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Executives

Jennifer Rice - Vice President of Investor Relations

Boris Y. Elisman - Chief Executive Officer, President, Chief Operating Officer, Director and Member of Executive Committee

Neal V. Fenwick - Chief Financial Officer and Executive Vice President

Analysts

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Arnold Ursaner - CJS Securities, Inc.

Simeon Gutman - Crédit Suisse AG, Research Division

Christopher McGinnis - Sidoti & Company, LLC

Karru Martinson - Deutsche Bank AG, Research Division

ACCO Brands (ACCO) Q3 2013 Earnings Call October 30, 2013 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 ACCO Brands Corporation Earnings Conference Call. My name is Mark, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Jennifer Rice, Vice President, Investor Relations. Please proceed.

Jennifer Rice

Good morning, and welcome to our third quarter 2013 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 the quarterly results, we refer to our adjusted results, excluding charges. Adjusted results exclude restructuring and merger-related costs and apply a normalized effective tax rate of 35% for the current quarter and 30% in the prior-year quarter. Sales are discussed on a constant currency basis. Schedules of adjusted results and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures 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 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.

Boris Y. Elisman

Thank you, Jennifer, and good morning, everyone. Earlier this morning, we reported our third quarter financial results and they were decidedly mixed. Net sales declined 6%, or 4% at constant currency, primarily because of lower volume. Adjusted operating income declined 13% and adjusted net income was down 12%. While our international segment and cash flow generation were the bright spots in the quarter, uneven sales in North America and continued declines in Computer Products brought our overall sales and profits down.

We paid down another $32 million of term loans and at the end of the quarter, our net debt was $930 million. Our net debt to adjusted EBITDA ratio was 3.5x, approximately the same as it was before we acquired the Mead Consumer and Office Products business 17 months ago.

Our performance in North America was uneven, and overall, we did not meet our expectations for sellout for back-to-school. While we had growth with many retailers, and despite selling more units, we had weak sales with a couple of important customers, which reduced our revenues in both U.S. and Canada. Especially in the U.S., we saw overemphasis on lower price point assortments and consumers trading down to those products. At the end of Q3, when the likelihood of government shutdown and debt ceiling crisis became more evident, we saw a market slowdown in sales and replenishment. That continued through the first 3 weeks of October. As a result of our performance, we will accelerate reducing our structural cost in the U.S. to ensure a competitive product offering at the right price point and strong profitability for the business.

Our International segment continued to recover in the third quarter. Brazil was a particularly strong performer, exceeding our internal expectations for sales and profit, and Europe continued its turnaround with a year-over-year growth on both top and bottom lines. Australia has also rebounded somewhat from weak second quarter and we're seeing sign of stabilizations there as well. I'm pleased with how we performed in the International segment.

Computer Products continue to be buffeted by negative trend in the personal computing space, with PC sales down 9% in the quarter according to industry analysts. This, of course, impacted sales of security accessories and PC peripherals. In addition, new iPads launched later than we expected further hurting our third quarter results. As many of you know, Apple's new products were launched just last week and we have a full assortment of accessories shipping now in support of their launch. In addition, sales of Samsung tablet accessories, announced in the third quarter, are doing well, although Samsung holds a smaller share of the tablet market.

Regarding guidance. Given our Q3 results, the U.S. government shutdown and the resulting lost sales and uncertainty, and the move of iPad launch to Q4, we're lowering our full year sales guidance to a decline in the mid to high-single digits. This lower sales projection, combined with our third quarter results, has impacted our earnings estimates for 2013 as well. We now expect our EPS for the full year to be $0.78 to $0.81 at constant currency, down from our previous full year range of $0.90 to $0.95. However, because of our strong working capital management, we remain confident in our forecast of $150 million of free cash flow. It is our priority to use the available cash to pay down debt and drive our debt to adjusted EBITDA ratio to below 2.5x, at which time we can return cash back to our shareholders.

Clearly, it's been a challenging year for the economy and our industry. We are focused on managing the things that we can control and react appropriately to those that we can't. We are ahead of target in delivering to our cost synergy goals for the Mead acquisition, and we'll exceed $20 million in net synergies for the year. We're close to target on the revenue synergies and are projecting to finish at around 90% of our goal for the year.

Our team has done a good job of managing cost in a difficult revenue environment. And while we need to further adjust our cost structure to react to the top line, we remain committed to both, improving the shareholder returns and investing in the areas that will contribute to the long-term growth of the business.

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

Neal V. Fenwick

Thank you, Boris. Good morning, everyone. Our third quarter performance is recapped in our slide deck. Sales decreased 6% or 4% at constant currency. The underlying 5.5% decline was driven primarily by lower volume and unfavorable mix. Volume decline was in North America and Computer Products. Adjusted income from continuing operations was $29.1 million or $0.25 per share, compared to $33.2 million or $0.29 per share in the prior-year quarter. The decline was a result of sales de-leveraging and $0.01 of adverse effects.

In terms of gross margin, we made great progress on both our cost synergies and productivity initiatives which, combined, contributed 210 basis points of benefit to gross margin. However, sales de-leveraging and unfavorable mix impacted gross margin by 260 basis points and, including a 10-basis-point FX impact, gross margin declined 60 basis points in the quarter.

SG&A expenses were down in the quarter, although at a lower rate than sales, resulting in a 30-basis-point increase at the margin level. Cost savings and synergies was 70 basis points as a benefit that sales de-leveraging, net of FX, impacted SG&A margin by 100 basis points. In all, operating income margin declined 80 basis points to 11.5%.

Interest expense was down $5 million in the quarter to $12.4 million, a benefit of $0.03 per share. However, the benefit was largely offset by the higher tax rate which had a negative $0.02 impact on the quarter. Foreign exchange was only a modest factor for the quarter, reducing EPS by $0.01. However, we expect it to be a more significant factor in the fourth quarter and an impact to the full year EPS and our guidance by approximately $0.03.

Turning to an overview of our segments. In North America, Q3 sales decreased 8%, with 1/4 of the volume decline, or $6.5 million, due to the impact of having exited unprofitable business. The underlying decline was due to a soft demand, a higher mix of lower-priced products and some lost product placements.

In North America, adjusted operating income decreased 9% to $38.7 million compared to $42.6 million in the prior-year quarter, and operating margin decreased slightly to 13.1% from 13.3%. In our International segment, net sales decreased 2%, but on a constant currency basis, increased nearly 5%. Much of the increase was driven by Latin American pricing, but we had volume growth in Brazil and modest growth in Europe.

International adjusted operating income showed strong improvement as a result of the previous restructuring actions, increasing 20% to $18.7 million, with margin expanding 260 basis points to 13.8% from 11.2%.

Computer Products net sales decreased 8% to $37.3 million. Increased competition and the absence of new mobile device launches to coincide with the earlier timing last year led to our lower sales in tablet and smartphone accessories. We also continue to be impacted by the decline in laptop shipments, which impacted demand for security products and computer accessories. As a result of the sales declines, particularly of higher margin security products, Computer Products adjusted operating income was $3.4 million compared to $8 million, and operating margin decreased to 9.1% from 19.8%.

Turning now to a highlight of our quarter, our balance sheet and cash flow. We had strong cash generation during the quarter and paid down $32 million of term loans, as well as our seasonal Q2 borrowings of $57 million. Our term loan reduction for the 9 months is now $70 million. We still feel good about our cash flow target of $150 million for the year, which is net of restructuring-related cash expenses which are now expected to be $28 million. While our operating profit is lower than we originally expected, we anticipate a bigger working capital benefit due to both lower volume, as well as strong productivity improvements.

As we saw last year, our fourth quarter is a strong cash-generating period, and our priority will be to use the cash for additional debt reduction and to fund our growth and seasonal needs in Brazil.

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?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Bill Chappell, Funds Trust (sic) [SunTrust].

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

I guess, just first on the clarification on the guidance, just to make sure I understand. For the full year sales outlook, is that x currency or including currency? And if so, if it's including currency, are we looking more like double-digit decline? And then would you expect the EPS impact for currency in the fourth quarter to be pretty similar to the third quarter, roughly a $0.01?

Boris Y. Elisman

It's x currency on both top and bottom line, and we expect currency effect to be bigger in the fourth quarter than it was in the third quarter.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Okay, so it could be down kind of double digits for the full year, including currency, for the sales?

Boris Y. Elisman

Depends on your assumptions on the currency, yes.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then, I mean, Boris, maybe you can talk a little bit more about synergies, cost savings and how you're looking the business, I mean, especially as we look at the Computer Products business, which the secular decline continues and now competitive pressures. And even some of North American office, I mean, at what point do you try to improve the structural footprint to improve the profitability going into next year? I mean, are we already at that point or is that wait until early next year before we make those steps?

Boris Y. Elisman

Well, I think we are at that point with the Consumer & Office Products business. The market has spoken. We see our results for back-to-school. Clearly, the top line and the margins are not where we expected them to be, and we will need to adjust our cost structure. So that's -- we are at that point, and exactly how much and exactly when, we're still in the process of analyzing that, but it's sooner rather than later. But I'm not ready to have the amount for you. On the Computer Products, I don't believe we're at that point yet because we just launched the products last week. So I want to see the response from the market to our accessories offering and then we'll make the appropriate decisions then. Just more insights to the computer products, if you look at our 3 parts of that business: PC, accessories, security, and tablet accessories, the PC accessories and security part of our business there are meeting our expectations. It is a soft market and there are some secular challenges in the PC space. But from both the sales and margin perspective, we are on plan there. The most disappointing part, and the one that really has hurt us, is our tablet accessories business. And there, we missed the product life cycle earlier this year which has hurt us. And then we had a 2-month delay, or to our expectations, a 2-month delay, of introduction of the iPads and hence, we're not able to have any catalyst for driving the change in the growth profile of the business. Now that it has happened, I want to see how that gets received by our customers and consumers and then we'll adjust appropriately.

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Okay, and the last one for me just as I think we're all looking at kind of the fourth quarter guidance, it's obviously a pretty big jump up in margins and earnings. I know it's seasonal, it's the biggest quarter. But I'm just trying to understand, I mean, is it mix-driven? Is it majority of the synergies are really kicking in in the fourth quarter? I mean, what's beyond just being a bigger quarter than the others in the year? I mean, are there things that you're expecting or seeing that really drive that margin expansion year-over-year?

Boris Y. Elisman

Yes, let me answer and then I'll ask Neal to add to it as well. But it is a seasonally very strong quarter for us, primarily because of Brazil. It's the very large quarter in Brazil and they generate most of their profits in Q4. It's because of organizing calendars, the biggest quarter for organizing calendars, and we generate a lot of profits for that in Q4. We do expect a 2 or 6 weeks of sales for new tablet accessories, which has helped with the profitability of the Kensington business. And then finally, as we discussed before, our synergies are back-end loaded. So most of the productivity improvements to the synergy work that we've done, we will see in Q4. Neal, do you have anything else to add?

Neal V. Fenwick

Europe would be the other one. We noted the turnaround of our European profit in the third quarter, and obviously, that will contribute more in the fourth quarter as well.

Operator

Your next question comes from the line of Brad Thomas, KeyBanc Capital Markets.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Wanted to maybe turn things more to the International side here. Obviously, up 5% on a constant currency basis, a bright spot for you here. Could you talk a little bit more about what it was that you saw changing in Europe? And then what the success rate looks like in terms of the revenue synergies in Brazil and Mexico at this point?

Boris Y. Elisman

Sure. So let's start with Europe. The environment in Europe remains tough, but we are not seeing deterioration. So we are seeing stability now for the last couple of quarters in the still overall macro environment. And then if you remember, what drove our declines in the fall of last year and also in Q1 was due to the synergies to both of the product tail and customer tail that we've executed at the end of 2011. Last quarter, Q2, we were flattish. This quarter, we are a little bit up in Europe. So we're executing on the strategies that we've outlined for you about 18 months ago, and now they're coming to realization so -- and also we've took a lot of restructuring actions in Europe over the last couple of years, so we are seeing those savings come through to the bottom line. In Brazil, the macro in Brazil is staying tough, so we're not seeing any improvement to the economy there. What's happening in Brazil is we are taking significant share in the market, and we're doing that because our competitors are just as affected by the macro conditions and some of them have decided to exit the market, so we've got incremental space because of that. A year ago, we invested in additional capacity in our plans to try to address mid-tier price points, and we're capturing incremental profitable share through that. And then finally, the team in Brazil, our team in Brazil, is just doing a great job driving the business, and we're driving double-digit revenue and profit improvement in local currency. We've -- on the synergy side, on the growth synergy side, as I mentioned in my prepared remarks, we had a goal coming into the year of $20 million in growth synergies. We're tracking to a little bit below of that plan. We estimate to be at about 90% of the plan for the year. Most of that growth is coming from Brazil and our International markets. Mexico is a little bit below plan, you asked a specific question about Mexico. Mexico is having a tough year, and some of that is driven by the overall economy. They have elections at the end of 2012, so the first few months were very, very soft as the new government came in and restructured how they purchase products. And also what we see in Mexico is, as you know, Office Depot sold their business to Grupo Gigante in Mexico last quarter and the new company is being very, very careful in how they manage the inventory, and that is affecting the amount of products they buy from us. And they are our biggest customer in Mexico, so that's affecting our business. So the brightness in the International segment is driven by Europe and Brazil, primarily, and also a slight improvement in Australia. We are seeing better comps there and just an improved execution, improved conditions there as well.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

That's very helpful. And if I could just add a follow-up on the U.S. You referenced in the presentation some lost placement. Could you talk a little bit more about what you're seeing by different customer groups in the U.S.? And in the past, the company has had a lot of success winning more shelf space. What are you seeing today and what are the opportunities and risks ahead of you?

Boris Y. Elisman

Sure. So if you look at our U.S. business, I'm pleased with how we're performing in the office superstore channel. As you know, that channel is experiencing their challenges and difficulties, but overall, from our perspective, it is meeting our expectation for sales and margin as well. I'm also very pleased with how we're performing in the ETL [ph] channel. We're seeing substantial growth in that business. And even though it's relatively still small, we're now getting to a point where the numbers are becoming meaningful, and we're not seeing any slowdown in the trajectory of growth for that business. We're doing okay with independents and wholesalers. They were affected by the government shutdown and just the overall weakness in business confidence and consumer confidence. But I believe we are taking share there, and again, that channel is meeting our expectations. The most disappointing channel for us was the mass channel. As you know, it's a very significant part during Q3 because of back-to-school. And there, it's driven by a couple of very, very important customers for us and the performance there was spotty. And I'm pleased with execution in some aspects of it. I think we need a little bit better balance between volume and price. But in some other aspect, we did lose placement, and also the -- that particular customer went very, very low. Their strategy was to get very, very low with offering a lot of choices at very low price points. And basically, they skewed the mix way low, for them and for us, and did not see the benefit in terms of revenue in sorting that margin, so that really has hurt us in the mass channel.

Operator

Your next question comes from the line of Arnie Ursaner from CJS Securities.

Arnold Ursaner - CJS Securities, Inc.

My first question is a follow-up to one of Bill's questions. In your guidance, have you embedded in the expected cost actions you hope to take?

Boris Y. Elisman

No, we did not.

Arnold Ursaner - CJS Securities, Inc.

So if they were to occur, which it sounds like you're getting geared up to take action, that might give us a little more room on upside, if you will?

Boris Y. Elisman

Arnie, what's most likely, and I'm just giving you preliminary intention, but what's likely is we would announce some things this quarter, but we wouldn't execute until next quarter. So I don't think you actually will see any savings coming in this quarter.

Arnold Ursaner - CJS Securities, Inc.

Okay. My second question is, you've always had the cost lever of bonus compensation, and obviously, given the disappointing trends year-to-date, one would assume that some of these will either have been reversed or will be reduced as the year goes on. Can you just remind us, as you enter 2014, if they are reversed or eliminated this year, do you typically build them in again in the upcoming year, or at some point, are they just -- we didn't meet expectations and they're eliminated?

Boris Y. Elisman

So your assumptions are correct. We do have that lever and, given our performance, some of the bonus accruals have been released into the P&L. When we plan for next year, we assume 100% of bonus, so that will come back into our expectations.

Arnold Ursaner - CJS Securities, Inc.

Right, but to the extent you didn't meet expectations in a previous year, are they automatically or is it generally added to the following year? I guess, I'm trying to get to the view of when you do provide your 2014 outlook, will you have to build in higher bonus accruals because they weren't achieved the last year...

Boris Y. Elisman

No, no, no. After year is done, year is done. We don't do anything to make up bonuses for the past year.

Arnold Ursaner - CJS Securities, Inc.

Okay. My final question is a broader one. There -- obviously, the bears on your story have always said it's a secular issue not a cyclical one. And you were up against an extraordinarily easy comp, particularly in back-to-school. Last year, you got clobbered by, I think you used the term then, an unprecedented shift to lower price points, and yet we're dealing with the exact same issue again this year. How do you react to the secular versus cyclical issue?

Boris Y. Elisman

Well, as we discussed on numerous occasions before, we do have secular challenges in the business. I would disagree that they're showing up this quarter because our volume is -- actually, units are up this quarter, so secular tells me that the demand for the products is going down and the demand for the products is not going up. More people are buying, unfortunately, lower-priced products. And as I mentioned in my response to Bill, that the customer has spoken, the consumer has spoken, and we're going to react and adjust to those price points and we're going to compete, and win incremental and profitable business, but at those price points. So I don't think it's a secular issue. I do think that there is a -- now for 2 years in a row, we've seen a shift down to more value price points, specifically from the mass channel, and we're going to react to it.

Neal V. Fenwick

It's Neal. Just to pick up one point, we have 2 areas of our compensation. One is the annual incentive plan, the other is our long-term incentive plan. Our long-term incentive plan is based around cash flow, and we're actually on target for our cash flow for the year, and so those accruals are significantly higher as an expense year-over-year in our business this year than they were last year. So our annual plan is the one that, obviously, we're not meeting expectations on. But on our long-term expense plan, we are and the expense in the P&L obviously reflects that as a higher charge this year than last year.

Operator

Your next question comes from the line of Simeon Gutman from Crédit Suisse.

Simeon Gutman - Crédit Suisse AG, Research Division

Boris, to -- I guess, to clarify something we talked about earlier, as far as cost reduction opportunities. It sounds like the biggest opportunity may lie in the Office Products side or North America. Is that right? And then how much -- or I guess, a lot has been done in International, especially in Europe, but can you -- I don't know about rank order, but where do some of the greatest cost opportunities lie in the business still?

Boris Y. Elisman

The biggest opportunity is in North America, and that's where the performance was the weakest, and that's where we'll be looking at. I can't and don't want to quantify the number for you, but if you just look at our expenses in North America, we have over $200 million in annual expenses in North America, so there's lots of opportunity there to adjust our cost structure.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay, and then as far as 2014, are there any changes that you're contemplating, either to working capital or from a tax standpoint, that enhance the cash flow picture or make it worse for next year?

Boris Y. Elisman

From a working capital point of view, we're getting a significant cash benefit this year from working capital, and it's really from 2 quarters. One is that the business shrunk, and that's a low quality problem in terms of generating cash out of working capital. The other one is we've significantly improved our productivity around inventory and payables which, obviously, is a high-quality long-term aspect. We'll get a continued benefit in our business from being able to run in the long term with a -- with those performance metrics. And so the real issue is how much the business grows next year in terms of, can we drive productivity to offset the growth absorption on working capital? And our objective would be to do that, so that we're getting growth, which would take working capital, but being able to offset that with flow-through productivity next year. So I'm assuming next year I would get a little benefit in the working capital volume.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay. And then a question on Brazil with 2 parts. First, do you have any, I guess, sense of the selling season, on how it shapes up back-to-school there? And then clarifying something you mentioned earlier with some of the share gains. Is that happening in some of the legacy Mead products? Or is that also happening, I guess, more to a revenue synergy side, selling ACCO products and taking space in some of the, I guess, some of the incumbents there?

Boris Y. Elisman

Sure. The sell-in season is going well, so we're optimistic, with the caveat, though, that December is a very strong month, and some of the sales that we actually ship in December are not counted until January because of revenue cutoffs, so it becomes tricky at that point in time. But we're pleased with our performance in Brazil for the first 3 quarters, as well as the trends we're seeing so far. Most of those gains, and its vast majority, are coming through the legacy Mead product line, through our different categories in the legacy mead product line. We are seeing incremental sales for Kensington and legacy ACCO, but in the overall scope of things, and with what we're selling in Brazil, they're still pretty small.

Operator

Your next question comes from the line of Chris McGinnis from Sidoti & Company.

Christopher McGinnis - Sidoti & Company, LLC

Just one thought, real surprising is just the -- with the pending merger of your superstores were a little bit stronger or at least in line with your expectation. Have you seen any impact yet from the proposed merger?

Boris Y. Elisman

As I mentioned last quarter, we believe that even though they're operating completely independent, we are seeing some conservatism on their inventory policies. So we believe that, that has continued to happen during Q3. However, as I said before, the overall expectations -- I mean, the overall sales for the office superstore channel, including the 2 businesses in the U.S. you're thinking about, have met our expectations, so they were not the reasons for the weakness in Q3.

Christopher McGinnis - Sidoti & Company, LLC

And then just second on the issues that you have in North America. How hard is it to regain that share? And is it a matter of that you're coming in with your lower-priced product, or is it a little bit larger than that to try to regain that share that you lost?

Boris Y. Elisman

Well, the good thing about all that side is that you get to compete for the business on an annual basis. So we're in the process right now of competing for back-to-school for 2014. We -- I feel good about our opportunities there. We are working with our customers. We should hear something back in the next month or 2 of how we're doing. And we will try to certainly do our best to regain that placement, but at a good profit for our shareholders.

Operator

Your last question comes from the line of Karru Martinson from Deutsche Bank.

Karru Martinson - Deutsche Bank AG, Research Division

When we look at the business that was kind of lost with independents and wholesalers during the government shutdown, I mean, is that business that you feel is delayed into the fourth quarter, or is that just kind of gone now?

Boris Y. Elisman

No, I think it's gone.

Karru Martinson - Deutsche Bank AG, Research Division

Right. And when you talk about consumers trading down to the lower-priced products, especially in mass, looking back, I mean, this has been the continuing story, it seems, in that category in particular. In the past, we've talked about targeting that space for -- as an area of growth. What seems to be the disconnect there? I mean, in terms of getting product at that price point?

Boris Y. Elisman

It's a couple of things. Again, I think we need to be a little bit sharper on our pricing. On the placement that we did have, and which I'm very happy with, on the sellout side, I think we should be managing at a better margin. And I think that is a very, very achievable task and we'll be working on that. And secondarily, we need to be -- we need to have better plans with our customers. I think some of the disconnect that has happened this particular back-to-school is that the customer, one of the big customers for the season, went unexpectedly low, very, very low, below our expectations and we got unexpectedly hurt by that. So I think we need to have stronger upfront planning so that we're understanding exactly what the customer strategy is and then we decide how to optimize our portfolio to participate better in the back-to-school. And we did not do that with this particular customer this Q3.

Karru Martinson - Deutsche Bank AG, Research Division

All right. And given your scale and market leadership, I mean, if you guys are feeling this kind of pressure on the top line, how do you look at the health of the overall industry and the kind of the consolidation trend that's been going on for the last couple of years?

Boris Y. Elisman

If I'm going to bifurcate my discussion, I feel better about everything on the -- from an International perspective. I think, a year ago, when we spoke, I was more concerned about the International part and feel better about the U.S. or North America. I feel a lot better about the stability of the International business and the gains they've made there, both on the revenue side and the profit side. I'm more concerned about U.S., certainly now than I was even a few months ago. I think we're in a much more tenuous situation in the U.S., both from a consumer perspective and a business perspective. And certainly, our industry overall, is probably is more affected just given what's happening with the channel consolidation. But at a macro -- at a macro level, U.S. is more tenuous and concerning to me. And then the other part that continues to concern us is the PC world and what's happening there, and the complete lack of any kind of a rebound in the PC space. And the continued deceleration of sales of PCs. And also some of the, we think, execution issues in that space, not on our part, but on the industry part, that have not have given us opportunity to change the trajectory of our sales. So that's kind of a summary, International better but more concerned about U.S. and computers.

Operator

That concludes the question-and-answer session. I would now like to turn the call over to President and CEO, Boris Elisman, for closing remarks.

Boris Y. Elisman

Thank you, Mark. Thanks, everyone, for joining us on the call today. We'll look forward to speaking with you again when we report our fourth quarter results, and have a good morning. Thank you.

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