Office Depot Inc. (ODP) is all set to announce second-quarter earnings for its fiscal year 2014 (2QFY14, ended June 29, 2014) on August 5, 2014 before market opens. The company provides office supplies and services globally; while operating through three major business segments.
Office Depot typically does not provide revenue or earnings guidance. However, the company did upgrade its operating income guidance by almost $20 million to $160 million for 1QFY14, ended March 29. Analysts’ estimates of the operating income for 2014 are $187.7 million.
The company has beaten analysts’ earnings and revenue estimates in 1QFY14 after missing earnings estimates in all four quarters of FY13. For 2QFY14, analysts are expecting revenues of $3.8 billion and a loss in earnings per share (EPS) of two cents. Moreover, for FY14, analysts’ project revenues to be $16.3 billion and EPS of $0.153.
The stock has lost over 4% year-to-date (YTD) due to the continuing weakness in demand for office products and rising competition from large retailers. In late 2013, Office Depot’s merger with Office Max, formerly OMX, played a major role in helping the company post stronger than expected results for the first quarter. After the merger, the company realized major cost savings along with other efficiencies and experienced better-than-expected revenue growth, backed by increased sales. Expanded gross margin in the last quarter is also a positive sign. The company has also employed a uniform pricing plan throughout the two wings of the newly formed organization that will help the company bolster contract sales.
Looking at the company’s five-year price-to-sales (P/S) multiple average; OfficeMax and Office Depot have traded at an average of 0.13x and 0.11x respectively. However, currently the merged company is trading at a forward P/S multiple of 0.17x, which is 46% higher than the average multiple for both the companies prior to the merger. Out of 19 analysts covering the stock, six have recommended a Buy, 12 have recommended a Hold while only one has rated the stock as a Sell.
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