Stressed Out: Office Depot's Earnings Miss, but Investors Are Down With ODP

 | Feb 24, 2016 | 3:37 PM EST
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Despite yesterday's earnings miss, Office Depot's stress level remains unaffected as the company's pending merger remains on the front burner. 

Sales for the year were down 10% in 2015 after the company reported sales increases in 2013 and 2014. Profit margins for the year also fell to 24.2% from 27.6%.

For the fourth quarter, while the company did swing to a profit after reporting a net loss in the year-ago period, the $3.5 billion in revenue the company generated was short of the $3.6 billion Wall Street was expecting the company to report. Earnings of $0.07 per share also missed by $0.04.

Despite the company's miss, shares are off less than 1% on very weak volume as investors focus more on the company's pending merger with rival Staples (SPLS).

After rumors surfaced in late 2014 that Office Depot and Staples were considering a tie-up, Office Depot's stock went through the roof. The stock more than doubled from its 2014 low of $4.05, peaking at $9.59 just days after the two companies entered into a formal merger agreement.

Read more about the FTC's case against Office Depot and Staples. 

Office Depot has since settled in the $5 area, falling precipitously after FTC officials voted unanimously to file a suit to block the $6.3 billion merger.

Office Depot CEO Roland Smith blamed some of the lost revenue on the pending nature of the company's merger with Staples and called the FTC's anti-trust litigation on the matter an "ongoing business disruption."

"Primarily due to the impact of store closures, continuous challenging market conditions, and an ongoing business disruption from the extended regulatory approval process related to the pending acquisition by Staples. The company expects this disruption to continue through at least the first half of 2016, while the company completes the ongoing litigation."

That litigation doesn't look like it will end well for Office Depot as the FTC has not budged from its antithetical view of the company's proposed merger.

Office Depot has previously announced plans to shutter 400 stores by the end of the year while over 1,000 store closures are expected to follow if the deal is approved.

Earlier this month, Staples announced an agreement to sell more than $550 million in corporate contract business assets to office supplies wholesaler Essendant.

"We're pleased to reach this agreement with Essendant as we continue to work to complete the acquisition of Office Depot," said Staples CEO Ron Sargent at the time. "Our agreement with Essendant strengthens a national competitor, further enables independent office products dealers and helps minority and woman-owned businesses compete for national commercial customers." 

The moves haven't impressed FTC regulators, however.

"The proposed fix cannot salvage this merger," the FTC said in a brief made public late Friday.

All of these maneuvers will come to a head when the FTC makes its decision on the merger of the two companies in May. Until then, investors in the two companies continue to hold their breath.

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Sprint Is Collapsing Under the Weight of Its High-Yield Debt

Stressed Out: Office Depot/Staples Merger Sees Ray of Hope Following EU Approval

Stressed Out: Sprint Is Collapsing Under the Weight of Its High-Yield Debt

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