This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.
It is not often that a company's earnings release takes a back seat to other news in the ether, but that is the situation "Stressed Out" Office Depot (ODP) finds itself in this week.
Analysts on average are expecting the company to report earnings per share of $0.12 Tuesday, a penny short of the $0.13 per share it reported in the year-ago period. Revenue is expected to fall 6.6%, year over year, to $3.62 billion from $3.88 billion.
Looking at the timing of the dips in the company's chart, however, it becomes apparent that investors are less concerned with its financial stability than its pending $6.3 billion merger with rival Staples (SPLS). The company's stock remains up 8.5% year to date, but took a dive from its YTD high of $7.73 since the start of April, as the merger injunction hearing brought by the Federal Trade Commission has played out.
Office Depot shares were down 1.5% to $6.11 in afternoon trading Monday.
Last Tuesday, U.S. District Court Judge Emmet Sullivan heard closing arguments in the case reviewing the FTC's antitrust concerns. The FTC is challenging the merger between the two largest office supply companies in the country. While the two companies have had some regulatory bumps internationally, the merger has been approved in Europe, China, Australia and New Zealand. The U.S. is the lone holdout.
FTC officials have previously said that the only way they would let up from its stance is if the two companies divest an asset (or assets) large enough to stand on its own. The store closings and divestitures the companies have made up until this point have not been sufficient to quell the FTC's concerns about the lack of competition a merger would create.
To hear analysts tell it, Office Depot may not be able to survive on its own if the merger is blocked.
"While there is an upside on an approved deal, we don't see much outcome control for Office Depot if the deal is blocked," Goldman Sachs said in a March note. "This is the management team's best exit in light of the company's sliding competition positioning."
The most glaring concern of the company's financial profile is the fact that it has more than doubled its debt over the past four years. The company went from having debt of about $659 million in 2012 to $1.58 billion in 2013. Its debt level has remained in that area ever since.
As of its previous earnings release, however, Office Depot does have plenty of liquidity between its $1.2 billion credit revolver and $958 million in cash reserves, but investors will be looking for increased signs of stress. The company has previously announced that it will close 400 of its 1,800 stores by the end of the year.
Staples shares were also declining Tuesday, down 0.7% on weak volume.
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