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ACCO Brands (NYSE:ACCO)

Q3 2012 Earnings Call

October 31, 2012 8:30 am ET

Executives

Jennifer Rice - Vice President of Investor Relations

Robert J. Keller - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee

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

Analysts

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

Sarah Miller

Arnold Ursaner - CJS Securities, Inc.

Simeon Gutman - Crédit Suisse AG, Research Division

Reza Vahabzadeh - Barclays Capital Inc.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 3 2012 ACCO Brands Corporation Earnings Conference Call. My name is Ian, I'll be your operator today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes.

Now I'd like to hand the call over to Ms. Jennifer Rice, the Vice President of Investor Relations. Please go ahead, ma'am.

Jennifer Rice

Good morning, and welcome to our third quarter 2012 conference call. Speaking on the call today are Bob Keller, Chairman and Chief Executive Officer of ACCO Brand 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 may refer to adjusted proforma results including Mead Consumer and Office Products for all periods, but excluding restructuring and merger related costs and applying a normalized effective tax rate of 30%. Schedules of adjusted proforma results and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures begin on Page 12 of our press release.

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

Robert J. Keller

Thank you, Jennifer, and good morning everyone, and thank you for joining us. Today we reported sales for the third quarter which increased 48% to $501 million and reported EPS of $0.48 versus $0.21 in the prior year quarter. The increase in sales and earnings was a direct result of the merger with Meads Consumer and Office Products business which we acquired on May 1.

Adjusted proforma EPS from continuing operations was $0.29, compared to $0.42 in the prior year. On a pro forma basis, sales were down 12%, in line with what we've foreshadowed on our second quarter earnings call, driven largely by unfavorable volume and mix with currency contributing 3% to the decline.

As expected, the sales trends we identified at the end of the second quarter impacted all 3 months of the third quarter affecting nearly all of our businesses and geographies. Consumer sales across the globe has slowed and when consumers chose to make a purchase, they traded down to lower value products. This was particularly true for the back-to-school season in North America.

In Europe and Australia, sales have been pressured by the local economies although European sales were also affected by our strategic exit from certain customers and product lines. In Computer Products, lower personal computer sales and the timing of the iPhone 5 release late in the third quarter negatively impacted our sales and mix. Despite these challenges, we delivered on our bottom line for the quarter. We redoubled our efforts to control spending and accelerated some of the merger integration activities, giving us confidence we'll meet our bottom line expectations for the fourth quarter.

We are still on target to deliver $20 million in merger-related synergies in 2013, as well as $15 million in Lean Six Sigma cost reductions. Our strong cash position in the quarter allowed us to pay down $52 million in debt and we now expect to pay down a total of $150 million by year-end. We also have reiterated our guidance for the full year and expect to deliver a $0.20 EPS improvement in 2013. Our fourth quarter sales trajectory should improve despite the macroeconomic challenges. Our business in Brazil is showing a high single-digit increase in back-to-school orders year-over-year. And our Consumer and Office Products business in the U.S. appears to have stabilized. In Computer Products, we're anticipating stronger sales this quarter as a result of the iPhone 5 launch as well as the impact of the new smaller iPad.

In addition, we believe the release of Microsoft's Windows 8 platform should provide a boost in PC sales which correlates to our security product sales. We're also expecting headwinds from foreign exchange to moderate slightly in the fourth quarter. Across our business, October sales are coming in as expected.

Nothing has changed in our approach to the business since we spoke to you last. In this environment, we are focused on controlling what we can, reacting well to what we can, managing cash to pay down debt and delivering on earnings. We continue to look for ways we can make our operations leaner and more cost-effective and we're accelerating our merger integration activities. The combination of Mead and ACCO Brands has significantly strengthened our business and we are excited about our prospects going forward. Now I'll turn the call over to Neal to provide more detail on our financial performance. Neal?

Neal V. Fenwick

Thank you, Bob. Our third quarter performance is recapped on Slide 3. Reported sales increased 48% to $501 million driven by the merger with Mead. On a pro forma basis, sales declined 12% with 3% of decline due to FX. As Bob noted, the sales trends we saw at the end of Q2 impacted all of the 3 months of Q3 as we anticipated, with declines in North America, Europe and Australia.

Heading to our pro forma P&L. Gross profit margin declined 210 basis points to 30.7% in the quarter, as shown on Slide 4. The decline was due to an adverse sales mix, which had a 230 basis point impact on gross margin. In North America, Australia and Europe, we again saw consumers trend toward our lower price point products. And in Computer Products, we had a lower mix of security and other PC-related products together with the loss of royalty income. The negative mix and lower pricing more than offset 70 basis points of cost savings. In terms of SG&A, we were able to improve SG&A as a percent of sales by 20 basis points to 17%, primarily due to the reversal of $5 million of incentive accruals and other cost reduction initiatives. These savings helped offset the impact we saw from sales deleveraging.

In all, operating income margin decreased 220 basis points to 12.3% from 14.5%. Foreign exchange had a $2 million adverse impact on the bottom line. Turning to an overview of our pro forma segments. North America sales declined 6%, driven by lower demand in adverse product mix trending to lower price points. In addition, we saw continued inventory reductions by some customers particularly of our durable products. North America adjusted pro forma operating income declined 12% to $42.6 million. As a percentage of sales, operating margin decreased 80 basis points to 13.3%. The decline was due to the lower sales volume and mix.

International segment sales decreased 21% or 13% on a constant currency basis. The decline was mainly driven by lower volume in Europe and Australia and planned product exits in Europe, as well as lower pricing. Excluding FX and Product exits, International volume was down 9%. International segment adjusted proforma operating income was down $12 million and accounted for half of the total businesses operating income reduction.

International operating margins declined 450 basis points to 11.2%. The main driver was lower sales volume and lower prices in Australia and Europe. It was also due to lower demand, deleveraging SG&A costs. Computer Products sales decreased 13% or 9% on a constant currency basis. 3% of this decline was a result of $1.4 million of royalties in the prior year that did not occur in the current year due to the expiration of patents. Volume and mix accounted for 5% of the decline and was due to lower demand for PC accessories caused by the slowdown in market sales of laptop and PCs, as well as channel inventory reductions. We did see growth in smartphone and tablet accessories. Computer Products operating margins declined to 19.8% versus 24% in the prior year quarter, mainly due to the loss of royalty income and also lower pricing and product mix.

Turning now to our balance sheet and cash flow. We generated $88 million of cash in the quarter and paid down $52 million of debt and have $125 million of cash on the balance sheet. We have lowered our pro forma working capital at constant FX by $47 million year-over-year, mainly through lower inventory and improved payment terms with vendors but also due to lower AR, which are down due to our sales volume. We now expect working capital to be a source of cash for the year.

As we move into the fourth quarter, we expect to continue to generate significant cash flow and now expect free cash flow of $75 million for the full year, excluding charges and transaction related costs. This is up from $50 million as we previously expected. As a result, we now expect that by year-end, we will have reduced our post acquisition debt by $150 million, up from the $125 million we previously had expected.

For 2013, we continue to expect free cash flow to be about $150 million as we will have the full year of Mead cash flow, which is generated primarily in Q1 and will more than offset the historic legacy ACCO seasonal cash outflow in that quarter. Q2 will now become our seasonal cash outflow quarter.

Finally, turning to our IT integration. Separation of Mead's systems from its former parent was completed in September. The successful separation now enables us to proceed with the integration of the businesses. We have determined that the best way to integrate Mead's SAP environment and ACCO's Oracle environment is to move to an outsourced environment. This is desirable from both an operating and cash investment perspective. It allows us to substantially reduce future capital investments but does require us to incur $7 million of onetime transition costs between Q2 2012 and Q2 2013. These transition costs will be excluded from our pro forma adjusted income.

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

Question-and-Answer Session

Operator

[Operator Instructions] And that question is from the line of Brad Thomas at KeyBanc.

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

I wanted to first start off asking a few questions about that Computer Products side of the business venture. Perhaps, Bob, you could help give us a better understanding of maybe how much of a drag do you think that the iPhone 5 launch was during the quarter?

Robert J. Keller

We've been growing our smartphone and tablet accessories pretty aggressively during the year, we grew them about 20% in the quarter which was down 40% or 50% off of what our run rate had been in that category. Having the iPhone 5 come out literally on the last day of the quarter, so we had no opportunity to ship, it was a little disappointing. But we'll get a chance to have a full quarter of shipments in Q4. We're in position to -- and our shipping accessories for the new iPad, the smaller iPad. And we are cautiously optimistic that the Windows 8 announcement may light a little bit of a fire under PC, laptop and notebook sales which would help the security part of our business. So our expectation is we'll see a lift in our Computer Products group in Q4.

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

Great. So if I understand you, Bob, we're up against a more difficult comparison in the fourth quarter where I think volume was up over 10% in Computer Products last year. So it is your belief that you will grow volume in the fourth quarter even against that tough comparison?

Robert J. Keller

We're thinking it's going to probably be relatively flat but significantly up over this quarter.

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

Okay. And then maybe turning to some of the revenue synergies, I know a topic that we ask you about every quarter. Can you just give us an update on your latest thoughts in terms of the revenue synergies with Mead and perhaps the timing and magnitude with which some of those could flow through?

Robert J. Keller

Yes, I think honestly, we'll be able to give you a little bit better perspective at the end of the next quarter, but we started shipping Mead product into Mexico during the third quarter. We actually are shipping both Kensington and ACCO product into Brazil in the month of November for sales this year and that will give us a good sense both in terms of what the sell-through opportunity and what the take-up is by the dealer network in Brazil. We are optimistic about getting some leverage out of the mass channel both in the U.S. and Canada based on the relationship we've had, an early win that will impact 2013 volumes in Canada in the mass channel. And I think one of the things that was a little frustrating this year, relative to the back-to-school season, is our perspective is that the mass channel performed pretty well. We got no leverage in this back-to-school season off of the relationship with Mead. So we went in, basically with just the ACCO products in a very limited number of mass players. And so we think we'll get a lift on that next year as well, but when we report next quarter, we'll have a sense as to what the take-up rate is in Mexico and Latin America, and we'll be better positioned to talk about it then.

Operator

We have another question. This one's from the line of Bill Chappell at SunTrust.

Sarah Miller

This is Sarah Miller on for Bill Chappell. I've got a couple of questions. First question is, I know you talked about some of the trends going into 3Q on last call. You seem to be pretty steady throughout the quarter, but what have you been seeing in October, what are your expectations for how 4Q is going to be playing out?

Robert J. Keller

We feel better about the fourth quarter over the third quarter. One, we're out of back-to-school which this year, we commented in Q2 that we saw much more emphasis from our customers pushing low-price points at the beginning of the back-to-school season. We saw the shift as we expected to see towards high-volume products at the end of the back-to-school season, but it was very late this year and there weren't any reorders. So having gone through the back-to-school season and being out of it we think is a positive. We see the U.S. business is stabilizing, we think our results were in line with kind of everybody else in the industry. We had one less selling day during the course of the year and we did an accounting change which took another day off of our sales in Q3. We expect Europe to continue to be challenging, Australia continuing to be challenging. We are excited about the early ordering process in Brazil, we're up high single-digits year-to-year in terms of orders there. We expect kind of an okay season or fourth quarter in Canada. We saw a good Q2 and then a soft Q3 on balance over the 6 months, we were kind of where we expected to be and we expect the average to be kind of the going forward rate. And so we expect that sales trend will improve. One of the things we talked about earlier was the Kensington business had a tough Q3, a lot of that we think is timing and we expect to bounce back in that business in Q4.

Sarah Miller

Okay, great. And then I don't think you said this on the call, but we were just wondering where the incremental free cash flow is coming from? Have you identified -- is it coming from that kind of speed up of the merger integration? If you could give a little bit more color on that.

Neal V. Fenwick

Hi, Sarah, it's Neal. The extra cash flow is predominantly coming out of working capital. We've done a permanent change in the amount of inventory and the amount of days we're getting in terms of accounts payable. And so based on where we're at, at the end of the third quarter, you've got a more significant working capital impact than we'll actually see by the end of the fourth quarter because we're expecting stronger sales at the end of the year. So the AR piece is really driven by volume metrics and will disappear when you get to the end of the fourth quarter. The lower inventory and the lower and the better terms we're getting in terms of the accounts payable would stick. And there respectively worth just north of $25 million.

Sarah Miller

Okay, great. And then our last question and we'll pass it on, does the aborted Avery 3M deal have any impact on you, and any thoughts around that?

Robert J. Keller

Sure. It does. We were one of the folks that was hoping that, that transaction would go through. We think the pricing on the ring binder portion of the marketplace isn't market conditions and we thought it would get rationalized and it's going to take a little bit longer now obviously for that to happen. That represents 7% of our business and it's basically breakeven and so it's pulling our margins down a little bit and so we'll see.

Operator

We have another question for you. This one's from Arnie Ursaner at CJS Securities.

Arnold Ursaner - CJS Securities, Inc.

Within the Computer Products, can you quantify how much smartphone tablets was up and how far down PCs were?

Robert J. Keller

Well, the smartphone and tablet accessories were up 20%, but we've been up 70% roughly going into the quarter. So it was still up, but it was a decline off of what we had been doing. In PCs related products are down about 10%.

Arnold Ursaner - CJS Securities, Inc.

Okay. And can you quantify the planned exits of revenue that you have built in?

Neal V. Fenwick

During the quarter, that was an impact of about $8 million.

Arnold Ursaner - CJS Securities, Inc.

And for the year?

Neal V. Fenwick

That's a good question. I'll get back to you as we're talking.

Arnold Ursaner - CJS Securities, Inc.

Okay. You mentioned...

Robert J. Keller

I think it's in the neighborhood of $40 million.

Arnold Ursaner - CJS Securities, Inc.

Okay. You mentioned you have 2 fewer days in Q3, 1 related to an accounting change. Do we pick those up in Q4?

Robert J. Keller

We pick one of them up in Q4.

Arnold Ursaner - CJS Securities, Inc.

Okay. And my final question, obviously you didn't mention specifically that you reversed $5 million of accrued comp. My question is, if it's this cliff type payment that you've had, you reiterated your $0.20 improvement for next year, but wouldn't we, in fact, if we defer some level of comp $5 million to $5-plus million of comp on a cliff basis into next year, wouldn't that impact next year's EPS?

Robert J. Keller

It will. We still feel comfortable that given both the synergies that will drive next year and the Lean Six Sigma that we'll be able to deliver. Assuming a macroenvironment that's similar to what we have today, that we'll be able to drive $0.20 EPS improvement.

Arnold Ursaner - CJS Securities, Inc.

So as we think of trying to build our models for next year, you tend to accrue this right from the beginning of the year and then whittle it down as needed? So...

Robert J. Keller

We do.

Arnold Ursaner - CJS Securities, Inc.

So this should have a pretty meaningful impact on the first half estimates that we have out there for this comp issue?

Neal V. Fenwick

It'll be more of a distorting item when you get round to Q3. So if you think about it, Arnie, we've made reasonably heavy accruals in Q1 and Q2 and trimmed them down in Q3 and so it's Q3 where you'll get the distortion next year.

Arnold Ursaner - CJS Securities, Inc.

And my final question, price increases. You obviously have higher costs as do others. As we enter the new year, will your price increases be sufficient to recover the costs you're incurring?

Robert J. Keller

Yes, actually raw materials are relatively flat. The price increases that we'll put in are going to come kind of in 2 flavors. One will be driven by FX differences on a year-to-year basis and the second will be product specific where we've got profitability concerns.

Operator

We have another question. This one's from the line of Simeon Gutman at Crédit Suisse.

Simeon Gutman - Crédit Suisse AG, Research Division

I guess with trends stabilizing thus far, at least part of the commentary this morning, looking back now at the last 2 quarters where we've seen, feels like a noticeable difference in trends. Can you get a look back and diagnose what happened, either from a channel, from a product, from a macro standpoint, try to parse this out the whole cyclical versus secular but curious, sort of a postmortem on why things changed as dramatic as they have?

Robert J. Keller

Yes, well there are a couple of things. I think business optimism is down and that impacts the durables part of our business. So we've seen a decline in inventory holding with our customers on durable products. We think frankly, that there are record level lows of inventory holding and honestly, we think point of sale is probably a little bit better than that over that period of time. I think we got hurt in the Computer Products business by 2 things: one of them may be secular and we'll get a sense of that over the next 90 days, and that's the switch from laptops and notebooks to tablets. And I know that's not how you guys tend to think about secular, you tend to think it about paper-based products but the reality is the life cycle in technology is a lot shorter than it is in paper-based products. And so we got hurt by that. We saw a pretty steep drop in laptop demand and you saw that reflected in HP and Dell's announcement, Intel's announcements. And that impacts the security part of our Computer Products business. We think that the Windows 8 announcement and some of the desktop products that have been announced by both Microsoft and by Apple, we may get a lift, a little bit of a lift on that. We're hoping we do. But we also got hurt by the timing of the iPhone announcement. I think there was a delay in Q2 in terms of our customers ordering accessories in anticipation of the iPhone 5 announcement. And then as late as it was, we didn't get any benefit at all in Q3 for that announcement and our expectation is and October sales would suggest that we are going to get a lift off of the iPhone 5 announcement, the new iPad announcement and then hopefully the new Windows 8 announcement. We saw some channel shift over the last 6 months. We think that the mass channel performed better than the Office Products superstore channel in back-to-school but we saw -- and we didn't get a benefit based on the Mead acquisition this time around. We didn't complete the acquisition until May 1, and so we didn't have an opportunity to compete based on the combined entity. We won't get a chance to do that until next year, and so that hurt us. We saw price being a big driver in that channel and we saw a late back-to-school season and we're going to have to work harder to participate more fully with our product line and we're going to have to create more differentiation between the value added products and the entry-level price products going forward, in order for us to be as successful and we're going to need to leverage that relationship. We saw a continued movement to the e-commerce channel and we did participate in that. We've got a robust relationship with Amazon and that continues to grow, as well as with the independent dealers who are electronic dealers or e-commerce dealers. And so we feel good about that. And the other thing that is beginning to happen, and we put sales resources against it is nontraditional people are starting to play in the office products space. And so the folks that have traditionally just sold break room supplies or maintenance and cleaning supplies, those folks are also starting to -- they've kind of flipped the record on the wholesalers who got into those categories over the last couple of years and they're now into office products. And for the first time ever, we're starting to get some traction in terms of selling our product line into those suppliers. We absolutely believe that besides being transformational, the Mead acquisition was absolutely critical to us being positioned to compete against a broad set of channels and we like our position going forward.

Simeon Gutman - Crédit Suisse AG, Research Division

And I don't know if this was mentioned earlier, or asked earlier...

Robert J. Keller

Up a little bit, we're having trouble hearing you.

Simeon Gutman - Crédit Suisse AG, Research Division

Can you talk about, maybe this was asked once before, how the inventory in sort of the channels feel right now or at least in the system, not just your side but into the customer side, whether it feels normal, it feels light, or feels above average?

Robert J. Keller

I think everybody is concerned about the macroenvironment and so everybody is focused on working capital. And so across, frankly, all the channels, we think inventory is lean. And in some channels, we think it's at historic levels of lean.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay. And then my last question and this was asked to some degree, regarding pricing and inflation. I think in the Americas it looked like it slowed a little, just the price equation. Just curious what does that do to just sort of commodity price reflection or is it -- does it have to do with the pricing power as well?

Robert J. Keller

I don't think it's a question of pricing power. We've been pretty consistent with our customers that our pricing adjustments are driven by actual commodity increases or FX changes in -- the opportunity for us to grow our business through pricing is when we bring an innovative product to the marketplace. And so I don't think it's a pricing power issue, we just have seen a relatively benign environment in terms of raw materials. We've got relatively low labor content on our product set and we do have specific FX issues from geography to geography, which we'll deal with and we've got a limited and very specific number of product issues that we need to deal with profitability issues on, that we will.

Operator

One further question for you. This one's from Reza Vahabzadeh from Barclays.

Reza Vahabzadeh - Barclays Capital Inc.

Just one housekeeping item to start with, Neal. What was the impact of FX on EBIT or EBITDA in the quarter?

Neal V. Fenwick

The impact on EBIT was $1.7 million.

Reza Vahabzadeh - Barclays Capital Inc.

Got it. And you mentioned that you're encouraged by Brazil sales trends in the fourth quarter, high single-digit growth in the orders. How did Brazil perform for you in the third quarter?

Robert J. Keller

It was down slightly. Honestly, we think that, that's just kind of a timing thing. The back-to-school will start either in late September or early October. We were down a little bit in Q3 and we're up high single-digits in October. So we're feeling pretty good about the back-to-school season at this point. I want to remind you though that it's a -- the back-to-school season there is really a December, January event. And so the timing of the weather hits in this year and the beginning of next year is important to us and we're doing everything we can to ensure that it ships this year.

Reza Vahabzadeh - Barclays Capital Inc.

And as far as the volumes in the fourth quarter, just given your comments on Brazil, as well as Computer Products, would it be accurate to think if volume trends x the business that you may have exceeded in Europe, will be down less in the fourth quarter than it was in the third quarter?

Robert J. Keller

Significantly.

Reza Vahabzadeh - Barclays Capital Inc.

Significantly. So when you say North America in your view has stabilized, what does that really imply?

Robert J. Keller

Well, we've seen pretty consistent demand and point of sale over the last 3 months. And we believe it is absolutely in line with what our competitors are saying and we think kind of back-to-school was a little bit of a unique event because we only played with half a deck.

Reza Vahabzadeh - Barclays Capital Inc.

Right. Fair enough. And then you talk about the Canada win in the mass channel, what is the general timing of other potential planogram sets? When would you know about other potential wins for 2013 season?

Robert J. Keller

The decision process is still going on kind of as we speak, so we'll have a better sense late this year. The decision processes will run through December of this year.

Reza Vahabzadeh - Barclays Capital Inc.

Right. But for the base business as far as planogram sets are concerned, do you feel comfortable where you are today?

Robert J. Keller

I'm never comfortable where we are today. I think we have an opportunity to compete more effectively going forward with the combined legacy ACCO and legacy Mead business acting together than we did in the past. And so, no, I'm not satisfied with our current facings and my expectation is we'll do better.

Reza Vahabzadeh - Barclays Capital Inc.

Got it. And as far as gross margin, would you anticipate a bit of decline to moderate in the fourth quarter as compared to what it was in the third quarter?

Neal V. Fenwick

Yes, Reza, just before I answer that, the FX impact on EBITDA for the quarter was $2.9 million just to give you both levels. And in terms of gross margin, there are several things to appreciate that have been going on in the gross margin line. One of them is, within our Kensington business, what you see in the Kensington business is the big impact from royalty decreasing. That gets smaller in Q4 than it was in Q3. It will still be a factor but it drops, and that's 100% drop through to the bottom line. That impacts our business as much as it impacts the situation. On royalty, our own pricing comes down at the same time. The second issue with that is the demand that we've seen in the security area for -- has been significantly lower in terms of our sales and POS sales. So we talk about channel inventory, you have to remember that it exists in Computer Products channel as well and so as that demand in that area has come down, we've sold significantly less than their POS because they've been taking inventory on. That's been very true in durables, which as you know are higher margin for us in Office Products. So again in the second and third quarter we saw a big impact for durables. So in a number of areas where we make higher margins, we've seen lower sales. Back-to-school, which always tends to be lower margin for us than the regular margin. It was particularly lower margin in the second and particularly, the third quarter. And so that event is over with, it doesn't impact Q4 in the northern hemisphere. It's a southern hemisphere event where we don't anticipate the same issues, certainly in Brazil. Australia will tend to see a weaker margin mix, it's having many of the same economic issues that you're seeing in North America or Europe. The impact of Europe is particularly adverse in Q3. We don't expect that to be as adverse in Q4 because we're starting to lap some of the decisions that we've made the year before. And so for a number of reasons, we think that the pressure on the margin line will get less when we go into Q4.

Operator

We have one more question in the queue. This one's from the line of Kevin Steinke from Barrington Research.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

I just wanted to talk a little bit more about the cost side. I think you talked about accelerating some of the cost synergies from the merger, as well as Six Sigma. I don't know if I missed it, but are you still examining restructuring actions for some of your businesses or any update or progress on that front?

Robert J. Keller

Yes, we continue to look at that, especially as we take a look at what the macroenvironment we're going to operate in, in next year and we'll kind of do what we need to do. We'll get a little bit of a cost benefit from the synergies in 2012, but we will still deliver $20 million of synergies in 2013.

Neal V. Fenwick

And just to reiterate that point, Kevin, as we determine our various restructuring projects, we have to book them. We clearly have more restructuring projects we're planning to do. We're just not in a position where we can book them. One of the gating items has been the IT systems. If you'll recall, I reiterated it was only in September that we became independent of Mead parent. And so there are now certain other things that we're able to start getting into the final details of planning and so, again, we will be making additional restructuring charges associated with the simple integration of ACCO and Mead, let alone our own response to the business environment that we're seeing. I also want to take one opportunity to correct an optical challenge moment that I had when I was reading my script. So the cash flow in the quarter was $83 million, not $88 million, and so I misread it, just to pick myself up on the issue.

Operator

With no further questions, so I'd hand the call back over to Mr. Robert Keller, Chairman and CEO, for closing remarks.

Robert J. Keller

Right. I appreciate everybody joining us this morning, especially those in the Northeast. We have a perspective on the challenges that you all are facing and you, and all of the folks there, are in our thoughts and prayers. It's a tough world out there and we are committed to winning in spite of the economic environment. I think we are a better, stronger and more resilient business today than we've ever been. And I still feel good about our ability to deliver value to our shareowners and we look forward to talking to you next quarter. Thanks.

Operator

Thank you, ladies and gentlemen. That concludes your conference. You may now disconnect. Thank you for joining us, and do enjoy the rest of your day.

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Source: ACCO Brands Management Discusses Q3 2012 Results - Earnings Call Transcript
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