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Bear of the Day: Essendant Inc. (ESND)

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Customers can be finicky, and shift their purchase preferences fairly quickly.  This at times is a boon from some companies, but it can also create large stumbling blocks for a company as customers shift away from their products.  This can be seen in the office products segment, and that is one of the reasons that Essendant Inc. is the Zacks Bear of the Day. 

This Zacks Ranked #5 (Strong Sell) is a wholesale distributor of business products. The Company offers technology products, traditional office products, janitorial and breakroom supplies, office furniture, industrial supplies and automotive aftermarket tools. It operates primarily in Dubai, United Arab Emirates. Essendant Inc., formerly known as United Stationers Inc., is headquartered in Deerfield, IL.

Recent Earnings Results

Essendant reported Q2 16 results last week, and they significantly missed both the Zacks Consensus Earnings and Revenue estimates.  The company posted year over year losses in Net Income -56.7%, Operating Income -50.2%, Earnings Per Share -55.1%, Adjusted EBITDA -22.6%, and Adjusted Earnings Per Share -32.1%.  Further management revised their FY adjusted ESP guidance from a range of $3.20-$3.40 to a range of $2.15-$2.30 per share.

Management’s Take

According to Robert Aiken Jr., President and CEO, “In light of the challenges we faced in the quarter and our reduced outlook for the balance of the year, we are accelerating efforts to advance our strategy, improve margins and reduce costs.  We plan to execute these actions while reducing our inventory levels over the balance of the year to improve the company's return on investment. Building on our core capabilities while increasing operating and working capital efficiency is the right path forward.  With the common platform implementation of our office products and janitorial/sanitation businesses now complete, several large accounts wins on boarded and our industrial business making progress in its recovery plan, our company's core capabilities continue to offer a competitive advantage in the marketplace.”

Price and Consensus Graph

As you can see in the price and consensus graph below, the company’s stock price and earnings estimates have plummeted recently.

ESSENDANT INC Price and Consensus

ESSENDANT INC Price and Consensus | ESSENDANT INC Quote

Decreasing Estimates

Over the past seven days estimates for Q3 16, Q4 16, FY 16 and FY 17 have all seen significant downgrades; Q3 16 fell from $1.07 to $0.86, Q4 16 dropped from $0.93 to $0.73, FY 16 collapsed from $3.26 to $2.21, and FY 17 declined from $3.59 to $3.04. 

Bottom Line

The company is not sitting idly by while office product sales decline, they are looking into cost cutting opportunities in total headcount, and distribution.  Management is also reducing inventory purchases, and are planning on cutting supply chain costs.  But these measures will take a bit of time. 

So if you are inclined to invest in the Consumer Product sector, you would be best served to look into Barnes & Noble Education , and or Summer Infant (SUMR - Free Report) , both of which currently carry a Zacks Rank #2 (Buy).

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