Cost Cuts And Supply Diversification Will Ensure Future Stability

Key Takeaways

• ACCO Brands' cost reduction and supply chain shifts aim to improve profitability and stabilize costs despite U.S. tariffs.
  
• New product launches and international expansion efforts are seen as key growth avenues, enhancing both revenue and market share.
  
• U.S. tariffs and softer demand, alongside sourcing shifts, may lead to revenue volatility and pressure on profitability across core product categories.

Catalysts

Designs, manufactures, and markets consumer, school, technology, and office products in the United States, Canada, Brazil, Mexico, Chile, Europe, the Middle East, Australia, New Zealand, and Asia.

• ACCO Brands is executing a $100 million multi-year cost reduction program, having already realized $7 million in additional savings in the first quarter of 2025. This initiative is expected to improve net margins and overall profitability.
  
• The company is actively shifting its supply chain to mitigate the impact of U.S. tariffs, minimizing reliance on China by diversifying its supplier base and relocating manufacturing. This strategic move is anticipated to stabilize costs and protect gross margins.
  
• ACCO Brands is implementing price increases in North America in response to tariff changes, which could offset increased costs and preserve net margins in the U.S. market.
  
• The launch of new products supporting the hybrid work environment and the Nintendo Switch 2, as well as international expansion in gaming, are expected to bolster revenue growth.
  
• ACCO Brands has expanded its product portfolio through a small acquisition in Australia and New Zealand, enhancing scale and distribution, which could improve revenue and market share in those regions.

ACCO Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ACCO Brands's revenue will decrease by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.7% today to 20.3% in 3 years time.
• Analysts expect earnings to reach $301.3 million (and earnings per share of $3.24) by about May 2028, up from $-108.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 3.4x on those 2028 earnings, up from -3.0x today. This future PE is lower than the current PE for the US Commercial Services industry at 27.9x.
• Analysts expect the number of shares outstanding to decline by 5.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

ACCO Brands Future Earnings Per Share Growth

Risks

• The newly announced U.S. tariffs and associated uncertainties may negatively affect consumer and business confidence, leading to slower purchases and potentially reduced future revenues.
  
• The first-quarter sales decline of 8% in the Americas due to softer consumer and business demand indicates challenges in maintaining stable revenues, impacting earnings.
  
• Muted demand for back-to-school products and delayed or canceled orders from retailers due to tariff concerns suggest potential volatility in quarterly revenues and operational margins.
  
• While international sales for computer accessories grew, office products remained sluggish, indicating potential pressure on net margins if core product categories do not recover.
  
• The requirement to shift sourcing from China could lead to temporary cost increases, potentially pressuring net margins and impacting overall profitability.

Valuation

• The analysts have a consensus price target of $10.0 for ACCO Brands based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $301.3 million, and it would be trading on a PE ratio of 3.4x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $3.57, the analyst price target of $10.0 is 64.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.