ACCO Brands Corp (ACCO) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the ACCO Brands fourth-quarter corporate earnings conference call. My name is Carolyn, and I will be your operator for today.

(Operator Instructions)

As a reminder, the call is being recorded for replay purposes. And now, I'd like to turn the call over to Jennifer Rice, Vice President, Investor Relations. Please proceed, ma'am.

Good morning, and welcome to our fourth-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, debt refinancing, and other one-time 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 GAAP measures, are in this morning's press release.

On this call, we may make forward-looking statements. Forward-looking statements are based on certain risks and uncertainties, and 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 and assumptions. 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's my pleasure to turn the call over to Boris Elisman.

Thank you, Jennifer, and good morning, everyone. We're very pleased with our performance in the fourth quarter of 2014 and for the full year, despite a weaker international macroeconomic environment and continuing structural changes in our industry. Our top- and bottom-line results for both periods met our expectations, largely because we executed well across the board and managed the impact from the large customer merger.

For the quarter, we delivered as expected, as stronger underlying results offset a most significant headwind from currency. Net sales declined 9%, but only 5% on a constant-currency basis. The decline was primarily driven by the large customer merger and our exit of certain commoditized tablet accessories products.

Adjusted net income decreased 7%, to $0.36 per share, compared to $0.39 per share in the last year's fourth quarter. The decrease was primarily driven by foreign exchange. Sequentially, as expected, the fourth quarter was more difficult than prior two quarters. International markets continued to be weak, but in the fourth quarter we saw that broad weakness impact our sales in Mexico and especially Brazil. The US dollar strengthened throughout the quarter, and some of our customers in international markets canceled or postponed orders.

Our mature markets, including the United States, Canada, western Europe, and Australia, held up relatively well. But office super-store closures and reduced channel inventories did have a negative impact on sales. Overall, we managed our mature markets well by taking market share from competitors and reducing our costs in line with sales.

Computer Products had a mixed quarter. Sales were down as we continued to exit commoditized spotted categories, especially in the tablet accessory space, but gross margins improved. The security category in PC and laptop accessory categories continued to show strength. Computer Products remains a turnaround story, and 2015 is a critical year to change trajectories for both revenues and profit.

For the full year, we delivered strong results. We generated $146 million of free cash flow and further reduced our leverage to less than 3 times EBITDA, or 2.9 times to be specific. We reduced our term loans by $120 million and repurchased $22 million worth of stock.

Full-year earnings per share came in at $0.80, in line with our raised full-year guidance of $0.79 to $0.80. Compared to last year, earnings per share grew $0.04, despite a $0.03 headwind from currency and $0.05 from incremental incentive accruals. Revenues finished at $1.7 billion, down 4.3% versus last year and in line with our guidance. At constant currency, revenues declined 2%, which was primarily attributable to the large customer merger.

For 2015, our strategy will be consistent with the prior year. We will continue to manage our mature markets for profit, while offsetting some secular headwinds with market share gains and productivity improvements. We will continue to prudently invest in emerging markets, with an expectation of top- and bottom-line growth. And we will continue to focus on generating strong cash flows, which we will use to pay down debt, with a goal of ultimately achieving net leverage of 2 to 2.5 times EBITDA and for other shareholder value-creating opportunities.

All things being equal, we anticipate paying down less debt in 2015 than in 2014 and using more of our free cash flow to increase shareholder value in other ways, such as share repurchases or acquisitions. As we did last year, we built some assumptions into our 2015 guidance. We believe the macroeconomic environment, especially in international markets, will remain challenging, with potential deterioration in some of our key markets, including Brazil and Europe.

We've assumed currency at current foreign exchange rates; we've made assumptions about the continuing decline of sales to office super stores due to store closures and consumer buying shifts; we've assumed continued rigor around cost savings and productivity initiatives, which should yield $30 million of benefit in 2015; and, we've factored in some impact from the Staples and Office Depot announcement that could materialize later in 2015.

That brings me to our guidance. For 2015, we expect sales to decline in the mid-single digits, before the negative effects of currency. However, including currency, sales are likely to decline in the high-single digits to low-double digits. We are forecasting adjusted earnings per share in the range of $0.78 to $0.82, before the impact of currency. However, we expect currency to reduce this by roughly $0.08, to $0.70 to $0.74 per share. We expect to generate free cash flow of approximately $140 million.

To sum up, I'm very pleased with the way we have managed our business for the quarter and the year, executing well despite pressures from an uncertain economy, unfavorable currency trends, and customer consolidation. While these pressures will continue into 2015, I'm confident in our ability to execute and meet whatever challenges lie ahead.

With that, I'll turn the call over to Neal for a detailed rundown of our results. Neal?

Thank you, Boris. Good morning, everyone. Our fourth-quarter performance is recapped on page 2 of our slide deck. Q4 sales decreased 9%, or 5% at constant currency. The 5% decline was driven by lower volume. Pricing was favorable by 2%. Adjusted net income was $41.5 million, or $0.36 per share, compared to $44.8 million, or $0.39 per share, in the prior year quarter. Adverse currency and lower sales drove the declines.

In terms of gross margin, which is shown on page 3 of the slide deck, we continued to see benefits from our cost savings and productivity initiatives, which contributed 80 basis points to gross margin in the quarter. Unfavorable product mix and other items were offset by lower product costs net of pricing. All in, gross margin increased 30 basis points, to 34.1% in the quarter.

SG&A expenses were down 7% in the quarter, as dollar cost savings more than offset the impact of sales deleveraging, increased incentive compensation, and the impact of FX. As a percentage of sales, SG&A increased 30 basis points, to 17.2%. In all, operating income margin was flat at 15.7%. Interest expense, net of interest income was down $1.4 million in the quarter, to $10.8 million, a benefit of $0.01 per share. Foreign exchange reduced fourth quarter EPS by $0.02.

Our fourth-quarter reported results include a $4-million restructuring charge in our US operations. This is related to new cost reduction initiatives which will keep our cost structure in line with revenue expectations. These initiatives are incremental to restructuring charges we took in December of 2013, which are expected to still deliver $8 million of savings in 2015. The new initiatives will reduce headcount by an additional 100 people and drive a further $8 million of incremental savings in 2015. All in, between these two initiatives, and additional productivity improvements, we expect $30 million of cost reductions in 2015.

Turning to the full-year results, sales decreased 4%, or 2% at constant currency. Pricing was favorable by 2%, but volume was down 4%. The volume decline was due to the large customer merger, as well as the slowdown we saw in international markets and the transition of our Computer Products segment.

In regard to the large customer merger, whose integration has impacted our sales through inventory reductions, share gains and losses, and other changes in contract terms, we saw a $40-million reduction in sales to this customer in 2014. Despite the sales declines, we are pleased with our margins. Adjusted net income was $93 million, or $0.80 per share, after a $0.03 adverse impact from foreign exchange, and compared to adjusted earnings of $88 million, or $0.76 per share, in the prior year.

In terms of our full-year gross margin, shown on page 4 of the slide deck, we saw a 40-basis-point improvement to 31.4%. The primary driver of the improvement was our cost savings and productivity initiatives, which contributed 110 basis points of benefit, and helped to offset unfavorable product mix, inventory charges in our Computer Products, and other items.

SG&A expenses were down 4% for the year as cost reduction initiatives offset the impact of lower sales, increased incentive compensation, and FX. As a percent of sales, SG&A was up slightly, 10 basis points, to 19.5%. In all, operating income margin increased 40 basis points, to 10.6% of sales, with the improvement coming from our North American segment. Interest expense net of interest income was down $10 million in the year, $43 million, the benefit of $0.06 per share. Foreign exchange reduced EPS by $0.03 for the full year.

Now, turning to an overview of our segments, in North America, fourth-quarter sales decreased 6%, or 5% at constant currency, due to volume declines. The volume declines were primarily due to the large customer merger and lower inventory at wholesalers. North America adjusted operating income was flat quarter over quarter, and segment operating income margin increased 90 basis points, to 18.1%, as cost reductions and price increases offset the decline in sales.

For the year, North America sales declined 3%, again, primarily due to the effects of the customer merger, which reduced our global sales by $40 million but mostly impacted North America. North America operating income margin increased substantially, 250 basis points, to 14.3% for the year, primarily due to cost savings and productivity improvements.

In our International segment, fourth-quarter sales decreased 9%, largely due to foreign exchange translation. Sales decreased only 1% at constant currency. The slowdown that we saw in Brazil at the time of the World Cup continued into the fourth quarter as the macro environment became weaker and European demand also softened.

International segment operating income declined slightly in dollars and as a percentage of sales to $32 million and 18.5% of sales, respectively, largely due to foreign exchange and lower volume. International results were much stronger for the year as a whole due to the growth we had seen for much of the year.

Full-year sales increased 1% for the International segment on a constant-currency basis. Operating margin declined 120 basis points, to 11.7%, due to investments made to support long-term growth and due to a one-time benefit of 50 basis points in the prior year from the sale of a building.

Computer Products net sales decreased 22%, or 18% on a constant-currency basis, driven by the continued exit from commoditized tablet accessory products. As a result of the sales declines, Computer Products adjusted operating income declined $2 million, to $3.1 million, and operating margin contracted 310 basis points, to 8.7%.

For the year, Computer Products net sales decreased 13%, or 12% at constant currency, and margins declined 330 basis points, to 6.8%. The declines were driven by lower tablet accessory sales, reduced pricing, and inventory charges. We expect the repositioning of this business to be complete by the second half of 2015. We were pleased with our sales of 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 segment profit.

Turning to our cash flow and balance sheet, we had strong cash flow during the quarter, achieving $146 million for the year. We paid down $120 million of debt and repurchased $22 million of stock. As Boris noted, we finished the year with a net debt-to-EBITDA ratio of 2.9 times, based on our bank covenant definition.

Looking into 2015, we've included a slide detailing guidance on page 6 of the slide deck. Currency has become a significant headwind, given that 45% of our sales come from outside the United States. Using recent spot rates, foreign exchange is likely to have an adverse 5% impact on sales and a $0.08 impact on EPS. We do hedge our inventory purchases and increased selling prices in international markets to offset the currency impact on margins, but we cannot hedge against the translation of our results.

While we do not provide quarterly guidance, let me make a few comments regarding seasonality. Similar to last year, our first quarter will likely have negative earnings. The second quarter will be positive, but small. Approximately 75% to 80% of our earnings will come in the third and particularly the fourth quarters. We expect the most significant drag from foreign currency, though, to be in the first three quarters, but particularly in the third quarter.

Our cash flow is also seasonal, with a majority coming in Q3 and Q4. Our cash flow generation in Q1 will be essentially offset by the working capital investments for back to school during Q2. Q2 will again be a cash-outflow quarter due to the seasonality of the North American back-to-school cycle. In terms of our guidance for $140 million of annual free cash flow, we expect the adverse impacts of foreign exchange will be offset by lower cash restructuring costs.

Page 7 of our slide deck contains a number of other modeling assumptions that factor into our earnings and free cash flow guidance. Cash taxes will continue to be low in 2015 as we utilize NOLs from the Mead merger through 2016.

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?

(Operator Instructions)

Our first question comes from the line of Bill Chappell. Please go ahead.

Good morning.

Morning, Bill.

Boris, if we can maybe step back and give a little more color on the whole Staples/Office Depot -- I guess multiple questions. What does it do to the time line in terms of your sales and for Office Depot/Office Max, and how will this be different from Office Depot/Office Max in terms of how it plays out, how it affects you? And how can you even factor anything in this year when it doesn't sounds like the deal will close for some time?

I'm just trying to understand, I think what you said in the past it was less on the retail doors and more at the distribution centers where you had excess inventory. I would think you have a long lead time to prevent that from building up, so just trying to understand how it really impacts you going forward.

Sure. We assume, Bill, that the deal won't close until the end of 2015, so as we mentioned, the -- our assumptions for 2015 are small in terms of the impact on our revenues and profit. However, just like we saw with the Office Depot/Office Max merger, the uncertainty of the deal created some misses on execution and conservatism in how much inventory, not only the merging entities want to carry but also how much wholesalers want to carry.

There's going to be some uncertainty as to whether it will be United or SP Richards that's going to stand to benefit from this, and until there is clarity on the decision, it's going to slow things down. So we're assuming, based on our experience with Office Depot/Office Max that similar things will happen this year even though it probably will not close this year, and especially in the fourth quarter, there will be some effect on our revenues.

So is there any guesstimate of where you think the number of doors will go of the super stores over the next two, three years?

You mean if they -- if the deal happens?

Exactly.

We have some estimates. We have no more insights than you do based on what both the analysts are saying and both Staples and Office Depot are saying, so our assumptions, if the deal were to happen, would be consistent with that.

Switching gears, as I look on the international and currency impact, I was a little surprised in the quarter and in the guidance you're not taking more pricing to offset that. Is that just you're unable to do that in local markets? Or it's too early? I would think that there's some opportunity to take some pricing to offset some of the currency impact.

We will take pricing. We have taken pricing in January, and we will take additional pricing as the US dollar strengthened and the international currencies weakened.

There is some lag in the impact of pricing and how it benefits us, but also we are assuming that we're going to be able to keep our gross margins whole. So pricing will definitely be the driver of that.

What we can't avoid is the translation impact of translating foreign currency into US dollars. So we may get the same amount of euros or the same amount of real or the same amount of the looney for us, but then we have to translate it into US dollars, and that's where the impact is going to be.

Okay. Then last one for me, just trying to understand use of cash, and it seemed like the share repurchases in the fourth quarter was relatively small for the $60 million authorization you have.

I know you talked about acquisitions out there, but with your stock now trading 6 to 7 times EBITDA, it seems like that's one of the cheaper acquisitions out there. So is there a reason why you wouldn't be more aggressive earlier than later?

So as I mentioned, in my prepared remarks, Bill, paying debt down is still a priority for us. Especially if Staples' acquisition of Office Depot happens, we want to make sure we're appropriately levered going into that.

Having said that, on balance we will probably have a more balanced use of our cash flow than we did in 2014. And even though we would pay down more debt than repurchase shares because we're limited to how many shares we can purchase to $60 million a year, if everything stays the same, we would buy back more shares in 2015 than we did in 2014.

From a seasonality perspective, we generate most of our cash in the second half of the year. So that's most likely when, if we do do share repurchases, that would occur.

And I missed, what was the share count expected for your EPS guidance this year?

115 [million].

Great. Thank you.

Thank you, Bill.

The next question we have comes from the line of Sam Reid from Barclays.

Thanks for taking my call. Quick question with regard to the input cost environment, given some of the moves we've seen in commodity pricing in recent months, I was curious what you guys are factoring into forward guidance in terms of your forward input costs and what type of a lag we might see there or any type of benefit at all?

We see the input cost environment being fairly benign. We're seeing reduction in raw materials on some of our commodities.

We're seeing labor costs increase on some of our commodities, and we're seeing inbound freight increase in our shipments from Asia to the US. So net-net, it's all in balance. The pricing action that we're taking is due to currency and not due to the commodity cost pressures.

Got you. One quick follow-up here. Given how there -- given how the volatility in some of your international markets has maybe increased over the last few months, how does that impact your view with respect to international M&A going forward?

We still believe that strategically those are the areas that will grow faster for our products. We're cognizant of the volatility, but we're investing for the long-term and we still do believe those are the right moves. As we said before, we will be prudent in whatever decisions we make, but it does not change our long-term position.

Awesome. Thank you so much. Much appreciated.

Thank you. The next question we have comes from the line of Chris McGinnis from Sidoti & Company.

Thank for taking my questions. Does the slowdown on the economic side change your market like your strategy going forward, and how are you trying to combat the difficult environment?

We are assuming that the international environment will be challenging in 2015. We are being conservative with our spending as a result of that and we will be focused on taking share, taking profitable share.

We're not investing so much or we're limiting our investments in the organic growth until we see the markets turn around. So we're being I think realistic as to what we can expect from the markets and investing appropriately.

Sure. Yes, and then just one other on the acquisition side or the M&A. What are the targets? Is it to stay within the office structure, or are you thinking about outside of that? Maybe expand a little bit since you did comment on that.

It really varies. At the very high level, we want to be close to the categories where we currently compete, school, office. We mentioned that we're interested in emerging markets in Latin America, specifically, but we're also -- are open to consolidating acquisitions if those are extremely accretive.

Then just one last, just to make sure I heard it right, was it $40 million from the ODP and OMX consolidation? Is that the headwind?

In 2014, ODP/OMX consolidation reduced our sales by $40 million in 2014.

Great. Thank you very much.

Thank you.

Thank you. The next question we have comes from the line of Kevin Steinke from Barrington Research. Please go ahead.

Good morning, everyone.

Good morning.

It sounds like despite the challenges you're seeing in the external environment, that you still feel good about the internal execution of the Company and taking market share. And so I'm wondering if that applies to how you see back to school shaping up in 2015. I believe you commented on your last call that you'd have a better sense of how that was shaping up by the end of 2014.

Yes. We are optimistic about 2015 back to school. My expectation is that we will be able to retain most, if not all, of the gains that we made in 2014.

As I mentioned on previous calls, we were happy with our results, and our customers were happy with their results for back to school. So I believe we're in a very good position, but also as I expressed last year, I'm not going to count it until we actually see orders in and execute shipments. But going into the season I feel very, very good.

Okay. Perfect. And then any comments on -- you said Brazil remained weak from a macro perspective. But how do you feel about how back to school shaped up there, and do you have a constant currency growth rate for Brazil on the quarter?

We don't do a quarterly guidance, Kevin, but for the year, we expect Brazil to be flattish at constant currency. And then obviously there will be a negative impact from FX.

It was roughly flat in Q4, which was a change from the previous three quarters. They are in the middle of their back-to-school right now, middle of a very, very heavy selling season.

My expectation is that sales there will be flat to slightly down. Sell out flat to slightly down at constant currency. So Brazil is definitely being impacted by all of the macro issues that they've experienced over the last couple of years, but especially in 2014.

Okay, thanks for that detail. And if you look at the 2015 revenue guidance, or high single digits to low double digit decline, what would be the factors that maybe get you to the top end of that range versus the bottom end? What are the swing factors there that you're baking in?

That includes 5% of currency. So, clearly currency will have a major effect on our revenue. And then within that, our expectation is that North America would be down mid-single digits, and clearly if we have a good back-to-school, that may change that.

Our expectation is that the International will be down mid to high single digits without currency, this is at local currency, and depending on what happens in Europe and in the emerging markets, that clearly will swing that. And then we expect that the Computer Products segments will be roughly flat for us, with slightly down performance in the first half and then growth in the second half. And then obviously depending how we execute on that, that will have an impact on the revenue as well.

Okay, well, thanks for all the detail and thanks for taking my questions.

Thank you, Kevin.

Thank you. The next question we have comes from the line of Brad Thomas from KeyBanc Capital Markets. Please go ahead.

Yes, thanks. Good morning, Boris, Neal and Jennifer. I did want to congratulate you on what I thought was a pretty good quarter and a good year in a difficult environment. Just to follow up on the North America business as you strip out some of these one-time factors like the pressure from Office Depot, could you maybe tell us a little more about what you're seeing in terms of the underlying trends in both the consumer and commercial segments of the division?

Sure. From an economy perspective, US is certainly the star right now of the world, and I think that's consistent. We're seeing it, and it's consistent with what you or other companies are seeing from other reports.

The consumer is relatively healthy. The POS is relatively good.

We're seeing it pretty broadly, both in the consumer and the commercial side. There is definitely an underlying channel transition that we're seeing away from speciality stores and towards mass and e-tail, so there's a shift happening there, but overall, the underlying environment is pretty good.

Great. And then with respect to Computer Products, obviously not a huge segment for you. But can you give us a better sense of why things are so pressured in the fourth quarter specifically how you're thinking about the 1Q, 2Q sales result and earnings results or profitability results in the first half of the year and why you expect it to inflect?

Sure, Brad. The decline in Q4 that we saw in Computer Products is really a compare issue.

A year ago in Q4, we participated in the iPad and iPhone launches, and we moved a lot of product into the channel for the heavy holiday season. And we recognized revenue, obviously, for that.

This year, or in 2014, we really did not participate in the holiday season with the tablet or smartphone accessories. And that drove a huge decline in the sales of those particular products.

As Neal mentioned, by the end of the year, 80% of our sales in the computer segment are security and PC accessories, and all of our profit is derived from those products. We still have a quarter or two to anniversary some of the fire sales of tablet accessories, but after that, I expect us to be in a very clean position to drive profitable sales that are focused mostly on security and PC and laptop accessories.

Our margins have expanded. The early information on sellout in 2015 looks good and looks promising. So I'm optimistic for our Computer Products segments, but the proof will be in the pudding, and we will have to see what happens through the rest of the year.

I appreciate it. Good luck. Thanks, Boris.

Thanks, Brad.

Thank you. The next question we have comes from the line of Jack O'Brien from CJS. Please go ahead.

Good morning. Getting back to school for a minute, last year you guys worked pretty closely with some customers on helping them stock a better product mix for their aisles. I was wondering if at this point you have been given any indication if that will be the same strategy going forward this year?

It's going to be similar. We don't have exactly the same assortment, and we have slightly different products with different customers.

But overall, it's in the same direction and same order of that magnitude, and that was my answer to a previous caller. I expect us to have a similar back-to-school that we did in 2014. Again, I don't want us to celebrate yet because we have to get the orders and we have to shift, but it looks similar to 2014.

Okay, great. And then quickly returning to consolidation, I was wondering if you guys could expand upon a bit what -- excuse me. On what you guys can do to keep SG&A down in respect to the consolidation among your customers?

We have been fairly aggressive in managing our SG&A and our costs in general, and have them aligned to our top line. We have a -- now a five-year lean Six Sigma effort where we have diligent initiatives across the Company and across all of the functions that are able to drive significant productivity improvements. For 2015, our goal is $30 million of cost reductions, and of that, $14 million is just due to the productivity initiatives.

The other $16 million is due to the previous or current restructuring efforts. I have utmost confidence that going into 2016 and beyond, we will be on the same type of productivity improvement trend. There's a lot of things we can do to get better.

Okay. Thank you very much.

Thanks, Jack.

Operator. Thank you. The next question we have comes from the line of William Reuter from Bank of America Merrill Lynch.

Hi. Just a couple questions. First on the $30 million of cost reductions you've outlined for this year, does this include the $8 million of cost savings from the restructuring activity that you did last year and were expected to achieve this year? And then additionally, can you talk about how this is going to break down between your gross margins and SG&A and how much you might be reinvesting of these savings?

It does include the $8 million from the 2013 restructuring. And the $8 million that Neal talked about that we put into Q4 of 2014.

It's going to go across the board between cost of goods and SG&A. I don't have a precise breakdown of that. Some of those savings will be reinvested, but most of that will go to protect our bottom line and to address the pressures that we talked about from currency and the industry consolidation.

Okay. And then you talked about some canceled orders that impacted your fourth quarter results. Can you talk about the magnitude of these? Were these I guess in the grand scheme of things meaningful?

It's meaningful for quarter results. It's not really meaningful for a year, but when you compare quarters and especially whether you look at the performance by segments, it certainly makes a difference for the International segments whether they're going to be down 1% in local currency or up 1% or 2% to local currency. So it's not meaningful from an annual corporation perspective, but it is at the quarterly or the regional level.

Okay. So that's the type of magnitude we might be talking about, 2% or 3% swing of the International business?

Something like that, yes.

Lastly for me, if you can talk a little bit about, when you were talking about your free cash flow, you talked about a little bit more going toward shareholder friendly activities. Can you talk about acquisitions?

In the past, you talked about emerging markets as an area. Can you talk about what you're seeing there in terms of I guess whether there are large acquisitions, whether you're getting close on any and how you feel about the valuations there?

I'm not ready to provide any color on acquisitions. We mentioned before, that's a core part of our strategy. If and when that happens, it's hard to predict.

If they do happen, obviously cash will be deployed that way. But if they don't happen, as I mentioned, we will have a more balanced use of our cash between paying down debt and share repurchases.

Okay. That's all for me. Thanks.

The next question we have comes from the line of Kevin Ziets from Citi.

Good morning. Sorry, bear with my cold a little bit. The $40 million impact from the Depot/Max merger, I assume that's just business you lost when it came up for bid and not just necessarily business that -- the impact of destocking or anything like that?

No. Most of it is destocking.

Oh, okay. And can you give a sense of margin impact on business that you kept but maybe had to keep at a lower margin than where you were going into the merger?

Yes, Kevin, we don't give out details of margin by customer. But as Neal said in his prepared remarks, that we're happy with how we managed that transition, and we believe that we are a smaller but a healthier company as a result.

Okay. And I guess ex the Staples merger, do you expect this year's impact to be greater than the $40 million given the store closures occurred later in the year?

You talking about Office Depot/Office Max?

Yes. Excluding --

We expect it to be of a similar magnitude.

Okay, great. And then on the Computer Products business, I guess I understand that the deemphasis of low margin business. I guess I would have expected a little bit more impact on operating margin.

It sounded like from your prepared remarks like you though gross margins were higher. Is the difference just investments in new products to try to drive 2015 results?

It's some of that, but also it's de-leveraging.

Just top line de-leveraging?

Exactly.

And you said that should start to abate, if not reverse, in the second half of this year?

That's correct. My expectation is it will reverse in the second half of the year.

Okay. And your outlook for the laptop market is still one of stabilization?

Yes. We've seen that now for several quarters. All of us can speculate as to why that is, but it's certainly a big market. We've been growing on a quarterly basis in that market for the last several quarters, and my expectation is going to be similar vein in 2015.

Okay, great. And your products are holding margin in general or moving up the value chain?

Our products outside of tablet accessories --

Yes.

Are holding margins, yes, they are holding margins, and they're good margins for the Company.

Okay, great. On the FX impact, can you roughly break down how much is transaction versus translation? Is most of it translation, or are you transacting --

There are two impacts. The vast majority of what we are communicating is translation of results.

And just to give a bit of color around the size of some of these FX movements, the -- we really are exposed to fixed currencies at a meaningful level. The Australian dollar, Brazilian Real, Canadian dollar, euro, UK pound and Mexican peso, they've all moved negatively on average, the best by 9%, the worst by 17%.

If you look at the impact on sales, it's pretty much all of those currencies are down from a sales translation impact. Brazil would be the worst, Mexico would be the smallest, but a lot of that is size-driven.

From a profit view, it's pretty much across the board all of those currencies, but you get more of a concentration around Australia which we have the joint venture which gets impacted, not just the reported result. The impact you're going to see from transaction is often a quarter-to-quarter issue.

We struggled to raise prices in the market as quickly as our cost of goods goes up. We try to protect against that through a certain amount of hedging, but that is never enough to keep up with the rapid pace of change we're seeing, so that tends to be more of a quarter-to-quarter impact, not a long-term impact. The impact for the long-term is really just straight translation of results.

That's really helpful color. My last question is on acquisitions, and I know you'd rather talk about them when they happen. But I was just curious in general, given the pending Staples merger, and some of the softness you've alluded to in international markets, whether you're generally seeing multiples come down and you view them more attractive than you had maybe a year ago?

As you said, Kevin, I'd rather talk about them when they happen. I'm not ready to give you more color on that.

Okay. That's fair. Thanks very much.

Thank you.

Thank you, ladies and gentlemen, that's the end of the Q&A. I would now like to turn the call back over to Boris Elisman, President and CEO, for closing remarks.

Thank you, Carolyn. In closing, I'd like to thank you for your participation this morning. As you gathered from our comments, we're pleased with our overall performance for the quarter and the year despite some of the industry macroeconomic challenges.

Those challenges will be with us throughout 2015, but I'm confident our team will continue to execute it well and deliver the results our shareholders expect. I look forward to speaking with you on our next call. Have a nice day.

Thank you, Boris. Ladies and gentlemen, thank you for taking part in today's conference. That concludes the presentation. You may now disconnect. Have a good day.