Earnings Preview: OfficeMax

OfficeMax Inc. ( OMX - Analyst Report ) is slated to report its second-quarter 2012 financial results on Thursday, August 2. The current Zacks Consensus Estimate for the quarter is 7 cents a share that remained flat with the prior-year quarter’s earnings.

The estimates in the current Zacks Consensus range between a low of 5 cents and a high of 8 cents a share. The Zacks Consensus Estimate for revenue is pegged at $1,638 million for the quarter under discussion.

Recap of First-Quarter 2012

OfficeMax posted better-than-expected first-quarter 2012 results. The quarterly earnings of 23 cents a share beat the Zacks Consensus Estimate of 16 cents and rose substantially from 13 cents earned in the prior-year quarter on the back of effective cost management and marginal growth in the top line.

Total sales inched up 0.5% to $1,872.9 million from the same quarter last year, and came ahead of the Zacks Consensus Estimate of $1,867 million.

OfficeMax Contract segment sales grew 3.8% to $960.6 million in the quarter, whereas Retail segment sales dipped 2.7% to $912.3 million, reflecting a decline of 2.1% in comparable-store sales due to lower store transactions.

Zacks Agreement & Magnitude

No movement was noticed in the Zacks Consensus Estimate for the second quarter either in the last 7 or 30 days, as the downward revision in the estimate made by 1 out of 10 analysts covering the stock in the respective periods did not have a material impact.

Earnings Surprise History

With respect to earnings surprises, OfficeMax has topped the Zacks Consensus Estimate by an average of 18.1% in the trailing four quarters. Given the past performance, we believe that OfficeMax may outperform the Zacks Consensus Estimate in the second quarter of 2012 as well.

Let’s Conclude

The change in the demand for office supplies products and services remains one of the indicators that describe the health of the economy. The economy has not completely awakened from a state of hibernation, and amid such a scenario OfficeMax has to walk the tight rope to juggle with any unprecedented situation that may restrict its growth prospects.

OfficeMax provides office supplies and paper, print and document services, technology products and solutions as well as office furniture to business firms, government organizations and other retail consumers.

As the recovery in the economy still remains sluggish, consumers and small businesses remain frugal about big-ticket spending like business machines and other durables. Therefore, we believe that the demand for office products is closely tied to the health of the economy.

Consequently, OfficeMax is repositioning itself to stay afloat amidst a difficult consumer environment. The company is containing costs, closing underperforming stores and focusing on innovative products and services, which should all contribute to margin improvements.

The company also focuses on optimal store sites in order to boost store productivity. Moreover, OfficeMax is committed to improve sales per square foot by increasing customer traffic and converting them into potential buyers by targeted advertising, ongoing sales training and customer-oriented initiatives. The company has initiated control center technology services to assist customers with PC maintenance or removal of viruses.

Genuine efforts are implemented to combat the tough economy. Business budgets remain tight, consumers remain cautious than ever before and companies are trying hard to navigate through the challenging maze.

Going by the pulse of the economy, we prefer to maintain our long-term Neutral recommendation on the stock. Moreover, OfficeMax, which competes with Office Depot Inc. ( ODP - Analyst Report ) and Staples Inc. ( SPLS - Analyst Report ) , holds a Zacks #3 Rank that translates into a short-term Hold rating.