OfficeMax Incorporated Management Discusses Q2 2012 Results - Earnings Call Transcript

OfficeMax Incorporated (OMX)

Q2 2012 Earnings Call

August 02, 2012 10:00 am ET


Michael Steele

Ravichandra K. Saligram - Chief Executive Officer, President and Director

Bruce H. Besanko - Chief Administrative Officer, Chief Financial Officer and Executive Vice President

John C. Kenning - Former Executive Vice President and President of Contract

Michael J. Lewis - Executive Vice President and President of Retail


Oliver Wintermantel - ISI Group Inc., Research Division

Michael Lasser - UBS Investment Bank, Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Anthony C. Chukumba - BB&T Capital Markets, Research Division

R. Scott Tilghman - Caris & Company, Inc., Research Division



Good morning. My name is Alicia, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the OfficeMax Second Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce you to Mr. Mike Steele, Senior Director of Investor Relations of OfficeMax. Mr. Steele, you may begin your conference.

Michael Steele

Good morning. Thanks for joining us. Today's call will be archived in our website for 1 year and is available as both a webcast and a podcast. Certain statements made on this call and other written or oral statements made by or on behalf of the company constitute forward-looking statements within the meaning of the federal securities laws. Management believes that these forward-looking statements are reasonable. However, the company cannot guarantee that actual results will be consistent with the forward-looking statements, and you should not place undue reliance on them.

These statements are based on current expectations and speak only as of the date they are made. The company undertakes no obligation to publicly update or revise any forward-looking statement. Important factors which may cause results to differ from expectations are included in the company's annual report on Form 10-K and in the company's other filings with the SEC.

Now I'd like to turn the call over to our CEO, Ravi Saligram.

Ravichandra K. Saligram

Thanks, Mike. Good morning, everyone, and thank you for joining us. I'm very pleased to report that in the second quarter, we continued to make solid overall progress towards our long-term financial goals, realizing significant year-over-year improvement in operating income and earnings per share.

Given the continued softness in demand and the weak economic environment, we remain focused on the things that we can control, satisfying our customers through highly engaged associates, driving execution of our programs and stringently controlling costs. This focus is yielding results. Our contract business and digital initiatives are gaining momentum. We're making good progress with our growth adjacencies, and we're taking the right actions to address the challenges in retail.

We recognize that many investors believe that our stock is significantly undervalued and we agree. We believe a few factors affect investor perceptions: First, investors continue to be concerned about the prospect of this sector based on global economic headwinds and the secular declines of certain categories. Further, investors are concerned about retail saturation as well as channel shifts to online.

Second, investors and prospective investors in particular, find some aspects of our balance sheet difficult to understand. As an example, the Lehman Brothers and Wells Fargo timber notes, although nonrecourse to OfficeMax, create misperceptions of our debt levels.

Let me address each of these issues briefly. While our sector is admittedly a challenging one, we continue to be enthusiastic about its long-term prospects. Office products in the U.S. alone is well over $200 billion in size with many segments and channels. We do not want to confine our view of the opportunity as just the OSS channel. Instead, we're taking a broader view and aim to capitalize on the fragmentation that exists in the overall sector.

We also believe our increasing focus on services will help our top line while improving our margins in the long term. We're also proactively investing in building our digital infrastructure, with a particular focus on multichannel efforts.

Let me now turn to the balance sheet. Our board and management are conducting a comprehensive analysis of our capital structure overall and are vigorously evaluating capital allocation alternatives. We feel it is important to look at the balance sheet simplification and capital allocation holistically.

Specific to our balance sheet, we continue to explore solutions to address legacy issues and divest noncore assets such as Croxley in New Zealand with the highest sense of urgency. Decisions regarding these assets will help to inform a holistic plan for capital allocation that benefits OfficeMax and its shareholders long term. As a first step of evaluating capital allocation alternatives, we've decided to resume a quarterly dividend of $0.02 per share. The dividend decision reflects our confidence in the future of OfficeMax. Also, it does not preclude us from pursuing other alternatives for allocating capital.

Our board and I are committed to driving shareholder value. We will do this by improving our P&L performance as we've demonstrated in the last 3 quarters. Equally, we're committed to enhancing shareholder value by optimizing our balance sheet. We expect to continue to make meaningful progress throughout the remainder of the year.

So here's what we plan to cover on the call. First, I'll share the highlights from the second quarter and update you on some of our key initiatives. Then Bruce will walk through the financial details of the quarter and provide some additional color on our balance sheet. I'll make some concluding remarks and we'll move to Q&A.

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