Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=104645
Story Retrieval Date: 5/21/2013 11:41:55 AM CST
Naperville, Ill.-based OfficeMax Inc. posted a record loss in the third quarter for charges associated with the bankruptcy of investment bank Lehman Brothers Holdings Inc. Early in the day the stock price took a hit as a result, dropping nearly 8 percent. Excluding the huge loss, OfficeMax beat analysts’ estimate by 3 cents per diluted share.
As a result of Lehman Brothers, OfficeMax lost $432.7 million or $5.70 per diluted share, compared with net income of $49.9 million or 64 cents per diluted share a year ago.
OfficeMax took a write-down of $754 million on a note secured by Lehman Brothers for the 2004 sale of timber products. Lehman’s bankruptcy filing in September prompted a default on the securitized notes, which had been guaranteed by the bank. A second note secured by Wachovia Corp. is still believed to be in good standing, according to OfficeMax Chief Accounting Officer Deborah O’Connor.
Excluding the non-cash pre-tax charge, OfficeMax reported a profit-drop of 42 percent to $28.8 million or 36 cents per diluted share. Analysts predicted earnings of 33 cents per diluted share.
OfficeMax delayed releasing its results as scheduled in late October in order to determine the size of the charge related to Lehman. The loss had been estimated to be at least $82.5 million.
Chairman and Chief Executive Sam Duncan said Thursday on the conference call with analysts that Lehman's bankruptcy would not severely hurt the company.
"We expect no adverse impact on our operations or liquidity from the Lehman bankruptcy filing," he said. "And we believe any potential cash impact would be funded adequately by excess cash in our credit facility."
Mike Baker, the chief financial analyst for Deutsche Bank AG agreed that OfficeMax would be able to recoup.
“Its existing cash and access to a line of credit of over $600 million leaves ample funding. The company also pays out about $50 million in dividends a year, which could be cut. We believe OfficeMax should be able to fund this in the first quarter of 2009, through its line of credit and existing cash.”
Despite confidence in the company’s abilities, Deutsche Bank has shaved its 2008 and 2009 estimates to $1.53 and $1.07, respectively, from $1.74 and $1.29.
For the quarter ended Sept. 27, revenues fell 9.5 percent to $2.1 billion from $2.3 billion in the same quarter last year. Fourth quarter sales are expected to decline due to the weakening economy and soft holiday season while consumers curb their spending.
“The problem that we have in our industry, like others, is the items that we sell are fully, mostly discretionary,” said O’Connor. “Consequently we’re going to get beat up in this economic environment that we have today.”
The company has decided to scale back its store remodeling.
“As we plan for 2009 and beyond we remain cautious with respect to real estate investment given the weak economy,” said Duncan.
In the first nine months of 2008, revenues slipped 7.3 percent to $6.4 billion from $6.9 billion. The company had a loss of $1.3 billion, or $16.69 per diluted share, compared with a profit of $135 million, or $1.77 per diluted share, in the year-ago period.
Shares of OfficeMax closed at $5.17, down 7.18 percent, or 40 cents.