Shares of Office Depot (ODP 0.66%) were up 14.4% as of 3:15 p.m. EST Wednesday after the office supply retailer announced better-than-expected third-quarter earnings.
Sales declined 3.6% year over year to $2.78 billion, translating into adjusted net income of $84 million, or $0.15 per share (up from $0.13 per share a year ago). These results were technically mixed relative to consensus estimates; most analysts were modeling lower adjusted earnings of $0.13 per share, but on higher sales of $2.83 billion.
"We made further progress this quarter on our transformation efforts, enhancing our foundation for profitable growth and driving another quarter of strong operating results and free cash flow generation," CEO Gerry Smith said in a statement. "Profit margins were up in all three of our divisions as a result of our Business Acceleration Program, delivering a 14% increase year-over-year in adjusted operating income and over $200 million in adjusted free cash flow."
Smith added that near-term revenue is being negatively impacted by the company's efforts to "develop a more robust sales pipeline for future growth."
So despite its top-line shortfall this quarter, Office Depot felt confident enough to reaffirm its previous full-year guidance for sales of $10.8 billion to $10.9 billion, with adjusted EBITDA of $525 million to $550 million, adjusted operating income of $325 million to $350 million, and free cash flow of $300 million to $325 million.
That affirmation seems to indicate sales should rebound at the end of the year, at which time Office Depot should be better positioned to drive profitable growth going forward. As such, it's no surprise to see the stock flying higher in response.