Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The ODP Corp (ODP, Financial) is accelerating Project CORE initiatives, aiming for annualized run rate savings of at least $100 million, enhancing operational efficiency.
- Strong balance sheet and liquidity position, with continued execution on shareholder-focused capital allocation, including an accelerated share repurchase program.
- Positive performance in the supply chain business, Veyer, with a 29% increase in third-party revenue and nearly 40% increase in EBITDA from third-party customers.
- Commitment to operational excellence remains strong, with a focus on maintaining a low-cost business model across all operations.
- Despite a slow start to the year, The ODP Corp (ODP) is increasing its guidance for adjusted operating income, adjusted EBITDA, and adjusted EPS for 2024.
Negative Points
- Revenue for Q1 2024 declined by approximately 11% year-over-year, primarily due to lower sales in Office Depot and ODP Business Solutions.
- Challenges in onboarding new enterprise customers and delays which impacted top line results in the B2B segment.
- Continued macroeconomic pressures and cautious enterprise spending affecting overall business performance.
- Varis, a business unit of The ODP Corp (ODP), has been underperforming with revenue ramp slower than anticipated, leading to a decision to pursue its sale.
- Consumer traffic and demand in the B2C channel were lower, impacted by macroeconomic conditions and adverse weather, contributing to a decline in revenue.
Q & A Highlights
Q: Project Core originally had some cost savings for Varis baked into it. Now with the increase you point to this quarter, is that separate from Varis and are Varis projected savings incremental to that $100 million?
A: (Diego Anthony Scaglione - Executive VP & CFO, The ODP Corporation) Yes, the higher expected core savings are separate from Varis, providing capacity to invest in core operations and address near-term top line pressure. The savings from Varis are about $10 million from an EBITDA perspective, now positioned as held for sale.
Q: What is causing the delays in getting some of the larger enterprise customers onboarded?
A: (Gerry P. Smith - CEO & Executive Director, The ODP Corporation) The delays are due to a combination of factors including some customers' cybersecurity concerns and general onboarding issues. We are investing in top-class technology to enhance cybersecurity and improve confidence.
Q: Is there any evidence that the cost reductions are impacting your market share negatively?
A: (Gerry P. Smith - CEO & Executive Director, The ODP Corporation) No, the cost reductions are not impacting our market share negatively. In fact, they are positioning us better to win share over time. Our Net Promoter Score remains high, indicating strong customer satisfaction.
Q: What has been the internal consideration about slowing some of the cost cuts or preserving capital in light of the pressured macro environment?
A: (Gerry P. Smith - CEO & Executive Director, The ODP Corporation) We are balancing capital allocation with growth investments. We're discussing with the Board about investing in additional adjacencies and businesses while maintaining an aggressive share repurchase program.
Q: On Varis, any sense of timing for the sale, and are you having to do anything special to retain top executives at the unit while it's being sold?
A: (Gerry P. Smith - CEO & Executive Director, The ODP Corporation) The leadership team at Varis is committed to supporting the business through the sale process. We are actively engaged with investors and maintaining support for our customers and the executive team.
Q: Can you point out any strengths or positive signs in various product categories despite some challenges?
A: (Gerry P. Smith - CEO & Executive Director, The ODP Corporation) We are seeing month-to-month strength across some businesses, with improving conditions since the start of the year. We anticipate a tech refresh in the back half of the year, especially with AI-enabled PCs, which should boost our technology sales.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
