ACCO Brands Corp (ACCO) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q3 2014 ACCO Brands Corporation earnings conference call. My name is Tracy and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a Q&A session towards the end of the conference. (Operator Instructions). As a reminder this call is being recorded for replay purposes. Now I would like to turn the call over to Jennifer Rice, Vice President of Investor Relations. Please proceed, ma'am.

Good morning and welcome to our third quarter 2014 conference call. Speaking on the call today are Boris Elisman, President 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 quarterly results we refer to adjusted results. Adjusted results exclude restructuring, merger-related, and debt refinancing costs, and apply a normalized effective tax rate of 35%. Schedules of adjusted results and other non-GAAP financial measures and a reconciliation of these measures to the most directly comparable GAAP measure are in this morning's press release.

During the call we may make forward-looking statements and, based on certain risks and uncertainties, our actual plans, actions, and results could differ materially. Please refer to our press release and SEC filings for an explanation of certain of these risk factors. Our forward- looking statements are made as of today's date and we assume no obligation to update them going forward.

Following our prepared remarks we will hold a Q&A session. Now, it is my pleasure to turn the call over to Boris Elisman.

Thank you, Jennifer, and good morning everyone.

Our third quarter performance was strong on both top and bottom lines, driven by significant improvement in back-to-school sales in North America. The International and Computer Products segments met our expectations for the quarter, and we continued to keep control over expenses and pursue productivity improvements, which also contributed to our favorable results.

On a constant currency basis, sales increased 1%. Adjusted net income increased 21% to $35.2 million, or $0.30 per share.

While North America was clearly the star performer for the quarter, I'm pleased with our execution across the board, in every segment and function. Our teams did an excellent job delivering in what remains a difficult environment overall. Our biggest gains were in back-to-school in the mass channel in the US, where we took market share in notebooks and school calendars.

E-tail back-to-school sales grew double digits, albeit on a smaller base. These gains helped offset anticipated declines in the office superstore channel related to channel consolidation. Canada also had strong back-to-school sales across all of its major channels. Overall, North American sales were up 1%, and adjusted operating income was up 29% in the quarter.

In our International segment, sales increased 3% at constant currency, and adjusted operating income also increased 3%. Sales in Brazil were positively impacted by continued market share gains in the premium notebook category, as well as the implementation of price increases that offset commodity cost increases and labor inflation.

In Mexico, we gained share due to sales growth in the secondary markets outside of Mexico City. Sales were roughly flat in the Asia- Pacific region, and down low-single-digits in both Europe and Australia, largely due to macroeconomic and industry-wide conditions in those geographies.

In Computer Products, sales were down 9% but in line with our expectations, and adjusted operating income increased 6%. We continue to pursue our strategy of de-emphasizing commoditized products -- largely tablet and smartphone accessories -- and focusing on higher-margin security and computer accessories. We are pleased with the signs of progress, but still have work to return that segment to growth and improved profitability.

As a result of our performance through the first three quarters, we are increasing our expectations for 2014 full year sales and adjusted earnings per share. We now expect sales to decline at a lesser rate, down 3% to 5% for the year, and adjusted earnings per share to increase to a range of $0.79 to $0.80 per share. We are maintaining our free cash flow outlook of approximately $140 million for the year.

Our raised sales and adjusted EPS guidance anticipates stronger Q4 headwinds from office superstore store closures and weaker foreign exchange rates, as well as continued economic weakness in Europe and emerging markets. Looking forward to next year, we expect the environment to remain difficult, due to incremental impacts of store closures and channel consolidation. We will provide 2015 guidance when we report our Q4 results in February.

With that, I'll ask Neal to provide additional detail on our third quarter results. Neal?

Thank you, Boris.

Good morning everyone. Our third quarter performance is recapped on pages two and three of our slide deck. Third quarter sales increased 1%. The biggest driver behind the improved sales trend was the market share gains during our strong back-to-school in North America. We also saw sales growth in International driven by our continued strong execution in Brazil and Mexico. Adjusted earnings per share increased nicely to $0.30 from $0.25 in the prior year.

Looking at specifics, strong gross margin improvement drove most of the earnings growth. Gross margin expanded 210 basis points to 32.2%. Much of the improvement was due to an easy comparison to the prior-year quarter when we had a very weak gross margin. We returned to a more normal gross margin level in the current period and we continued to see the benefit from our ongoing cost savings and productivity initiatives, which contributed 80 basis points to gross margin.

SG&A expenses were higher in the quarter, increasing 50 basis points as a percentage of sales to 17.8%. The increase was the result of a $5.7 million negative effect, or 110 basis points, from higher year-on-year incentive compensation accruals -- the delta is partly due to a reversal in the prior-year quarter. Cost savings were again favorable, by 80 basis points.

Interest expense was down $1.5 million in the quarter, to $10.9 million, a benefit of $0.01 per share.

Turning to an overview of our segments for the quarter -- In North America, sales increased nearly 1% on a constant currency basis, a much improved trend from previous quarters. Strong performance during back-to-school, particularly in the mass channel and to a lesser extent in e-tail, offset the significant decline we are seeing at a merging office superstore customer.

North America adjusted operating income increased 29%, and adjusted operating income margin expanded 370 basis points to 16.8%. The improvement in profit and margin was due to cost savings from restructuring and other productivity improvements, which were not offset by the sales deleveraging that we've seen in past quarters.

In our International segment, net sales increased 3%. Growth was driven by Brazil and Mexico, which offset declines in Europe and Australia. International adjusted operating income increased 3% to $19.2 million due to the increase in sales and the productivity improvements in Europe.

Computer Products net sales decreased 9%, driven by lower sales of tablet accessories. We are pleased with the sales of our security, PC and laptop accessories, and continue to see stabilization in this space, which now represents more than 80% of segment sales and essentially all of the segment profit. Computer Products adjusted operating income and margin increased as a result of higher mix of security, PC and laptop accessory sales and lower expenses.

Turning now to our cash flow and balance sheet -- We paid down all of our seasonal short-term borrowings, and $25 million of long-term debt. We also repurchased approximately 800,000 shares of stock at an average price of $7.14 per share.

Cash flow was $50 million for the nine months, which is down versus the prior year, in part due to a $20 million benefit last year from negotiating extended vendor terms. Recall we also made investments earlier this year to build inventory for back-to-school in both North America and Brazil, which are still cycling through working capital. We began to collect receivables from back-to-school late in the third quarter, and expect continued strong cash generation into the fourth quarter as we complete the collection cycle.

We remain confident in our ability to generate free cash flow for the year of approximately $140 million. Our cash flow will mainly be deployed for debt reduction, but we will also have additional share repurchases.

One final point before closing. Our sales and earnings guidance for the year make assumptions regarding currency. Our increased guidance is based on October 24 spot rates. While the full-year impact is similar to our February estimate, Q4 will see a much heavier impact with sales down 3% compared to 1% (sic - see press release) year-to-date and approximately a negative $2 million operating income impact compared to only $1 million (sic - see press release) year-to-date.

With that, I'll conclude my remarks, and move on to Q&A where Boris and I will be happy to take your questions. Operator?

Thank you. (Operator Instructions). Please stand by for your first question. Your first question comes from the line of Brad Thomas from KeyBanc Capital Markets. Please proceed.

Thank you, good morning Boris, Neal, and Jennifer and congratulations on a great quarter here.

Thanks, Brad. Good morning.

I wanted to first ask about some of the market share gains that you had in back-to-school and I was wondering if you could share a little bit more color on the magnitude that they helped sales in the quarter, and then talk a little bit about the ability for those wins to carry forward into the coming quarters.

When you look at the increase in sales, pretty much all of it was driven by the change in North America from prior year, and all of that was driven by the wins at back-to-school, especially in mass and e-tail. If you look at back-to-school from an industry perspective, depending on the sources and the categories included it was -- it was roughly flattish back-to-school for office supplies, maybe up low single digits. We grew mid-single-digits in all categories so we clearly took share and it was a difference for us in the quarter.

The second part of your question how sustainable is that going forward, we have to fight for shelf space every year. Certainly as an incumbent, we -- there's a benefit to us and we believe that we have demonstrated good performance and significant benefit for our customers, but we will find out over the next couple of months, by the end of December what our position is for back-to-school in 2015.

But from -- and from a timing standpoint, the shelf space that you won in the second and third quarters, those should stay relatively in place for the coming couple much quarters if I understand you correctly?

Well, back-to-school especially, Brad, especially in mass, is a seasonal aisle, so they take it down and they put Halloween stuff and then they take that down and put Christmas stuff there. So we certainly have in line presence overall at most if not all of the stores, but the incremental volume for back-to-school specifically for the seasonal aisle is very, very significant, and that goes away.

Got you. And then if I could just and a follow-up on the International side. If you could talk a little bit more about the success in Brazil and Mexico how much those added to International sales and what the outlook is for -- for those markets as well.

Sure. Let me start with Mexico. Mexico's economy is doing better. It's kind of tracking US with the recovery, and Mexico for us grew high single digits during the quarter. We're very, very pleased with our performance during -- during this particular quarter. It was driven primarily by both back-to-school as well as increased sales outside of the core markets in Mexico which is mainly Mexico City.

If we look at Brazil, we mentioned that the last call that we saw weakness in Brazil, macro weakness at the end of Q2, that was really associated with the onset of the World Cup. That really has remained throughout Q3. We did in the see any improvement after the World Cup ended. Despite that -- despite that, our sales also grew high single digits and we took significant share and that was primarily in premium notebook categories.

Great. Congratulations again and I will turn it over to someone else.

Thank you, Brad.

Thank you for your question. Your next question -- your next question, sorry, comes from the line of Bill Chappell from SunTrust. Please proceed.

Good morning.

Good morning, Bill.

It's nice to see a raise of guidance. I can't remember that in seven, eight, or nine years.

Hopefully, it won't be the only time.

Absolutely. Just first trying to dissect the back-to-school season and your North American results. I mean if you took out the consolidation issues at one customer, I mean can you give us kind of an idea what the growth would be and also maybe what overall kind of category sales were back-to-school versus kind of your shelf space gains?

We haven't done the calculation if you take out that single consolidated customer, but it would be significant. Sales at that customer were down. We mentioned -- we mentioned that we -- last time we spoke we won two categories. We lost one. There was another decision made during the quarter so now we won three, we lost one.

The one we lost, which is bindery, is a big back-to-school category so sales obviously in bindery there were down significantly which drove the overall sales. Neal just did a calculation offline and he believes the sales would have been up in North America by 15% in the quarter were it not for the consolidated back-to-school.

15%?

By a customer. I'm sorry?

You said 15%?

Yes. As we mentioned during the prepared remarks, we gained significant share. It was broadly based. It wasn't just one customer. It was broadly based across mass and e-tail, and it was primarily in notebook categories.

All across the board we've had a presence in better price points, we were able to step up our customers. We had a chance to manage the whole category for many of the customers, which drove obviously significant sales for us and for them. They are pleased with our performance.

And then we also had a much better performance in the academic appointment books, where we took significant share as well compared to prior year.

And I think this is the time now for maybe the next few months you go into bid offers for next year's back-to-school. I mean do you feel like you have momentum where you can continue to get shelf space gains like this?

It certainly is our intention to retain the shelf space. We think we have demonstrated through our performance that we deserve to retain them, but we have to -- we have to fight it out, to your point, and we'll know by the end of the year. I'm optimistic, but I'm not counting on it yet.

Got it. And then as you look at like kind of the two drags on sales both the large customer and then kind of computer products, what's kind of the outlook over the next -- and I am thinking more kind of two, three quarters and not specific but just trying to understand. Did we see the greatest drag for both of those this quarter and it starts to get better? Or does it get worse before it gets better for both computer products and kind of the consolidation of a large customer? I mean how do we look out the next six months, I guess?

Yes. And they're different answers for the two obviously.

Sure.

The computer products side I think the worst is behind us. We should see sales declines to taper as we go forward. I still expect declines as we get out of these commoditized categories. Until we completely anniversary that, we will see some top-line declines. But we saw a bottom-line improvement this quarter and I expect that to sustain going forward, so I expect that the profit in the computer segment to improve.

Regarding the consolidating customer, it's hard to tell. We will see -- clearly we will see declines. The magnitude is going to tend on the store closure impact that we will see -- we expect to see a significant one in Q4.

As Office Depot said, they're going to close 150 stores after back-to-school. That will have a significant impact. And then we expect a couple hundred stores to be closed next year as well. So that will have a significant impact as well.

The thing that's unsaid that we need to estimate is the number of distribution centers that will close as a result and the inventory impact of those closures. That's really what has a bigger impact on our sales. It's not so much the store closure side because the inventory there will rebalance from somewhere else, but the fact that they carry less inventory, they buy less from us and they need less from us on a go-forward basis. That will have a one-time impact on our sales, but that may last a few quarters.

Got it. Thanks for the color.

Thank you.

Thanks, Bill.

Thank you for your question. Your next question comes from the line of Arnie Ursaner from CJS Securities. Please proceed.

Hi. I'll start by following up the last question you just had. Do you have a good sense of the inventories at your customers that are closing various stores? And if they were waiting for back-to-school -- now that that's over, have you already seen a dramatic change in their order patterns?

The inventory just in general -- let me just make a general comment on the inventory. The inventory coming out of Q3 I think is lower than it has been typically at the end of the quarter. Typically there are some incentives for customers to bulk up on inventory at the end of the quarter. We did not see that take place at the end of Q3. So the inventory profile is pretty clean with pretty much all of our customers.

As far as the impact of store closures, we've been seeing that throughout the year. I think our consolidating customer has been preparing for store closures for quite a while. So I anticipate the same level of reductions. It's hard for me to tell if it's going to be greater than that because, as we just mentioned, it's been pretty significant so far year-to-date.

Okay. Question for Neal. You mentioned you bought back about 800,000 shares in the quarter. Did you buy any additional shares post the end of the quarter?

Yes. We have purchased about another 1.5 million since the end of the quarter.

Okay. And obviously with your cash flow now having its strongest phase, do you want to comment on priorities for free cash?

Our priority for our free cash flow is predominantly going to be debt pay down, but we will still remain purchasing shares as we go forward.

Okay.

On a periodic basis.

Okay. And for Boris, you mentioned I think in your prepared remarks you expect next year to be a difficult environment. I assume you are doing a lot of bottoms-up gathering of data and I know you will provide your formal views in February, but what is your early view of next year telling you?

From an environment perspective, Arnie, we think it's going to be very, very similar to this year, especially to this Q3 with a couple of exceptions. We think there will be a more meaningful impact from store closures in OSS. Somewhere between probably 10% and 15% of retail stores will be closed from a year to year comparison and that will have an impact on our sales.

We think the foreign currency environment will remain weak. Neal mentioned in his prepared remarks that we will see an impact -- a greater impact of that in Q4 of this year and we anticipate that will sustain through 2015.

And then the last, we've seen emerging markets in Europe weaken during the year, and from a planning perspective at least, we don't expect any recovery in 2015. So there will be some additional headwinds that we anticipate in 2015. Obviously we will have some contingency plans what we expect to execute well, continue to execute well, but there will be these additional headwinds.

Thank you very much.

Thanks, Arnie.

Thank you for your question. Your next question comes from the line of Chris McGinnis from Sidoto (sic - Sidoti) and Company. Please proceed.

Good morning. Thanks for taking my question.

Good morning, Chris.

Just I guess just a follow-up on the -- can you maybe talk a little bit about the -- on the office, or the back-to-school, what the exact changes were? Was it just a better selection or was there a stronger partnership going into the back-to-school to see that strength?

I think it's both, Chris. And you also have to keep in mind the year to year compares. A year ago when we spoke with you at this time we told we were very disappointed in our performance in back-to-school. And we mentioned at that time that the most of the customers went really low to opening price points and that hurt us, and obviously I think it hurt them as well.

So we've partnered up with them much closer this year. We were able to convince them to have a much more balanced price point assortment this year. And as a result we -- we gained significant share, and both us and them performed better during this back-to-school season. So it was both the assortment as well as the partnership.

Great. And lastly maybe just a little bit more detail on the online with the shift that is happening. You said it wasn't as great as obviously the growth in -- in the retail base, but are you seeing the gains I guess or at least the share loss maybe -- or the sales lost are you seeing any traction on the online side? Maybe just dig a little bit deeper into that and how you're positioned.

Yes. Just to clarify, Chris, we saw tremendous gains in e-tail for back-to-school. It was just that as a percent of our sales it's a much smaller number than mass, so it had a lesser impact on our back-to-school revenues. But online for our sales grew strong double-digits and actually their sell out grew triple-digits. So it was a tremendous performance for the online channel. They clearly are taking significant share, and in fact are becoming one of the destination places for back-to-school sales.

Great. Thank you.

Thanks, Chris.

Thank you for your question. Your next question comes from the line of Kevin Steinke from Barrington Research. Please go ahead.

Good morning. You just mentioned the sell-through on the e-tail channel. I was just going to ask about sell-through on back-to-school season for North America in general and how that -- how that went.

It went well. Depending on -- again, depending on who is counting, our sales figure was up anywhere from 2% to 8% depending on the category, which was significantly higher than the overall industry-wide back-to-school. So we're very pleased with our performance.

Okay. And your comments about taking share in Brazil despite the weaker environment there, does that apply to back-to-school season, any comments on how that's -- that's trending?

That's still -- that's still to be played out. Back-to-school there is -- we ship in Q4 and the sell out is in Q1. We're optimistic. We certainly have all the signals that we are going to continue to do well in Brazil.

As you know, the economy there is pretty weak. They're in the unofficial recession in Brazil and we anticipate a little bit of weakness because some of the customers may not want to take the inventory until early in 2015 as opposed to at the end of the 2014. So that may impact our Q4. But overall, from a larger picture perspective, we expect to continue to do well in Brazil.

Okay. Great. And then I was wondering if the shift in timing of calendar products, if that had a meaningful impact on the third quarter.

No. It didn't have a particularly meaningful impact on the third quarter. In fact, one of the things that you do see is a very substantial increase in the margins that comes through in the North American segment during the quarter, and that really was driven primarily through cost reduction initiatives that we had, some of which were in the dated area.

But also a very significant driver -- about 40% of the increase -- comes from taking ourselves out of some very low-margin categories, particularly the bindery category that Boris mentioned, and reversing some unproductive rebate programs that also contributed to the cost reduction. So those were the two big drivers that helped the North American margin rebound so much. And as Boris mentioned earlier it was rebounding off a very poor Q3 last year, so it was an easy compare as well as having added cost reduction this year.

Okay. And, Neal, could you just clarify the comment on currency impact in fourth quarter? I think you said a 3% sales decline. Is that -- do you mean on top of whatever sort of sales growth or decline that you would expect in the quarter?

That's right. That's purely from translation of foreign results. We have a large mix of non-US sales in the fourth quarter, and particularly with Brazil being so large in the fourth quarter, which is one of the more adverse foreign exchange movements, that's what will cause the big increase to be a 3% decline on just pure translation.

Okay. Thanks for taking my questions.

Thanks, Kevin.

Thank you for your question. Your next question comes from the line of William Reuter from Bank of America. Please proceed.

Morning, guys.

Good morning, Bill.

You -- you talked about your ability to get some of your wholesale customers to put a more balanced product assortment in, just back-to-school. I was wondering if you could talk a little bit about your sell-through rates among some of the more value-oriented products versus some of the products that are a little higher-priced.

Yes. Just to clarify, Bill, the assortment was a more balanced assortment was in mass. Our wholesale customers carry all of our products so that was never an issue, but we were successful in getting a more balanced assortment in mass for this back-to-school.

The increase in sell out was across all the -- all the price points and it was both branded and also private-label products. So it was very, very broad-based. We're pleased across-the-board. It was a great quarter. We executed really well, so it's -- it's hard to find fault in anything that happened for this back-to-school.

Okay.

And it completely sold through all of the seasonal aisles, so there's no inventory left in the channel for the seasonal product, where they expand to.

Okay. And then you talked a little bit about the fact that we're going to continue to see some sales in the computer products segment until we have anniversaried the exit of the commodity-like products. Can you remind us when -- when that was such that the -- I guess the comps will get a little easier?

From memory it's going to be around Q2 of 2015. We're going to see drag for the next couple of quarters, but it should get significantly better in Q2.

Okay. And then you -- you talked about debt reduction as one of your goals. I guess would you -- this, should we assume that this would just be the term loan A or would you guys consider repurchase of the 6.75% in the open market?

We will predominantly take our bank debt down.

Okay. And then just lastly for me your -- your leverage goal of 2 to 2.5 times, does it still stand?

Yes, it does.

Okay. That's all for me. Thanks, guys.

Thanks, Bill.

Thank you for your question. Your next question comes from the line of Karru Martinson from Deutsche Bank. Please proceed.

Good morning. When you guys look at the -- the mid-single-digit gains that you had with the back-to-school season, who do you figure you're taking share from, and what's the differentiator? Why you guys are gaining the share?

I think we're able to offer a better product assortment and a better step-up strategy for our customers. I think they were unhappy with how they performed or some of them were unhappy with how they performed a year ago, and they wanted to do something different. They felt that our both assortment, features, price points, and merchandising support helped them to achieve their objectives and they were right. So we are pleased they went with us and then hopefully that will continue next year as well.

And in terms of the timing of line reviews, you mentioned hopefully the next couple of months get a better sense of back-to-school for 2015. What is the timing for -- for when these types of resets take place?

They start pretty much right after the back-to-school ends in September and the process takes two or three months. Sometimes it drags all the way to December. Typically we need to have decisions made in December because the quantity of product for back-to-school is so vast at many of the customers that we need the lead time to manufacture them. So my expectation is that by the end of December we will know where we stand.

Okay. And then when you guys look at the cash flow here for debt reduction, I mean are there acquisition opportunities that you would add into the mix, whether it's tuck-ins to kind of plug some holes in the portfolio, or larger?

Yes. That's absolutely the case. We mentioned at several prior calls that acquisitions are a key part of our strategy. That remains.

They are serendipitous in nature, so if we find and acquisition that makes sense for us we will certainly act on it. We have the cash and debt capacity to do that. But until that time, as Neal mentioned, our priority is to pay down debt, and also to return some -- some cash back to our shareholders.

Thank you very much, guys. Appreciate it.

Thank you.

Thank you for your question. Your next question comes from the line of Kevin Ziets from Citi. Please proceed.

Hi. Good morning.

Good morning, Kevin.

I guess my question is on pricing. It looks like in North America you have been able to take more price as the year has gone on, and I'm curious if you could talk about how that's -- I guess how you're getting that pricing power.

The pricing in North America comes from different places. US pricing was actually pretty small as a percent of sales.

As Neal mentioned, there were some programs benefits because we didn't promote as much on some of the categories that we did prior year, and then a lot of the pricing in North America as a percent was driven by Canada. We took some price in Canada both in January and in July as a result of the weakening Canadian dollar. So that had a major impact.

Okay. And you said that the fourth quarter is going to have a bigger impact from consolidation. But you said that it's really not store closures necessarily that -- that drive that. So are there DCs that you're aware of that are consolidating or something -- something in (multiple speakers)?

Yes. We're wear of a couple of DCs, but typically we find out after the fact when DCs are closed. Our customers are fairly public about store closures and report that on a quarterly basis. They are less public about DC closures so that comes through channel intelligence work that we have.

Okay and that's what's driving your outlook for 4Q?

Yes. And just the fact that it's going to be such a meaningful store closure number. In the first half of the year the superstore closed around 100 stores in the US. We expect that number to double or triple in the second half, and it will have an effect.

Okay. And just so I understand, you said you won three contracts and lost one. Are the three that you won incremental, or is it business that you already had that you -- that you kept?

It's marginally incremental. It's most of the business that we already had, we were able to consolidate a couple of secondary and tertiary suppliers. So there is a little bit of incremental volume, but most of it we already had.

Okay. And when you're winning do you find you're winning at sort of similar margin or similar price points?

It's similar. I mean, typically, we have to give something for that a little bit of incremental volume, but it's -- it's still in the best interest of our shareholders.

Sure. And when does -- are there any other large contracts coming up this year or into early next year that you're aware of or are we through that?

These things come up on an ongoing basis. We're dealing with professional buyers at very sophisticated companies. They keep us honest every day so -- so you should think of every quarter, every year these things are out to bid.

Fair enough. And then I just wanted to kind of get a sense of the where you were in sort of readdressing the portfolio in computer products. I know it sounds like some of the -- the negative topline effects might be lessening but where are you in terms of actually getting the more premium products out there? I think last quarter you cited retro tablet cases and things like that. How are those things doing?

Yes. So, we're in the early stages of executing our strategy of moving to more value-added in the computer products. We'll have to do some work to rebalance our resources to make sure we can execute on that strategy. I expect that to take place over the next 12 months, but I do expect that the impact of the strategy will be felt as we execute through the year. And overall, as I mentioned, that revenue will still be pressured but I do expect the profit to be improved.

Right. But it sounds like not enough to -- to significantly impact this Christmas, for example?

No, no. As we discussed on a couple of previous calls, computer products is now roughly 8% of our revenue and maybe 7% of our operating income. One way or the other, up or down, it's not going to have a tremendously impactful performance on our overall enterprise. So is this all, it matters on the margin but overall, it's not a big deal either way.

Good point. My last question was -- is on acquisitions. I know it's been part of the strategy for a while and -- and not much has been executed. I'm sure that's not for a lack of looking at things. So I'm curious if you could give us a sense for maybe how many or what size type transactions you're looking at and maybe not executing on?

I can't really comment on that. You're right. It's not for the lack of looking at stuff.

Right.

But I just want to leave it at that.

Okay. Thanks very much.

Thanks, Kevin.

Thank you for your question. I would now like to turn the call over to Boris Elisman, the President and CEO, for closing remarks.

Thank you, Tracy. In closing, let me say we had a great quarter, despite the headwinds we faced in some of our geographies. Our game plan for the fourth quarter remains the same. I look forward to reporting to you on those results in February. Thank you for joining us this morning. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.