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Investing.com -- S&P Global Ratings has downgraded the credit rating of ACCO Brands (NYSE:ACCO) Corp. to ’B+’ from ’BB-’, citing ongoing sales declines. The ratings agency also lowered the rating on ACCO’s $575 million senior unsecured notes to ’B’ from ’B+’. The outlook for the company remains stable.
ACCO Brands Corp., a U.S.-based company, reported a 9.1% decrease in net sales for the fiscal year 2024, which ended on December 31, 2024. Despite targeting various growth opportunities, the company has not been able to stabilize its business. S&P Global Ratings anticipates continued sales declines for ACCO in fiscal years 2025 and 2026.
The downgrade reflects the company’s challenging operating environment in both its Americas and International segments, which saw decreases of 12% and 4.4% respectively. Despite growth in ACCO’s technology accessories business due to improved demand, new product introductions, and geographic expansion, the Business Essentials and Learning & Creative product categories continued to see decreasing demand.
ACCO’s net sales are projected to decline for a fourth consecutive year, about 6% in fiscal 2025, due to weak consumer and business spending in most of its product categories. This is attributed to macroeconomic uncertainty, sustained high interest rates, and inflation in the U.S., ACCO’s largest market. The company is expected to raise prices to protect profitability from higher U.S. tariffs on imports from China, which could further dampen demand.
ACCO is making efforts to enter new distribution channels, expand its product range, improve the pace of innovation and new product development, and actively pursue acquisitions. However, these initiatives have not yet reversed the sales decline. The company may need to make significant additional investments to create sustained organic sales growth.
Despite these challenges, S&P Global Ratings expects ACCO to maintain solid free operating cash flow (FOCF) generation and an adjusted leverage of about 4x in fiscal 2025. The company’s cost reduction efforts and solid cash flow generation have helped it to deleverage despite a prolonged softening in demand since mid-2022. ACCO realized about $25 million of cost savings in 2024, which contributed to a FOCF generation of about $130 million during fiscal 2024, compared with about $115 million in 2023. This allowed the company to repay about $86 million of debt in 2024.
ACCO recently announced new cost reduction initiatives and anticipates generating about $40 million of additional cost savings in 2025. S&P Global Ratings forecasts ACCO will generate FOCF of over $100 million in 2025, facilitating further debt repayment and deleveraging. The agency estimates ACCO’s adjusted leverage will decline to about 4x in fiscal 2025.
The stable outlook is based on the expectation that, despite continued sales declines, ACCO will continue to generate solid cash flow and maintain leverage of about 4x in 2025.
S&P Global Ratings could lower ACCO’s rating if it forecasts the company will sustain leverage above 5x. This could occur if macroeconomic uncertainty, rising inflation, increasing unemployment, or a recession further deteriorates consumer and business spending; if the company cannot offset volume declines or higher import tariffs through incremental cost reduction or pricing; if the company requires additional restructuring actions or investments to adjust its cost structure or to grow its business; and if ACCO adopts more aggressive financial policies, including large debt-funded acquisitions.
While unlikely over the next 12 months, S&P Global Ratings could raise ACCO’s rating if the company maintains positive organic revenue growth while keeping adjusted leverage below 4x and solid FOCF generation. This could occur if the company expands into new product categories, distribution channels, and geographies with better growth prospects; if demand for its key product categories improves, and the company gains market share by successfully creating and innovating products that appeal to consumer and business preferences; and if the company maintains profitability by managing its cost structure in line with demand and costs.
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