Will Office Depot (ODP) Disappoint Again In Q3 Earnings?

Office Depot, Inc. (NASDAQ:ODP) , one of the leading providers of office products, services and solutions, is slated to report third-quarter 2016 results on Nov 2. The question lingering in investors’ minds now is, whether the company will be able to deliver a positive earnings surprise in the quarter to be reported. In the trailing four quarters, it underperformed the Zacks Consensus Estimate by an average of 28.8%. Let’s see how things are shaping up prior to this announcement.

Unlikely to Beat Estimates

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. Office Depot has an Earnings ESP of -13.33% as the Most Accurate estimate stands at 13 cents, while the Zacks Consensus Estimate is pegged at 15 cents. The company carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Factors Influencing this Quarter

Office Depot has undertaken a strategic review of its business operating model, growth prospects and cost structure to bring itself back on the growth trajectory, after an attempt to merge with Staples fell through. The company is closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities, concentrating on eCommerce platforms as well as focusing on providing innovative products and services. The recent decision to sell its European operation gives a clear indication that the company wants to focus on its core North American market.

Persistent weakness in the office products sector, technological advancements and stiff competition from online retailers are weighing upon the company’s performance. Management continues to anticipate total sales to be lower in 2016 in comparison with 2015 on account of store closures, business disruption and tough market conditions. We noted that the company’s earnings and revenue have not only missed the Zacks Consensus Estimate in the last four and eight straight quarters, respectively but also declined year over year.

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 an earnings beat:

Avon Products Inc. (NYSE:AVP) has an Earnings ESP of +33.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Marinemax Inc. (NYSE:HZO) has an Earnings ESP of +4.76% and a Zacks Rank #3.

Big Lots Inc. (NYSE:BIG) has an Earnings ESP of +50.00% and a Zacks Rank #3.

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