ACCO Brands Corporation (ACCO) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 ACCO Brands Earnings Conference Call. My name is Chanel, 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 Ms. Jennifer Rice, Vice President, Investor Relations.

Good morning, and welcome to our second quarter 2012 conference call. Speaking on the call today are Bob Keller, Chairman 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 are referring to adjusted pro forma 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 pro forma results and a reconciliation of these non-GAAP measures to the most directly comparable measures of GAAP begin on Page 12 of our press release. This morning, we also furnished an 8-K with pro forma annual and quarterly results for 2011 and the first 2 quarters of 2012. That 8-K is also available on our website along with today's slides and press release and includes a reconciliation of pro forma results to our reported results. Based on the final determination of our bond coupon, amortization and share count, the final 2011 pro forma EPS number is now $1.03. By quarter, the 2011 EPS numbers were as follows: negative $0.03 in the first quarter of 2011, $0.23 in the second quarter, $0.42 in the third quarter and $0.41 in the fourth quarter of 2011. 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 statement. 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.

Thank you, Jennifer, and good morning, everyone. Today, we reported sales for the second quarter, which increased 33% to $439 million, and reported EPS, which excluding charges, increased 73% to $0.26 versus a comparable $0.15 in the prior-year quarter. The increase in sales and earnings was a direct result of the merger with Mead Consumer and Office Products business, which we acquired on May 1. On a pro forma basis, sales were down 9%, driven almost equally by our European performance, FX impact and the rest of the world. Our adjusted pro forma income was $0.18 per share versus a comparable $0.23 per share in last year's quarter. The declines resulted from the legacy ACCO Brands businesses, where we saw increasing softness in U.S. demand throughout the quarter, further weakness in Europe, an unfavorable mix in back-to-school sales and in our Computer Products business where we continue to see a significant shift in our sales of laptop security products to tablet and smartphone accessories. All of these mask the solid performances we saw in Brazil, Mexico and the Asia-Pacific region where sales were all up on a constant currency basis. It's also important to note that the legacy Mead businesses performed well and, in some cases, better than we expected when we acquired them. Looking ahead to the second half, we expect that the operating environment will remain challenging. While it's too soon to call the back-to-school season, our early read is that shoppers are buying our lower-value products, which, if the trend continues, will put pressure on our margins in the third quarter. We are, as you would expect, redoubling our focus on the things we can control. We are taking a hard look at the potential for additional synergies, top and bottom line, from our integration activities. We are ramping up our Lean Six Sigma initiatives to take more cost out of the business. In both the U.S. and Europe, we expect to take additional restructuring actions that will mitigate some of the risks we see in these markets, and we see -- should see some payoff as early as the fourth quarter. In short, we are doing all we can to strengthen this year and to position our business for greater success in 2013. Even with these initiatives, we now expect sales for the year to be between $1.9 billion and $1.95 billion and adjusted EPS to be in the range of $0.82 to $0.85. In terms of 2013, we still expect to deliver the same level of year-over-year earnings increase that we discussed in May, about $0.20, as we realize the cost synergies from the merger, see the continued benefit of cost-reduction initiatives and get the reduction of our interest expense. Regardless of the macro challenges, we are much stronger and more resilient business today because of the Mead Consumer and Office Products acquisition. We have better product diversity, a stronger position and better balance in consumer channels, a larger presence in faster-growing geographies and a more talented leadership team. We're also stronger financially with a better balance sheet and a business that will generate $150 million in free cash next year. We are on or ahead of plan on all of our integration activities, and our team remains enthusiastic about both the potential of this business and our ability to deliver significant value to our share owners going forward. Now I'll ask Neal to provide more detail on our financial performance. Neal?

Thank you, Bob. Our second quarter performance is recapped on Slide 3. Reported sales increased 33% to $439 million, driven by the merger with Mead. On a pro forma basis, sales declined 9%. However, if you exclude Europe and currency, the sales decline is closer to 3%, which resulted from the legacy ACCO Brands business where we saw unfavorable mix in back-to-school sales. We did see growth in Brazil, Mexico and the Asia-Pacific region where sales were all up on a constant currency basis. As Bob also noted, the legacy Mead businesses performed well, and we expect that to continue for the remainder of the year. Turning to our pro forma P&L. Gross margin declined 100 basis points to 30% in the quarter, as shown on Slide 4. The decline was due to an adverse sales mix, both product and customer, which had a 160 basis point impact. In North America, we saw consumers trend towards our lower price point product, and in Computer Products, we had a lower mix of security and other PC-related products, together with the loss of royalty income. In terms of SG&A, we were able to improve SG&A as a percent of sales by 20 basis points to 19%, primarily due to cost-reduction initiatives that include lower cost in Europe and the U.S. These savings helped to offset the impact we saw from sales deleveraging. In all, operating income margin decreased 90 basis points to 9.6% from 10.5%. Foreign exchange had a $1.7 million adverse impact to the bottom line. Turning to an overview of our pro forma segments. North America sales declined 5%, driven by volume and mix. The decline was primarily in the legacy ACCO U.S. business with lower sales in both direct and indirect channels. We saw a reduction in point-of-sale trends during the quarter, as well as the mix shift to our lower price point products during the back-to-school season. In addition, we saw additional inventory reduction by some customers. North America adjusted pro forma operating income declined 3% to $34 million, but as a percentage of sales, operating margin increased 20 basis points to 11.2%. Lower SG&A due to cost reductions helped offset unfavorable product mix, which reduced gross profit. International segment sales decreased 18%, driven by volume, which had a 10% impact, and foreign exchange, which had an 8% impact. The decline in volume was primarily in Europe where we made the decision to exit low-margin product and also as a result of the even softer-than-expected economy. International segment margins declined 120 basis points to 6.8% due to adverse SG&A leverage from the top line decline. As a result, we will take even further actions to reduce costs in parts of our International segment. Computer Products' sales decreased 8% due to FX and pricing, which each had a nearly 4% negative impact. The adverse pricing was mainly due to the loss of royalty income that resulted from the expiration of patents for our legacy security product at the beginning of this year. The expiration of the patents also caused a reduction in average selling prices for our sales of this product. Computer Products' volume increased modestly as sales of new products related to smartphones and tablet more than offset lower-than-expected sales of laptop accessories and security products, particularly in the U.S., due to a further slowdown in PC purchases during the quarter. Computer Products' operating margins declined to 22.2% versus 26.9% in the prior-year quarter due to product mix and the loss of the royalty income. Turning now to our cash flow. We had net cash outflow year-over-year in the quarter, which will be a normal seasonal trend for the combined company. On a year-to-date basis, working capital was a use of $103 million, $79 million of which is an increase in accounts receivable. This is due to the seasonality we see with back-to-school shipments going out in the second half of the quarter. Much of the increase year-over-year was related to the acquired Mead business. We also had cash payments of $14 million related to the merger and $63 million of cash payments related to the refinancing. Other significant first-half cash payments included interest payments of $62 million and contributions to company pension plans of $16 million. As we move into the third quarter and, more particularly, the fourth quarter, the business will generate significant amount of its annual cash flow. We anticipate by year end having approximately $125 million of excess cash that will likely be deployed for debt reduction. For 2013, we expect free cash flow to be about $150 million. In terms of the revised sales and EPS guidance, we provided today, a comparison of this guidance to our earlier guidance is on Page 6 of our slides. 2/3 of the reduction in sales guidance is due to the further softening we've seen in Europe and in FX, and 1/3 is due to the changes in the U.S. and Computer Products. In terms of EPS, the changes related to the deleveraging caused by the lower top line, as well as mix and FX. We expect mix will be a bigger factor in Q3 than in Q4. The low end of our guidance assumes normal seasonal sequential improvement, but the same year-over-year trends continue for the remainder of the year. The high end of our guidance assumes sales decline abate, particularly in Q4. On Slide 7, we have fine-tuned a number of our modeling assumptions, which include slightly-lower capital expenditure in 2012, approximately $40 million, and for 2013, $50 million. Longer term, we believe CapEx will be around $45 million annually. For cash interest, excluding transaction related, we are now expecting that to be slightly lower this year, around $65 million, and stepping down to $58 million next year, assuming debt reduction. Our cash tax assumptions are also lower. We are now assuming $45 million annually for 2012 and 2013 as we will be able to utilize more of our NOL. Our 2012 assumption for tax rate is that it will be 30% in 2012 but increase to 35% in 2013 and future years, as we have reversed our state and certain foreign tax valuation allowances and now incorporates state taxes and lower dilution from our foreign operation. At this point, we will conclude our prepared remarks, and Bob and I will be happy to take your question. Operator?

[Operator Instructions] Our first question comes from the line of Bill Chappell of SunTrust.

Several questions, but I will start with just kind of the outlook for 2013. And just trying to understand, there's no change to the $0.20 improvement. I understand it's off a smaller base. But I'm just trying to figure out what's baked into that $0.20 because it looks like there's, at least, $0.05 to $0.06 that just comes from lower interest expense and...

The largest component are the synergies. We feel very, very comfortable that we'll deliver the $20 million in synergies that we promised. The next biggest component is the interest expense, and you're right, that's about $0.06. And then there's just a small operating improvement built into that, so.

It sounds like we can get to $0.20 pretty quickly. So I'm just trying to understand, I mean, is there anything you've seen over the past 3 or 4 months that gets you more excited? How do we look at this new base?

Yes. I'm more excited in the limited amount of time we've had to work as part of a unified team with the Mead folks because I think we got a great business that gives us an awful lot of opportunities and even stronger senior management team than we had expected. The risk in all of this is -- if you had ask me and I could have told you early in June how we would delivered Q2, I would have said, we were slam dunk on the $0.20 and June just went really soft, including the last couple of weeks where people both moved orders out of the quarter and canceled orders. And we haven't seen anything in August that would give us an awful lot of confidence that the world's going to turn around. Europe is a little softer than we expected. The U.S. is more soft than we expected. And so we don't think there's any benefit in being aggressive about expectations at this point in time.

And just to help me understand as, again, going to '13, like what are you expecting? Are you expecting Europe to get worse from here? Are you expecting Brazil to get worse or better from here? And then how...

Europe, we caused -- a bunch of the issues that we're having in Europe were things that we did. We exited unprofitable products and customers, and probably 2/3 of the impact in Europe is stuff that we did. We'll lap that early next year. And so our expectations for Europe is it's going to be look a lot more flat in 2013 than it is this year. From an operating perspective, Brazil, in constant currency and local currency, performed well. FX has hurt us in Brazil pretty badly. It's off more than the euro is, frankly.

Okay. Then my final 2. Despite your kind of dropped the next year's numbers, I think you said in your prepared remarks, you're still expecting $150 million of free cash flow, which doesn't sound like that much of a difference. So has there been any other changes there? And then the other question just on a macro. There have been comment out of one of your customers a few weeks ago about a drop in cut paper and maybe the rise of iPads hurting the whole paper business.

Right.

Can you talk about that and what you're seeing?

Sure, yes. The -- I think we thought coming in that in the operating environment we were in a few months ago that cash flow could have been as high as $180 million. So with $150 million to $180 million, we're at the low end of that range now, but we still feel very, very good about that. Our tax rate is up because -- a little bit higher than we expected as we have gone through, but our cost savings are up pretty significantly as well. In terms of paper-based secular decline and the impact of the iPad, that -- it is an impact. We've assumed that all along, and we have categories that we, frankly, acknowledge are in secular decline. So our countering products are in secular decline. It turns out that from a volume point of view, they were actually up in Q2, and that will happen from time to time. There are specific products within categories that are more impacted. So when we look at ring binders for instance, 3-inch ring binders, which are used for archival storage, they've fallen off a cliff. One-inch ring binders, which are used for presentations, the needle hasn't moved at all in terms of the volume on those products. So there isn't anything out there that from a paper-based decline perspective is different than what we expected 6 months ago or a year ago. I mean, we've assumed all of that into our planning purposes. The one thing that the iPad is doing though is it's changing the product mix on our Kensington line. We have basically 2 major components of that product line, one's physical security for laptops and the other is accessories for smartphones and tablets. We saw close to a 70% increase in the quarter in smartphone and tablets accessories, but we saw, of course, funding decrease in laptop sales. And there are -- as you know, there are 3 pretty significant announcements coming up that are going to impact that product line in the second half of the year, and we're not quite sure how to call it yet. There -- the Windows 8 is coming out and we don't know if that is going to generate more interest in the laptop marketplace because of the added functionality. And there's obviously a high expectation that there's going to be an iPhone 5 with a different form factor and, potentially, a smaller iPad with a different form factor. And all of those will have an impact on our computer accessories business, our Kensington business.

Our next question comes from Arnold Ursaner with CJS Securities.

Bob, it sounds like things really moved quite a bit in the last couple of weeks. Maybe you could step back and without providing competitive information, but perhaps give us a better feel for some of the dialogues you're having with customers, what they're having with you, the channels that you're seeing this major change. Maybe just highlight kind of what you experienced in the last couple of weeks, and probably, more importantly, is any of that -- it sounds like most of that has not changed in July or early August.

Yes. I think it's too soon to call. We've been highlighting for more than a couple of years now that our quarters are really back-end loaded, that we tend to have a very soft first month of the quarter, kind of an okay second month and a strong third month. And that's, frankly, kind of how Q2 started. We started slowly. We had an okay second month. We went into June, and we had the orders that we expected to be able to deliver the quarter to our expectation and then it just kind of fell off. Kind of across the board in the U.S. marketplace, we saw softening of business confidence that tends to get reflected pretty directly into durables purchases. So we saw softness on the durable side of our business. On the back-to-school side, volumes are okay, but we see consumers trading down. And our customers, frankly, have either anticipated that or that's the same sense that they have because we track their advertising, and they're up about 21% in terms of ads targeting either private label or value products. Now some of that's ours. We're providing some of the private label and some of the value products, but there's clearly a sense out there that people are trading down. The currency weakened for us in the quarter, maybe a little bit more than we had anticipated, and Europe is just volatile. It's just up. And some of our customers in that marketplace are stretched financially, and so they're making quarterly decisions about asset allocation. And so it got more challenging. The -- I guess the challenge we have is given that the first month of the quarter has been soft for years, we're in the first -- or we just finished the first month of the quarter, it's not a particularly good indicator for us about what's going to happen. So we've got the last few weeks of June as the primary indicator. We don't have a good feel on what August means. It was pretty consistent with what our original expectation was, but it -- we assume it was going to be soft. We've got the most the important 3 weeks coming up for back-to-school, so we don't have a full read on that. And then as I mentioned earlier, we've got several announcements that are expected in the next 60 to 75 days on the technology side that have the chance to move the needle for us, but we don't know what the impact will be. So given the level of uncertainty, what we're going to do is focus on the things that we can control. We're going to assume that things are going to be challenging for a while and take appropriate actions relative to that things get better, we'll do a little bit better, and so.

Two more real quick questions if I can. The amount of revenue you chose to walk away from, is there kind of a quantification on the annual amount that you have exited of the lower-margin revenue?

Yes. We walked away from about $40 million of revenue in Europe.

Okay. And my final question relates to -- you talked -- and I know you have managed your cost wherever you can, the actions that may need to be taken, have they been taken, or do you anticipate them being taken fairly rapidly, too?

Kind of a combination of both. We are accelerating the initiatives that we've got in Lean Six Sigma. We have some restructuring actions that we will take in both our European and U.S. business. We're going back over all of the cost synergies associated with the Mead acquisition to see if there might be further opportunities there. And so some things are in process, and some things are about to be in process.

Our next question comes from Brad Thomas, KeyBanc Capital Markets.

Want to just follow up on some of the commentary between ACCO versus Mead. It sounded like Mead performed, at least, in some areas, better than you had initially expected. I recognize, going forward, it will be a combined company. But could you talk a little bit more about how core ACCO performed versus how the Mead business performed?

Yes. All of the hit was on the ACCO side of the business. We performed as well or better than we expected on the Mead side. And ACCO has a higher durables content, and that makes a difference. We have a higher commercial content, and that makes a difference. We have Europe and Mead doesn't, and that makes a difference. We have a Kensington business, and that makes a difference. And all of those things took a hit.

And in the past, Bob, you've talked about the opportunity to get more shelf space for core ACCO to continue to innovate. Where do guys stand in terms of some of those opportunities?

Actually, we have -- we're looking forward to the back half of this year and the early part of this year. We -- the one thing about the quarter that I'm honestly very excited about is how well the integration has gone. The teams are working together. We have the individuals in the positions that we want them in. Culturally, it's been an absolutely great fit, and the teams are excited about the opportunities that the merger has brought us. And so we'll -- as if -- for instance, we'll introduce Kensington product into Brazil this year. A lot of our core products, core ACCO products, won't be able to make it on -- into their shelf space until next year, but we'll bring some Kensington products into Brazil this year. We've already leveraged the relationship that Mead has with one of the largest mass marketers to gain ACCO positions for next year in Canada. We're excited about that. We've had an opportunity to present our new teams to our customer base. Formally, they're excited about the choices that we made, and so we're excited about going forward. It's -- we're kicking things around over the last several days. One of the questions that you guys ask a fair amount, or at least the investors ask a fair amount, is kind of what inning are we in. And a year ago, at ACCO, we were probably in the middle innings. We've done an awful lot of stuff to improve the core performance of the business, but our ability to make progress in that point was going to be challenging. We had -- we didn't have the right channel coverage. We didn't have the right geographic coverage. We were heavily concentrated in mature marketplaces, which, to one of the earlier questions, is going to have a higher rate of decline in paper-based products in our emerging markets. We didn't have the right set of skills in the team in terms of marketing versus sales or -- and this acquisition fixed all of those things. And so we went from being in the middle innings of where ACCO could go to being, frankly, right now, we're in pregame of the opportunity of the new ACCO.

That's helpful, Bob. And if I could just ask one more follow-up on the potential for a new form factor in the new iPhone.

Sure.

How much of your business is phone related? And then what's your experience been in the past when there's been a new form factor?

Well, it's about 1/3 of the Kensington business is smartphone and tablet accessories, and that's up pretty dramatically over where it was 18 months ago. Our folks at Kensington do a fabulous job of reacting to the marketplace. We literally -- Apple does a great job of holding things until the moment of announcement. But within hours of them releasing stuff, we have stuff in the plant and are producing product and we have product to the market within 30 days. There have been -- I don't know if they're necessarily leaks, if they're on purpose, but there's a reasonable amount of information out there about what the likely form factor is going to look like. Our expectation is it's going to have a different pin configuration, probably be marginally slimmer, few things like that. But the answer is our expectation is we're going to be able to respond. We'll be one of the first to respond with high-quality innovative product.

Our next question comes from Simeon Gutman of Credit Suisse.

Can we follow up on -- under this topic of some of the secular issue? I guess you spoke about some of the categories.

Sure.

I'm curious -- I guess in June, in particular, and I know one month is it's probably hard to make a call, but what do you think was happening between either something cyclical, which if other retailers and consumer product companies saw something then it supports that. But to the extent that happens sort of in the laminating and binding businesses, how do you reconcile secular versus cyclical with that?

I don't think they have an awful lot to -- I don't think the laminating and binding and shredding businesses have very -- I mean, I think they have very little to do with secular -- paper-based secular decline. I think they have an awful lot to do with business confidence, and I think business confidence really took a -- especially in the U.S., took a big hit in Q2. And when businesses aren't confident about -- going forward, they stop spending money on machines, and revenue shifts from buying new machines to repairing old machines. And so we saw that in Q2. And this is purely an opinion, but guys I hang out with have -- believe that everybody's kind of waiting for the election to see kind of what happens, that there isn't going to be an awful lot of movement in terms of business confidence until we get past November.

And so the way that the business is being planned for the back half of the year, I heard that there is no assumption of better trends, I guess, from the aggregate of second quarter. But was it planned with how things ended the quarter or for the aggregate of the second quarter?

It's based on kind of the last 6 weeks, which are -- in aggregate, are probably the 6 worst weeks of the year.

Okay, that's fair. And then can you talk about the Mead business in Brazil? I'm sorry if this was touched on to some extent already, but it looks like there was improvement or some turn in Brazil. It sounded like, if I heard right, it got better or there was growth on that market, and I think Mead's business was experiencing some softness or some timing issues. But curious if you can speak to that.

The Mead business in Brazil, in constant currency, was up 2% or 3%, and we feel good about that. We are making investments in that business to help them grow faster in their core business, and we'll have an opportunity in the back half to start to add some of our product set to that marketplace.

And just to think about the synergies again and not to put any numbers, I get it, but Brazil is probably the most opportunistic market. But are you still thinking that in existing overlapping markets of products, there is, I mean, as much potential? How should we think about the potential in the existing and the overlapping markets today?

I don't know that we've given that level of granularity. Our expectation is when we start to see sale synergies that they'll add a couple of percent to our overall growth number.

Our next question comes from line of Reza Vahabzadeh, Barclays.

So on the mix issue that you're facing, are there levers that you can pull tactical changes? I guess I'm talking about promotions, pricing architecture. Anything that can be done in the short term, or is it too late for this quarter?

Well, we're 5 weeks into the quarter, 6 weeks into the quarter. So it'll be challenging for us to make an impact in Q3. We think we'll have an opportunity to have some impact in Q4, but we think Q3 is largely loaded.

Got it. And excluding your durable business, you mentioned Mead did better because they are more consumable oriented.

Yes.

Obviously, no exposure in Europe. So excluding your durable business, would you say that your -- the North America consumable business was closer in line with your expectations or was that business also off?

It was from a volume point of view. It was softer from a margin point of view because we saw some trade-down on back-to-school products. But when you look at the decline in sales, 3% of it was Europe and 3% of it was FX and 3% of it was kind of the rest of the business, that's pretty consistent with what you've heard from everybody. And so I don't think we were particularly out of line, and we're not seeing dramatic fall-offs based on secular issues. We just aren't. We're seeing, in this economic environment, people being sensitive to value.

Right. And then as far as the savings that you've listed in the gross margin change year-over-year, as well as the G&A savings, Neal, is that cost savings from prior ACCO initiatives, or is that a combination of prior initiatives and new initiatives with the Mead integration?

It's both the combination of the cost-saving initiatives that we had in place and also controlling discretionary expenditure, given what we saw in the downturn in the sales volume.

Got it. And then as far as input costs is concerned, are you seeing any relief there? Any lower level of cost inflation? Can you update us on your outlook on that front?

Generally, we're seeing flat, would be the best description, some ups, some downs. The bigger issue has been in some of our overseas territories, which have had big currency reductions. They effectively had big cost increases as a result.

Got it. And then just because of the lower PO sales, you're comfortable with your inventory levels at retail at this point in time?

Well, we saw big reductions in our customers inventory holding as a result of what they did in June.

Right. And would you anticipate more of that? Is there any way to caveat?

No. I think they're at the lowest levels they've been at, ever, and so we're -- we think we're pretty close to bottom in terms of customer inventory levels. But it's clearly a focus for them.

Our next question comes from the line of Karru Martinson, Deutsche Bank.

In terms of the $40 million of annualized business that you exited in Europe, where is that business going? Is that going to private label or others stepping in?

It's kind of a combination of both. A lot of it was driven by business in countries where we didn't have an effective F&D reach. And so it was expensive product for us to ship, and the replacement products have been both branded -- more local branded product and some private label.

Okay. And when we look at the computer versus -- and Kensington, you have 2/3 of that is kind of from security and PC oriented. We have a huge rollout coming with the new smartphones. Do you see, as we go into 2013, kind of a continued margin erosion of that mix shift changes, or do you think that you can stabilized that going forward?

I mean, I think we've commented in the past couple of calls that we expect, given the loss of the royalty income on the physical security lock and the change, that, that should be 17%, 18% margin business down from where it is. So our expectation is, going forward, that's the right target for that business.

Okay. So we'll still hold to that even with the continuing shift in terms of smartphone penetration?

Yes. And I mean, we're excited about, frankly, the growth in that area. I mean, it's kind of a sub-bullet at this point in time. But having 70% growth in that category is actually a pretty good number.

And then it's been -- you guys have highlighted it from time to time in terms of the mass channel and the opportunities that are there, and you certainly have gained share versus where we were a couple of years ago. What's the outlook there, and how much more opportunities there for you guys on -- in that channel?

There's a significant opportunity. Part of the challenge and one of the things that we're not going to achieve this year is our share gain target. And one of the reasons is that one of the primary targets for us in that marketplace is the ring binder category, and it's effectively been frozen this year, both from a customer side and, frankly, from our side because some of the financial dynamics of it, until we get some resolution on the 3M-Avery acquisition.

Okay. And just lastly, in terms of pipeline for new products going into 2013. How are line reviews going, and what's the outlook for shelf?

We're still in that process. We feel good about it obviously, given our expectation on the Kensington side. We've got a very aggressive product introduction program there. We've got an entire family of laminating machines that will be available in the fourth quarter of this year, which we think are, frankly, best in class, and the reception on those from our customers has been very positive. The core Mead business continues to do a great job in terms of their licensing initiatives relative to their product, and in fact, they'll probably expand some of that geographically for next year. So from a product introduction point of view, we feel pretty good about how we're positioned.

And there are no further questions at this time. I would now like to turn the call over to Mr. Bob Keller, your Chairman and CEO, for closing remarks.

Well, thanks, everybody, for your attention this morning. It's obviously a pretty challenging environment out there. We are committed, as we always have been, to doing everything within our control to deliver the best results that we can, and we look forward to talking to you at the end of the third quarter.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.