Please ensure Javascript is enabled for purposes of website accessibility

Why Office Depot Inc. Stock Plunged Today

By Jeremy Bowman - Oct 4, 2017 at 12:12PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The office supply retailer tanked after it lowered and announced a major acquisition.

What happened

Shares of Office Depot Inc. (ODP 0.36%) were tumbling today after the company reported preliminary third-quarter results, lowered its guidance for the year, and said it would acquire IT services provider CompuCom for approximately $1 billion.

For a company with a market cap of just $2 billion, the move constitutes a significant strategic shift as the office supplies retailer will focus on providing tech services as CompuCom manages around 6,000 licensed technicians serving 5.1 million end users.

As of 10:56 a.m. EDT, the stock was down 16.8%.

A stack of paper in front of a copy machine

Image source: Getty Images.

So what

Management described the acquisition as a pivot to a broader business services and technology products platform, with CEO Gerry Smith saying, "Technology is the office supply of the future."  

Clearly, investors were not won over by the deal, but it was unclear if the guidance cut or the acquisition was the primary reason for the sell-off. The acquisition was expected to add $1.1 billion in annual revenue and deliver cost synergies of $40 million over the next two years.

Separately, the company said sales were down 7%-8% in the third quarter, with comparable sales of 5%-6% and adjusted operating income of $125 million-$135 million. 

Now what 

For the full year, the retailer now sees adjusted operating income of $400 million-$425 million, down from $500 million, as the company cited the impact from three hurricanes, weak store sales, and higher supply chain costs.

Office Depot's acquisition of CompuCom is reminiscent of Best Buy's purchase of Geek Squad and other attempts by retailers to branch into services. With office supply retail crumbling and its merger with Staples blocked, Office Depot must to do something to maintain its relevance. Even if doesn't save the company, the CompuCom deal is better than simply treading water in a declining industry.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The ODP Corporation Stock Quote
The ODP Corporation
ODP
$30.35 (0.36%) $0.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.