First Quarter Performance
Sales were $1.254 billion, up 0.3 percent. Sales in janitorial and breakroom supplies rose 2.3 percent to $332.7 million from $325.3 million. Industrial supply sales increased 1.4 percent to $131.5 million from $129.7 million. Traditional office products sales rose 1.6 percent to $325.2 million from $320.1 million in 2013. Technology sales declined 3.0 percent to $353.5 million from $364.4 million. Furniture sales decreased 3.8 percent to $74.8 million from $77.7 million in the prior year.
"Our team delivered solid overall performance despite difficult demand conditions, partly due to adverse weather early in the quarter. Sales accelerated as the quarter progressed. We continue to make strategic investments in our business and e-commerce capabilities, and we are positioned well with both manufacturers and resellers to execute our growth and diversification strategies," said Cody Phipps, United Stationers' president and chief executive officer.
First quarter gross profit was $187.1 million, down slightly from $188.5 million in 2013. Gross margin was 14.9 percent compared with 15.1 percent in the prior year. The decline was a result of a change in customer and product mix, partially offset by lower inventory-related items.
Operating expenses were $148.8 million, or 11.9 percent of sales, versus $163.3 million, or 13.1 percent of sales, in 2013. Adjusted for the charge, 2013 operating expenses were $148.9 million(1), or 11.9 percent of sales.
Operating income was $38.2 million, or 3.0 percent of sales, compared with $25.2 million, or 2.0 percent of sales, a year ago. Adjusted for the charge, 2013 operating income was $39.7 million(1), or 3.2 percent of sales.
Net interest expense was $3.4 million compared with $3.1 million in 2013. The increase primarily was due to the issuance of seven-year notes to fix the interest rate on a portion of the company's debt.
Cash Flow and Debt
Net cash provided by operating activities in the first quarter was $1.5 million, compared with a use of $13.4 million in 2013. The year-over-year improvement in operating cash flow was attributable primarily to a decrease in contributions to the pension plans. Capital expenditures in the first quarter were $6.4 million compared with $9.1 million in 2013.
The company has total committed funding sources of approximately $1.0 billion. As of March 31, 2014, the company had total debt outstanding of $562.5 million compared with $537.0 million as of March 31, 2013. As of March 31, 2014 and 2013, debt-to-total capitalization was 40.4 percent and 41.6 percent, respectively. In the first quarter of 2014, the company repurchased 0.3 million shares for $12.5 million and paid $5.5 million in dividends to shareholders.
"We recently completed the bid process at Office Depot. As a result of this process, we were named the second call office products supplier, which will result in the loss of some business. However, we were also named the primary supplier for janitorial and breakroom products, which will result in some new business and is consistent with our diversification strategy into growth categories. Many factors can influence the financial impact of this specific customer situation, but absent any mitigating actions we will take, we estimate a reduction in earnings per share in a range of $0.05 to $0.08 in the second half of 2014. Office Depot continues to be a valued customer, and we look forward to supporting both categories of business. We also remain well positioned with a robust sales pipeline and active discussions regarding new business with a range of strategic customers," Phipps commented.
"We remain committed to our long-term strategy of strengthening and extending our core businesses while diversifying into higher growth and higher margin channels and categories. We continue to see opportunities for growth in the janitorial and breakroom, industrial, and online markets and plan to capitalize on them," Phipps concluded.