ACCO
This one I'm holding onto. Yes the guidance being lowered thanks primarily to three things.
1) Lower margins- Obviously with inflation and price rises increases lagging. Margins have come in. According to them Margin should improve in the 2nd half thanks to another round of price increase (Starting July 1rst), easier comps in the 2nd half of the year on that front (y/y), and some cost starting to moderate in the 2nd half which will allow for this to happen. Longer term goal is for margins to be 33% I do believe we will be much closer to that in the next FY as I expect inflation to moderate more and higher prices they are getting will expand margins significantly next FY. Keep in Mind this quarter they were at just 28.8% So If they improve 2-3 full % points which I think will happen this time next year, we could be looking at 10-15 million in pre tax income just from that alone.
2) The video game unit-That has obviously lapping covid, and with pople going out more they are playing less video games. They are guiding this unit to decline 10-15% y/y that is a big part of the change here. But this unit was up huge last year think I rember like almost 25% from the cc, where the long term growth story is about 10%. They expect it to go back to it's normal growth in 2023, where it is a 10% grower from the 2022 base which if true will become a tailwind to earnings in 2023, just like margins which will help 2023 results, but in 2022 it like margins have been a headwind.
3) FX- I know it looks like they missed sales huge. But the sales minus FX were within the range they gave last quarter it is just that FX became so bad with the strong US dollar. Which everyone knows. At some point I think the dollar will stabilize and possibly weaken itself it has been such a huge run. So that will probably start being a help in 2023. But yes FX took a little bite on earnings as well. I mean just FX alone is taking .06 eps from last year this year, I'm not even counting the video games unit lapping tough comps, and inflation eating into margins.
Now the good news.
They see Margins long-term seeking 33%, With it trending in the direction that is positive starting in the 2nd half.
They see in the 2nd half, getting their debt levels down from last year.Remember the 2nd half seasonally is where the FCF of the business comes in and there priority is to continue to pay down debt.
They gained market share with alot of there brands which is a plus.
ACCO, to me with all these head winds the guidance of $1.39-1.44 is not that bad. I already believe some of these headwinds will alleviate from moderating cost pressures starting, added in price increase to help margin, easier comps. I also believe Next year margins will improve signifcantly hence if things break right I see significant adjusted EPS growth for ACCO in 2023. The stock is not exactly priced for perfection, at about the $1.42 mid point which if anything I feel might be slightly conservative, we talking of a PE sub 5. With a yield over 4.5%. I do think the company will gorw again in 2023, and to be fair they are growing even this year if you ignore FX which is taking 4.5% of sales growth away, I mean it took 20 million away from sales this quarter alone. I still like ACCO for the long run and believe in my long-term thesis in the stock despite these short-term obstacles. This stock to me is very undervalue, but time will tell, I have been wrong so far. All is just my opinion,and i could always be wrong though.
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