Why Office Depot (ODP) Is Bombing on Tuesday

NEW YORK (TheStreet) -- Office Depot (ODP) has swung to a loss in its first reporting quarter after completing its merge with OfficeMax, weighed down by charges related to the acquisition.

By midmorning, shares had taken off 12.6% to $4.68. Competitor Staples (SPLS) was falling in sympathy, declining 4.9% to $12.73.

The company recorded a net loss of $144 million, or 34 cents a share, in the three months to Dec. 28. Excluding one-time expenses, the net loss was 3 cents a share. Analysts surveyed by Thomson Reuters had anticipated adjusted profit of 3 cents a share.

CEO Roland Smith, who has had prior experience in successfully reorganizing merged companies, expects the integration to be completed by the end of February.

"We have moved quickly to establish a lean organizational structure," he said in a statement. "Based on the team's efforts since merger close, we have validated and increased the expected total annual run-rate of previously quantified cost synergies to be more than $600 million by the end of 2016."

Total sales of the office supply chain benefited from the November merger with revenue 33% higher to $3.49 billion. However, consensus was for a far higher increase to $4.03 billion.

In its North American retail division, the Boca Raton, Florida-based business recorded a same-store sales decline of 4% for the quarter and 3.7% for fiscal 2013.

For fiscal 2014, the company expects market trends to remain challenging with total company sales lower than 2013. Capital spending will likely be around $150 million with an additional $50 million in integration expenditures.

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TheStreet Ratings team rates OFFICE DEPOT INC as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate OFFICE DEPOT INC (ODP) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, solid stock price performance and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including poor profit margins and weak operating cash flow."

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