Office Depot Q3 earnings top Street; reviewing holding company reorg
Office Depot announced that it is reviewing the implementation of a holding company reorganization that is expected to be completed by the end of the first quarter of 2020.
The reorganization, if implemented, would result in the creation of a holding company, called The ODP Corporation, that would become the new parent company of Office Depot. It would replace Office Depot as the public company trading on Nasdaq under Office Depot’s current ticker symbol. The reorganization is not expected to result in a change of Office Depot’s directors, executive officers, management or business of Office Depot.
“If approved, the holding company reorganization is intended to simplify the company’s legal entity and tax structure, more closely align the company’s operating assets to their respective operating channels within the legal entity structure, and increase its operational flexibility,” Office Depot stated.
The office supply and services retailer’s net income totaled $60 million, or 11 cents a share, in the quarter ended Sept. 28, flat with a year ago. Adjusted earnings were 15 cents, above analysts’ estimates of 13 cents.
Sales fell 4% to $2.78 billion, missing estimates $2.83 billion. The company said the sales decline was primarily the result of lower sales in the retail division, driven by lower same-store sales combined with fewer retail stores, and lower sales in the CompuCom and Business Solutions divisions.
“We made further progress this quarter on our transformation efforts, enhancing our foundation for profitable growth and driving another quarter of strong operating results and free cash flow generation,” said Gerry Smith, CEO of Office Depot. “Profit margins were up in all three of our divisions as a result of our Business Acceleration Program, delivering a 14% increase year-over-year in adjusted operating income and over $200 million in adjusted free cash flow.”
Smith added that, under strong new leadership in both its business solutions division and CompuCom division, the company is “taking actions to develop a more robust sales pipeline for future growth.
“Some of these actions have had an adverse impact on near term revenue, however, they position us to compete more effectively going forward,” he added.
The company affirmed its 2019 sales guidance of $10.8 billion to $10.9 billion, compared with the Street estimate of $10.8 billion. The company said if a reorganization is implemented, a new holding company would be created, named ODP Corp., that will become the new parent of Office Depot.