How Office Depot's Newest Acquisition Plays Into Q2 Earnings

Office Depot Inc. (NASDAQ: ODP) released its second-quarter financial results before the markets opened on Tuesday. The company said that it had $0.05 in earnings per share (EPS) and $2.63 billion in revenue, which compares with consensus estimates from Thomson Reuters of $0.04 in EPS on revenue of $2.58 billion. In the same period of last year, the specialty retailer said it had EPS of $0.06 and $2.36 billion in revenue.

In the latest quarter, product sales were up 1%, while service revenues grew 120%, driven primarily by the revenues contributed by the CompuCom acquisition. On a consolidated basis, services represent approximately 16% of total company sales. Service revenue excluding CompuCom grew 8% in the second quarter.

In terms of its segments, the company reported as follows:

  • Business Solutions Division sales grew 4% year over year to $1.30 billion, with an operating income of $67 million.
  • Retail Division sales decreased 2% to $1.05 billion, with an operating income of $22 million.
  • CompuCom Division sales increased 3% to $277 million, with an operating income of $6 million.

Looking ahead to the 2018 full year, the company expects to see sales of roughly $10.8 billion with an adjusted operating income of about $360 million. The consensus estimates call for $0.31 in EPS and $10.87 billion in revenue for the year.

Gerry Smith, CEO of Office Depot, commented:

I am extremely pleased with our performance in the second quarter as the execution of our strategy is driving improved sales trends across all three of our operating divisions. Sales in the Business Solutions Division were up an impressive 4% in the quarter driven by our acquisition strategy and growth in the adjacency categories beyond office products. I’m also encouraged by the early success of our initiatives to increase services, which now represent 16% of total sales. In addition to the sales performance, our efficiency and cost control initiatives allowed us to deliver an increase in year-over-year operating income and cash flow for the Company in the quarter. I’m confident that we have the right strategy in place to grow the business long term and we have assembled a talented and dedicated team that is focused on driving continued execution across the enterprise.

Shares of Office Depot traded up almost 10% early Tuesday at $2.77, with a consensus analyst price target of $3.02 and a prior 52-week range of $2.00 to $6.26.