. So, we'll, as a for instance, we'll introduce Kensington product into Brazil this year. A lot of our core products, our core ACCO products, won't be able to make it into their shelf space until next year. But, we'll bring some Kensington products into Brazil this year.

We have already leveraged the relationship that Mead has with one of the largest mass marketers to gain ACCO positions for next year in Canada. We are excited about that. We have had an opportunity to present our new teams to our customer base. Uniformly, they are excited about the choices that we made. And so, we are excited about going forward. It's -- we were kicking things around over the last several days. One of the questions that you guys ask a fair amount, or at least the investors asked a fair amount, is what inning are we in? And, a year ago at ACCO we were probably in the middle innings.

We had done an awful lot of stuff to improve the core performance of the business. But, our ability to make progress from that point was going to be challenging. We had -- we didn't have the right channel coverage. We didn't have the right geographic coverage. We were heavily concentrated in mature market places, which to one of the earlier questions is going to have a higher rate of decline in paper-based products than our emerging markets. We didn't have the right set of skills in the team in terms of marketing versus sales or -- and this acquisition fixed all of those things. We went from being in the middle innings of where ACCO could go to being, frankly, right now we are in pregame of the new ACCO.

That is helpful, thanks, Bob. If I could just ask one more follow-up on the potential for a new form factor in the new iPhone.

Sure.

How much of your business is phone related? And, what has your experience been in the past when there has been a new form factor?

Well, it's about one-third of the Kensington business is smartphone and tablet accessories. And, that is up pretty dramatically over where it was 18 months ago. Our folks at Kensington do a fabulous job of reacting to the marketplace. We literally -- Apple does a great job of holding things until the moment of announcement. But, within hours of them releasing stuff we have stuff in the plant and are producing product. And, we have product to the market within 30 days. There have been, I don't know if they are necessarily leaks, if they are on purpose, but there is a reasonable amount of information out there about what the likely form factor is going to look like.

Our expectation is it is going to have a different pin configuration, probably be marginally slimmer, a few things like that. But, the answer is, our expectation is we are going to be able to respond, we'll be one of the first to respond with high quality, innovative products.

Thanks so much, Bob.

Sure.

Simeon Gutman, Credit Suisse.

Thanks, good morning.

Good morning.

Can we follow-up on this topic of some of the secular issues? You spoke about some of the categories.

Sure.

I was curious, I guess in June in particular, and I know one month it is probably hard to make a call. But, what do you think was happening between either something cyclical, which if other retail and consumer product companies saw something than it supports that. But, to the extent that it happens in the laminating and binding businesses, how do you reconcile secular versus cyclical with that?

I don't think they have an awful lot to -- I don't think the laminating and binding and shredding businesses have very -- I mean, I think they have very little to do with secular, paper-based secular decline. I think they have an awful lot to do with business confidence. And, I think business confidence really took a, especially in the US, took a big hit in Q2. And, when businesses aren't confident about the going forward, they stop spending money on machines. And, revenue shifts from buying new machines to repairing old machines. And so, we saw that in Q2. And, this is purely an opinion, but the guys I hang out with have -- believe that everybody is waiting for the election to see what happens. That there isn't going to be an awful lot of movement in terms of business confidence until we get past November.

And so, the way that the business is being planned for the back half of the year, I heard that there is no assumption of better trends, I guess, from the aggregate of second quarter.

Right.

But, was it planned with how things ended the quarter or for the aggregate of the second quarter?

It's based on the last six weeks. Which, in aggregate, are probably the six worst weeks of the year.

Okay, that's fair. And then, can you talk about the Mead business in Brazil? I'm sorry if this was touched on to some extent already. But, it looks like there was improvement or some turn in Brazil. It sounded like, if I heard right, it got better or there was growth in that market. And, I think Mead's business was experiencing some softness for some timing issues. But, curious if you can speak to that.

The Mead business in Brazil in constant currency was up 2% or 3%. And, we feel good about that. We are making investments in that business to help them grow faster in their core business. And, we'll have an opportunity in the back half to start to add some of our products to that marketplace.

Just to think about the synergies again, and not to put any numbers, I get it, but Brazil is probably the most opportunistic market. Are you still thinking that in existing overlapping markets of products there is as much potential? How should we think about the potential in the existing -- the overlapping markets today?

I don't know that we've given that level of granularity. Our expectation is when we start to see sales synergies that they'll add a couple of percent to our overall growth number.

Okay, thanks.

Reza Vahabzadeh, Barclays.

Good morning.

Good morning, how are you doing Reza?

Good, thank you. So, on the mix issue that you are facing, are there levers that you can pull? Tactical changes, I guess I'm talking about promotions, pricing architecture, anything that can be done in the short-term? Or is it too late for this quarter?

Well, we are five weeks into the quarter -- or six weeks into the quarter. So, it will be challenging for us to make an impact in Q3. We think we'll have an opportunity to have some impact in Q4. But, we think Q3 is largely loaded.

Got it. And, excluding your durable business, you mentioned Mead did better because they are more consumable oriented.

Yes.

Obviously, no exposure in Europe. So, excluding your durable business would you say that your North America consumable business was closer in line with your expectations? Or was that business also off?

It was from a volume point of view. It was softer from a margin point of view, because we saw some trade down on back to school products.

Right.

But, when you look at the decline in sales, 3% of it was Europe and 3% of it was FX and 3% of it was the rest of the business. That is pretty consistent with what you have heard from everybody. So, I don't think we were particularly out of line. And, we are not seeing dramatic fall offs based on secular issues. We just aren't. We are seeing, in this economic environment, people being sensitive to value.

Right. And then, as far as these savings that you have listed in the gross margin change year-over-year as well as the G&A savings, Neal, is that cost savings from prior ACCO initiatives? Or is that a combination of prior initiatives and new initiatives with the Mead integration?

It is both the combination of the cost saving initiatives that we had in place and also controlling discretionary expenditure given what we saw in the down turn in the sales volume.

Got it. And then, as far as input costs are concerned, are you seeing any relief there? Any lower level of cost inflation? Can you update us on your outlook on that front?

Generally, we are seeing -- flat would be the best description, some ups some downs. The bigger issues has been in some of our overseas territories which have had big currency reductions. They've effectively had big cost increases as a result.

Got it. And then, just because of the lower PO sales, you are comfortable with your inventory levels at retail at this point in time?

Well, we saw big reductions in our customers inventory holding as a result of what they did in June.

Right. And, would you anticipate more of that? Is there any way to caveat --?

No, I think they are at the lowest levels they have been at, ever. And so, we think we are pretty close to bottom in terms of customer inventory levels. But, it's clearly a focus for them.

Got it. Thank you, much.

Sure.

Karru Martinson, Deutsche Bank.

In terms of the $40 million of analyzed business you exited in Europe, where is that business going? Is it going to private label or are others stepping in?

It's a combination of both. A lot of it was driven by business in countries where we didn't have an effective F&D reach. So, it was expensive product for us to ship. And, the replacement products have been both branded, more local branded product and some private label.

Okay. When we look at the computer business in Kensington, you have two-thirds of that as security and PC oriented. You have the huge rollout coming with new smartphones. Do you see, as we go into 2013 a continued margin erosion of that mix shift changes? Or do you think you can stabilize that going forward?

I think we have commented in the past couple of calls that we expect, given the loss of the royalty income on the physical security lock, and the change that, that should be a 17%, 18% margin business down from where it is. And so, our expectation is going forward that is the right target for that business.

We'll still hold to that even with the continuing shift in terms of smartphone penetration.

Yes. I mean, we are excited about, frankly, the growth in that area. I mean, it's a sub bullet at this point in time. But, having a 70% growth in that category is actually a pretty good number.

And then, it's been -- you guys have highlighted it from time to time in terms of the mass channel and the opportunities that are there. And, you certainly have gained share versus where we were a couple of years ago. What is the outlook there? And, how much more opportunity is there for you guys in that channel?

There is significant opportunity. Part of the challenge and one of the things that we are not going to achieve this year is our share gain target. And, one of the reasons is that one of the primary targets for us in that marketplace is the ring binder category. And, it's effectively been frozen this year. Both from a customer side and, frankly, from our side because of some of the financial dynamics of it until we get the resolution on the 3M/Avery acquisition.

Okay. Just lastly, in terms of pipeline for new products going into 2013, how are line reviews going and what's the outlook for shelf?

We are still in that process. We feel good about it, obviously, given our expectation on the Kensington side. We have got a very aggressive product introduction program there. We've got an entire family of laminating machines that will be available in the fourth quarter of this year, which we think are, frankly, best in class. And, the reception on those from our customers has been very positive. The core Mead business continues to do a great job in terms of their licensing initiatives relative to their product. And, in fact, they'll probably expand some of that geographically for next year. From a product introduction point of view we feel pretty good about how we are positioned.

Thank you very much, guys, appreciate it.

Sure.

There are no further questions at this time. I would now like to turn the call over to Bob Keller, your Chairman and CEO, for closing remarks.

Thanks everybody, for your attention this morning. It's obviously a pretty challenging environment out there. We are committed, as we always have been, to doing everything within our control to deliver the best results that can. And, we look forward to talking to you at the end of the third quarter.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.