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How ODP Corporation (ODP) Looks Just Ahead of Q2 Earnings

The ODP Corporation ODP is likely to register a decline in the top line when it reports second-quarter 2020 numbers on Aug 5, before the market opens. The Zacks Consensus Estimate for revenues is pegged at $2,429 million, indicating a decline of 6.1% from the prior-year reported figure.

However, the bottom line is expected to improve year over year. We note that the Zacks Consensus Estimate for earnings for the quarter under review has increased by a couple of cents over the past 30 days, and is now pegged at 82 cents. The figure suggests growth of 17.1% from the prior-year quarter.

Notably, this provider of business services and supplies, products and technology solutions has a trailing four-quarter earnings surprise of 32.6%, on average. In the last reported quarter, the company delivered earnings surprise of 50%.

Key Factors to Note

The ODP Corporation has been focusing on business operating model, viable projects and cost structure, and making incremental investments to enhance revenue contribution from services. It has been concentrating on product assortment mix and increasing penetration into adjacency categories. Adjacency categories accounted for 39% of overall Business Solutions Division sales in the last reported quarter.

Moreover, the company has been making every effort to enhance e-commerce platforms. The company’s e-commerce channel has been gaining courtesy of increased demand for essential products and services to support home office operations. Notably, the company has been leveraging its global sourcing and supply chain capabilities to procure and deliver essential products, including personal protective equipment (PPE).

However, the company on its last earnings call informed that revenues across its Business Solutions Division is likely to be adversely impacted by the business conditions related to the coronavirus outbreak. We note that in the first quarter, certain product categories witnessed fall in demand due to a portion of the company’s B2B customers having either paused operations or temporarily transitioned into a remote work environment owing to the pandemic resulting in lower sales in contract channel. Persistence of such headwinds are likely to have hurt the company’s contract channel revenues in the second quarter as well.

Additionally, management had earlier highlighted that supply constraints for essential cleaning and breakroom products, the closure of a limited number of stores owing to the government protocols and the lowering of store operating time by a couple of hours per day are expected to have an adverse impact on the company’s Retail Division’s sales in the second quarter.

Nonetheless, the company’s second-quarter performance might have benefited from Business Acceleration Program that involves reducing costs, improving operational efficiencies, enhancing service delivery, effective use of technology and automation, and identifying strategic investment opportunities.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for ODP Corporation this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ODP Corporation has a Zacks Rank #2 and an Earnings ESP of +2.44%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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