Office Depot (ODP) Q1 Earnings: What Awaits The Stock?

Office Depot, Inc. (NASDAQ:ODP) , which is slated to release first-quarter 2018 results on May 9, has seen its shares plunge 24% in the past three months. The stock has not only underperformed the industry that grew 1.6% but also the broader Retail-Wholesale sector that advanced 4.5%.

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. In the preceding quarter, it had outperformed the Zacks Consensus Estimate by 14.3%.

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the release. The Zacks Consensus Estimate for the quarter under review has been stable in the last 30 days and is pegged at 8 cents.

Nonetheless, the consensus estimate shows a sharp decline from 16 cents reported in the year-ago quarter. We note that earnings per share had decreased 13% and 27% during the third and fourth quarter of 2017, respectively.

Factors Influencing the Quarterly Results

Analysts pointed out that demand for office products (paper-based) has been decreasing due to technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Further, stiff competition from online retailers and soft store traffic have been playing spoilsport. Nevertheless, management is not sitting idle, and instead trying all means to bring the stock back on growth trajectory.

Office Depot has undertaken a strategic review of business operating model, growth prospects and cost structure. Management is making incremental investments to catapult it into a product and services-driven enterprise. As a result of these, analysts polled by Zacks now expect first-quarter revenue to increase roughly 5% to $2,812 million.

The company is gaining from U.S. retail store optimization plan, reducing exposure to higher dollar-value inventory items, shuttering of non-critical distribution facilities, concentrating on e-commerce platforms as well as focusing on providing innovative products and services. The company intends to boost sales in the contract channel by increasing penetration into adjacent categories and enhancing share of wallet with existing customers.

To widen domain of offerings, Office Depot acquired CompuCom Systems that help it acclimatize to the fast-changing retail landscape along with providing enterprise-level tech services and products to customers. The company also launched a subscription-based business services platform, BizBox, to assist start-ups and small businesses on host of things such as website designing, financing and accounting service, HR/payroll support and others.

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.

Stocks Poised to Beat Earnings Estimates

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

Walmart (NYSE:WMT) has an Earnings ESP of +2.46% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target (NYSE:TGT) has an Earnings ESP of +0.32% and a Zacks Rank #3.

Kroger (NYSE:KR) has an Earnings ESP of +4.99% and a Zacks Rank #3.

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