Staples, Inc. (SPLS, Financial) recently reported earnings results for the second quarter. Its earnings results revealed some weakness in global sales growth which is expected to be revived from its acquisition of Office Depot (ODP, Financial). On Feb. 4 Staples reported it would be acquiring Office Depot for $6.3 billion. The deal is expected to close by the end of 2015. Upon completion of the acquisition and integration of the Office Depot business, Staples expects pro forma annual revenue for the company to be $39 billion.
In Staples' Aug. 19 earnings release it reported second-quarter revenue of $4.94 billion, net earnings of $76 million and earnings per share of $0.12. The quarter’s earnings results were on point with analysts’ estimates; however, sales growth in the quarter was weak. Analysts had predicted revenue of $4.96 billion, and earnings per share were just in line with analysts’ average estimate of $0.12.
Global currency effects from the strong U.S. dollar dragged on sales slightly in the second quarter leading to a revenue growth rate of -5.4% from the comparable quarter. The company’s North American Commercial business, which accounted for 42% of revenue, posted the strongest comparable quarter sales growth at 2.6%. The firm’s other major business division North American Stores & Online struggled for the quarter with revenue growth of -7.6% from the comparable quarter. International Operations reported the firm’s lowest comparable quarter growth at -17.1%.
The acquisition of Office Depot will help Staples in some of the areas where it is lagging. Additionally, the similarities in the two companies’ business structures will create tremendous synergies valued at approximately $1 billion in savings over the three years following the merger completion. In Office Depot’s most recent earnings report on Aug. 4, it reported total revenue of $3.44 billion for the second quarter with earnings per share of $0.06. On the bottom line Office Depot’s second-quarter earnings per share growth was strong increasing $0.08 from the second quarter of 2014. For the first half of the year, earnings per share growth increased 280% to $0.19.
Previously finishing its own acquisition and merger with OfficeMax in 2013, Office Depot has shown consistent sales across its business segments which closely align with the business divisions of Staples. Currently, Office Depot’s business segments include North American Retail, Business Solutions and International. In North American Retail, Office Depot had revenue of $1.3 billion in the second quarter of 2015. In Business Solutions the firm reported revenue of $1.4 billion. In International the firm reported revenue of $664 million.
After the merger of the two businesses Staples estimates the firm will generate a combined $39 billion in annual revenue which would be an increase of 73% from Staples' annual revenue in 2014. Staples is currently in the final stages of the acquisition. It has already received approval from Office Depot’s shareholders. It is still in the process of obtaining approval from regulatory agencies in the United States, European Union and Canada.
Overall, the Office Depot acquisition is expected to considerably benefit Staples and its future growth. In recent months John Hussman (Trades, Portfolio) of Hussman Strategic Advisors, Inc. has been one investment manager who has been actively trading the stock. In the first quarter of 2015 Hussman added Staples to his portfolio as a new holding, buying 400,000 shares for a total value of approximately $6.72 million. In the second quarter Hussman bought an additional 209,000 shares increasing his ownership in the company to 0.09% and his portfolio position in the stock to 1.08%.
