Office Depot (ODP) Q1 Earnings: Will The Momentum Stay?
Zacks Investment Research | Apr 23, 2017 10:27PM ET
Office Depot, Inc. (NASDAQ:ODP) , which is expected to release first-quarter 2017 results on Apr 25, has seen shares jump 7.8% in the past three months. The stock has comfortably outperformed the Zacks categorized Earnings Preview report as of Apr 21, Retail-Wholesale sector is likely to witness earnings decline of 4.8% but revenue increase of 3.3% this reporting cycle. Let’s take a closer look as to how Office Depot is expected to contribute to the sector’s performance.
What to Expect from Office Depot?
The question lingering in investors’ minds is whether this supplier of a range of office products and services will be able to post positive earnings surprise in the quarter to be reported. The company’s past performance reveals that it had surpassed the Zacks Consensus Estimate in the preceding two quarters.
The current Zacks Consensus Estimate for the quarter under review is 12 cents compared with 10 cents reported in the year-ago period. We note that the Zacks Consensus Estimate has remained stable in the past 30 days. Analysts polled by Zacks expect revenues of $2,730 million, down about 23% from the prior-year quarter.
Factors at Play
Office Depot has undertaken a strategic review of business operating model, growth prospects and cost structure to bring itself back on growth trajectory. The company now intends to focus on core North American market and is in the process of shutting down all international businesses.
Office Depot is closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities, concentrating on eCommerce platforms as well as focusing on providing innovative products and services. Moreover, the company is increasing penetration into adjacent categories. With respect to the cost containment effort, Office Depot is employing a more efficient customer coverage model, focusing on lowering indirect procurement costs along with general and administrative expenditures, and is also gaining from its U.S. retail store optimization plan.
However, persistent weakness in the office products sector, technological advancements and stiff competition from online retailers are weighing on performance. The company continues to battle a dismal top-line that missed the Zacks Consensus Estimate for the tenth consecutive quarter, when it reported fourth-quarter 2016 results.
What Does the Zacks Model Unveil?
Our proven model does not conclusively show that Office Depot is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP Filter .
Office Depot has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 12 cents. The company carries a Zacks Rank #3, which increases the predictive power of ESP. However, its ESP of 0.00% makes surprise prediction difficult.
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