Earnings Preview: Office Depot - Analyst Blog
October 21 2011 - 8:45AM
Zacks
Office Depot Inc.
(ODP), the supplier of a range of office products and services
across the globe, is scheduled to report its third-quarter 2011
financial results on Tuesday, October 25, 2011. The current Zacks
Consensus Estimate for the quarter is 2 cents a share. The Zacks
Consensus estimates revenue at $2,896 million for the quarter under
discussion.
Second-Quarter 2011, a
Synopsis
On July 26, 2011, Office Depot
delivered better-than-expected second-quarter 2011 results. The
quarterly loss of 6 cents a share not only improved from the
prior-year quarter’s loss of 9 cents but was also lower than the
Zacks Consensus Estimate of a loss of 12 cents.
Office Depot’s total revenue of
$2710.1 million fell short of the Zacks Consensus Estimate of
$2,728.0 million, but increased marginally from the prior-year
quarter’s revenue of $2699.5 million.
The operator of office supply
stores under brand names such as Office Depot, Foray, Ativa, Break
Escapes, Worklife and Christopher Lowell, generated negative free
cash flows of $85.2 million during the quarter compared with a
negative free cash flow of $59.8 million in the prior-year
period.
Third-Quarter 2011
Consensus
The analysts surveyed by Zacks,
expect Office Depot to post third-quarter 2011 earnings of 2 cents
a share. The current Zacks Consensus Estimate compares with 3 cents
a share earned in the year-ago quarter. The estimates in the
current Zacks Consensus for the quarter range from a loss of 3
cents to a profit of 5 cents a share.
Zacks Agreement &
Magnitude
Of the 13 analysts following the
stock, none of the analysts revised their estimates either upward
or downward in the last 30 or 7 days, thus Zacks Consensus Estimate
remains constant at 2 cents.
Mixed Earnings Surprise
History
With respect to earnings surprises,
Office Depot has missed as well as topped the Zacks Consensus
Estimate over the last four quarters in the range of negative 100%
to positive 400%. The average remained at positive 187.5%. This
suggests that Office Depot has beaten the Zacks Consensus Estimate
by an average of 187.5% in the trailing four quarters.
Price
Stats
Since its last earnings release on
July 26, 2011, Office Depot’s market price has plunged 44.7% to
$2.15 on October 20, 2011. During trading hours on October 20, the
stock price reached the day low of $2.04 and the day high of $2.15.
The stock price is within the range of the 52-week low-high range
of $1.75 attained on October 4, 2011 and $6.25 achieved on January
5, 2011. Over the period from July 26, 2011 to October 20, 2011,
the stock dropped to a low of $1.75 on October 4, 2011 and rose to
a high of $4.10 on August 1, 2011.
Our
Take
Office Depot is repositioning
itself to keep afloat in a difficult consumer environment. The
company is containing costs, closing underperforming stores,
reducing exposure to higher dollar-value inventory items,
shuttering non-critical distribution facilities, and focusing on
providing innovative products and services, which should all
contribute to margin improvements.
The company in order to enhance its
global footprint has made strategic acquisitions over the past few
years, and is still looking for accretive opportunities. Office
Depot is reviewing capital-efficient opportunities to expand its
reach in Eastern Europe, Asia and South America.
Office Depotin order to drive sales
has undertaken initiatives, which includes, improvement in customer
in-store shopping experience, investment in Copy & Print Depot
and Tech Depot services, remodeling and introduction of smaller
format stores, and margin improvements through rationalization of
stock keeping units and product pricing. Management anticipates
that these initiatives could result in $75 million to $100 million
by way of annual benefits by the end of 2013 at North American
Retail division.
However, we remain cautious about
the current economic unrest as the economy continues to be
sluggish, and consumers and small businesses remain frugal about
big-ticket spending on items such as business machines and other
durable products. We believe that the demand for office products is
closely tied to the health of the economy.
Moreover, due to high exposure to
international markets, Office Depot remains prone to currency
fluctuations. The weakening of foreign currencies against the U.S.
dollar may require the company to either raise prices or trim
profit margins in locations outside the U.S. An increase in price
may have an adverse impact on the demand for its products.
Given the pros and cons, we prefer
to maintain our long-tem Neutral rating at this juncture. However,
Office Depot, which competes with Staples Inc.
(SPLS) and OfficeMax Inc. (OMX), holds a Zacks #2
Rank, which translates into a short-term ‘Buy’ recommendation.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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