Essendant Inc., a national distributor of workplace items, recently announced financial results for the third quarter ended Sept. 30, 2018.
Third Quarter 2018 Summary
- Net sales declined 1.2% to $1.3 billion in the quarter, compared to the prior year quarter.
- Loss per share in the quarter was $(0.12) compared to $(2.23) in the prior year quarter. Net loss was $(4.5) million in the quarter compared to $(81.9) million in the prior year quarter.
- Adjusted diluted earnings per share(1) in the quarter was $0.14, compared to $0.03 in the prior year quarter. Adjusted net income(1) was $5.4 million in the quarter compared to $1.2 million in the third quarter of 2017.
- Free cash flow(1) was $23.0 million in the nine months ended September 30, 2018, including transaction costs of $13.1 million year-to-date.
"Essendant's results in the third quarter were in line with our expectations, reflecting the team's execution of our strategic drivers," said Ric Phillips, President and Chief Executive Officer of Essendant. "We continue to expect the Staples transaction to close in the fourth quarter of this year and are confident in the clear benefits the transaction will enable us to deliver to our customers and the definitive value it provides our shareholders."
Third Quarter Performance
- Net sales decreased 1.2 percent compared to the prior year quarter, driven by reduced sales in the national reseller channel being partially offset by higher sales in the industrial and automotive customer channels. Net sales by product category were:
- JanSan Products: decreased $0.5 million or 0.2 percent to $353.1 million.
- Technology Products: decreased $13.6 million or 4.1 percent to $317.2 million.
- Traditional Office Products: decreased $14.5 million or 6.9 percent to $194.9 million.
- Industrial Supplies: increased $17.2 million or 12.0 percent to $160.6 million.
- Cut-sheet Paper Products: increased $6.3 million or 5.5 percent to $120.1 million.
- Automotive Products: increased $2.2 million or 2.8 percent to $77.9 million.
- Office Furniture: decreased $9.7 million or 13.0 percent to $64.7 million.
- Gross profit was $181.3 million, an increase of $9.3 million versus the prior year quarter primarily due to increased product margin due to higher supplier allowances and a reduction in product assortment reserves of $4.4 million, partially offset by increased freight costs. Adjusted gross profit(1) was $176.9 million compared to $172.0 million in the prior year quarter which was driven by increased product margin due to higher supplier allowances, partially offset by increased freight costs.
- Operating expenses were $177.9 million, a decrease from $254.1 million in the prior year quarter primarily due to a prior year goodwill impairment charge of $86.3 million. Adjusted operating expenses were $160.3 million, a decrease of $1.5 million from the prior year quarter due to a reduction in distribution center costs.
- Income tax benefit was $0.8 million in the third quarter of 2018, compared to a benefit of $7.1 million in the prior year quarter due to net losses in each period. Income tax expense on adjusted net income was $3.3 million, compared to income tax expense on adjusted net income was $9.1 million in the prior year quarter.
- Loss per share was $(0.12) compared to $(2.23) in the prior year quarter. Adjusted diluted earnings per share(1) was $0.14 compared to $0.03 in the prior year quarter.
- Cash inflow for the nine months ended September 30, 2018, was $2.5 million. Operating cash flow in the period included $13.1 million in transaction costs. Investing cash flow in the period included $22.1 million of investment in the independent reseller channel. Free cash flow(1)totaled $23.0 million in the nine months ended September 30, 2018.
Outstanding Tender Offer with Staples
On Sept. 14, Essendant entered into a definitive merger agreement with Staples, Inc. and its affiliates Egg Parent Inc. and Egg Merger Sub Inc. Pursuant to the merger agreement, Egg Merger Sub Inc. commenced a tender offer for all outstanding shares of Essendant's common stock at a purchase price of $12.80 per share. The completion of the tender offer is conditioned upon, among other things, satisfaction of a minimum tender condition and expiration or termination of any waiting period under the Hart-Scott Rodino (HSR) Antitrust Improvements Act of 1976. The tender offer and withdrawal rights are scheduled to expire at 5:00 p.m., New York City time on Nov. 5, 2018, unless extended in accordance with the terms of the merger agreement. Essendant expects this transaction to close in the fourth quarter of 2018 and at that time Essendant will become a privately held company.