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Office Max turned in weak Q1 earnings report

SHENG Xin, Medill 

Shares of Office Max Inc. declined 1.87 percent Tuesday after the company reported adjusted first quarter earnings below analysts' estimate.


Office Max turns in weak Q1 earnings report

by Xin SHENG
May 7, 2013


Shares of Office Max Inc. declined a bit on Tuesday after the company reported adjusted first quarter results that disappointed analysts. 

Net income available to common shareholders was $56.3 million, or 64 cents per diluted share, in the first quarter ended March 30, up 10.5 times from $4.9 million, or 6 cents per diluted share in the first quarter of 2012.  Analysts surveyed by Bloomberg LP had estimated an EPS of 22.7 cents.

Sales in the first quarter declined 5.7 percent to $1.77 billion from $1.87 billion in the same period a year ago. 

However, removing deferred gains relating to the company's investment in Boise Cascade, which Office Max is selling through an initial public offering, Office Max reported net income available to common shareholders of $10.1 million, or 11 cents per share, down 46.8 percent from $19.0 million, or 22 cents per diluted share, in the first quarter of 2012. Analysts estimated 22.9 cents.

 

Office Max has agreed to merge with Office Depot Inc., a combination that's expected to be consummated before year-end.

 

“The Q1 sales decline in the contract segment is particularly concerning as cautious existing customer spending and macro challenges seems unlikely to change in the near future,” wrote David Strasser, an analyst with Janney Montgomery Scott LLC, in a research note.

“While we agree that the combined company has significant opportunity to create value in the longer term, ” Strasser noted, “we do not see major catalysts to drive either stock meaningfully higher in the near term, until more details of the merger are finalized. ”

“The big issue for them is there are still macroeconomic challenges that they have to face, ” Scott Tilghman, an analyst with B Riley & Co LLC, said in an interview. He referred to the damping effects of government sequestration on corporate sales and slowing technology sales at retail.

 

On the other hand, Tilghman said, "we are seeing they are able to manage costs well," adding that he expects to see considerable savings resulting from the Office Depot merger because the companies are so similar.


Ravichandra K. Saligram, chief executive officer of Office Max, said in a conference call, “we booked double-digit growth in our e-commerce initiatives, gained traction in our key growth adjacencies and aggressively optimized our U.S. retail store network.” 

The stock closed at $11.52, down 22 cents.