Stock Values

"Why is OfficeMax Inc. (OMX) down so much today," you ask? At first look, things don’t look so shabby at the #3 office supply retailer? There is certainly a major operational improvement from a year ago quarter, a profit of 76 cents / share vs. a 37 cents loss a year ago. Granted, this missed the analysts’ lofty expectations of 94 cents, but not by that much in the grander scheme of things. Did this warrant a 15+% drop in the stock price, or is this another common overreaction on the earnings news?

Upon further investigation, you will notice that “sales rose to $2.44 billion from $2.42 billion a year ago, as a sales increase in the company's contract business offset a decline in retail sales due to last year's closing of 109 underperforming stores.” The Office Max regular people know (their retail store end) is actually shrinking!

But are things expected to get any better? I doubt it, considering that the big three have a growing number of low cost online office retailers, that manufacturing costs for paper based products that they specialize in have increased sharply over the past 18 months and that consumers have less and less need for such products, in large part due to advances in and growing acceptance of secure electronic methods for signing, delivering and storing documents. To top this all of a final nail in the office products retailers’ coffins may be the recently announce price increase by the United States Post Office.

Standard mail discount flats prices are going up 40% on May 14th, 2007. According to my discussions with mail houses, this rate shock has virtually stopped all new business from coming in to them since the USPS released the news in March! As luck would have it, lots of paper products were being shipped this way

So, perhaps the small earnings shortfall at OfficeMax last quarter was only a gentle reminder of more major problems on the horizon for the OfficeMax, Office Depot and Staples. If you own any of these stocks, and I was a financial adviser, I would recommend that you look at any positive price pops as opportunities to get out!