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Office Depot (ODP) to Report Q1 Earnings: What's in Store?

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Office Depot, Inc. (ODP - Free Report) is slated to release first-quarter 2019 results on May 8. This supplier of a range of office products and services has outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 11.5%. In the last reported quarter, the company delivered a positive earnings surprise of 12.5%.

The Zacks Consensus Estimate for the quarter under review is pegged at 6 cents, which suggests a decline of roughly 25% from the prior-year quarter’s results. We note that the Zacks Consensus Estimate has fallen by a penny in the last 30 days. The Zacks Consensus Estimate for revenues stands at $2,763 million, indicating a decline of about 2.4% from the year-ago quarter.

Factors Holding Key to Performance

Office Depot has been making concerted efforts to give itself a complete makeover in an environment where demand for office products (paper-based) has shrunk owing to technological advancements. The company has been focusing on business operating model, viable projects and cost structure. The company is also making incremental investments to catapult it into a product and services-driven enterprise.

However, management’s cautionary statement on lower-than-expected operating performance at the CompuCom division reduced the sheen of the stock. It also added that the segment’s muted performance will have a direct bearing on total revenues and operating income during the first quarter of 2019.

Office Depot now envisions first-quarter revenues to be approximately $2.76 billion, down more than 2% from the year-ago period. It forecasts adjusted operating income of approximately $65 million, taking into account operating loss of about $15 million for CompuCom division, down from $93 million reported in the year-ago quarter.

Boca-Raton based Office Depot had acquired CompuCom in 2017 to transition from a traditional office products retailer to a business services and technology company. However, weaker-than-anticipated revenues from existing projects and less-than-proportionate fall in related expenses compelled management to project an operating loss for the division in the first quarter. The division had generated operating income of $5 million in the first quarter of 2018.

Nevertheless, the company hopes that streamlining operational structure, exploring options to speed-up cross-selling opportunities and reorganizing customer-facing organization will help it bring the segment back on track.

Office Depot guided the first-quarter operating income from Business Solutions Division to be approximately $46 million, down from $55 million in the year-ago period. Management informed that increase in paper and paper related costs, lower e-commerce sales and other investments were a drag on operating income. The company now anticipates Retail division’s operating income to be about $66 million in the first quarter of 2019, down from $72 million reported in the year-ago period.

Office Depot, Inc. Price, Consensus and EPS Surprise

Office Depot, Inc. Price, Consensus and EPS Surprise | Office Depot, Inc. Quote

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 and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Office Depot has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, consequently making the surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Target (TGT - Free Report) has an Earnings ESP of +0.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General (DG - Free Report) has an Earnings ESP of +1.51% and a Zacks Rank #3.

Ross Stores (ROST - Free Report) has an Earnings ESP of +2.20% and a Zacks Rank #3.

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