Will OfficeMax's Merger Lead to a Turnaround?

On Tuesday, OfficeMax (NYSE: OMX) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

OfficeMax has struggled along with many big-box office-products retailers as online competition and a generally weak economic recovery have held back their ability to grow. But the company's recent proposal to merge with rival Office Depot (ODP) has breathed new life into the sector. Let's take an early look at what's been happening with OfficeMax over the past quarter and what we're likely to see in its quarterly report.

Stats on OfficeMax

Source: Yahoo! Finance.

What investors think about OfficeMax this quarter
In recent months, analysts have gotten somewhat less optimistic about OfficeMax's earnings, cutting $0.03 per share off their estimates both for the first quarter and for the full 2013 year. The stock, however, has gone in the other direction, rising about 10% since late January.

Obviously, the biggest ongoing news for OfficeMax concerns its pending merger with Office Depot. Last month, the companies updated their progress, noting that they'd formed committees to select a CEO for the combined entity and to plan the eventual integration of the two businesses. The Federal Trade Commission asked for more information regarding the merger, extending the time the FTC has to consider its competitive impact.

One distraction to the merger process has come from activist investor Starboard Value, which has a substantial position in Office Depot's stock. With Starboard calling for changes to Office Depot's board of directors, a corporate shakeup could disrupt the process that OfficeMax and Office Depot have set up.

Yet both companies need to keep their eyes on what rival Staples (SPLS) will do. In March, Staples responded to a disappointing quarterly report by announcing cost-cutting measures that include eliminating big-box stores in Europe and the U.S. and refocusing on smaller stores geared more toward mobile products and services. With Staples waiting in the wings to take advantage of an eventual decision from OfficeMax and Office Depot to reduce their own store counts, investors need to be aware of the looming threat.

In OfficeMax's quarterly report, watch for the latest information about the merger. Given the big share run-up the stock experienced when the news was announced, anything that gets in the way of the merger could send OfficeMax shares plunging.

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