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Essendant Announces More Restructuring As Sales & Earnings Drop Again.
US business products wholesaler Essendant has launched a $50 million cost-savings plan after it reported declining full-year sales and profits.
By Andy Braithwaite.
US business products wholesaler Essendant has launched a $50 million cost-savings plan after it reported declining full-year sales and profits.
The company said the restructuring programme was aimed at “[advancing] its strategic drivers by reducing its cost base, aligning organisational infrastructure and leadership with the company’s growth channels to drive sales, and providing capacity to invest in products with preferred suppliers and in growth categories”.
Essendant didn’t provide specific details of the programme in its earnings press release, but said the restructuring started in the first quarter of this year and will run until mid-2020. It will involve facility closures and workforce reductions that are expected to result in annual cost savings of $50 million. The cost of implementing the programme is estimated to be between $30-$40 million.
In addition, product assortment adjustments are planned to eliminate items that have limited availability and lower sales, something that should improve service levels while having a minimal impact on sales. Essendant said these actions would also increase capacity to support expansion into new categories to support customer growth and is also necessary to execute the planned facility consolidations. A non-cash charge related to these “refinements” is expected in the first quarter of 2018 and estimated in the range of $42-$48 million.
Turning to the company’s results, both Q4 and the full year were negatively impacted by the purchasing strategies of Essendant’s big-box customers as they buy more products direct and reduce inventories, although there were also significant declines in key categories in the independent reseller channel.
Q4 results summary:
Sales fell by 4.5% year on year to $1.2 billion.
Jan/san: decreased $31.5 million, or 9.4%, to $304 million.
Technology: decreased $26.6 million, or 8.5%, to $285 million.
Traditional Office Products: decreased $8.8 million, or 4.8%, to $175.4 million.
Industrial Supplies: increased $15.3 million, or 11%, to $154.1 million.
Cut-sheet Paper: decreased $3.3 million, or 3.3%, to $98.2 million.
Automotive: increased $9.4 million, or 12.1%, to $87.4 million.
Office Furniture: decreased $11 million, or 16.4%, to $56.2 million.
Gross profit increased by $5.8 million, 3.5%, to $170.9 million. This was mainly due to a $3.9 million increase in supplier allowances and a $1.6 million favourable inventory valuation.
Adjusted operating profit was $14.9 million versus an adjusted operating profit of $2.7 million in the fourth quarter of 2016. This was mainly due to lower adjusted operating expenses and higher gross profit in 2017.
Full-year 2017 results summary:
Workday adjusted sales fell 5.8% to $5.04 billion.
Jan/san sales decreased by $129.4 million (8.9%) in to $1.32 billion. Sales decreased due to declines in the national reseller channel of $118.1 million and the independent reseller channel of $13.4 million.
Technology product sales decreased $132.3 million (9.8%) to $1.22 billion. The fall was primarily due to declines in the national reseller channel of $68.6 million, independent reseller channel of $53.7 million and the e-commerce channel of $9.9 million.
Traditional office product sales decreased by $85.1 million (10.2%) to $746 million. Sales in this category decreased due to reductions in the national reseller channel of $42.7 million, the independent reseller channel of $36.9 million and e-commerce sales declines of $5.5 million.
Industrial supplies sales increased $27.4 million (4.9%) to $x590 million. The increase was primarily driven by growth in general industrial sales of $14.6 million, international sales of $6.6 million and energy sales of $6.1 million.
Cut-sheet paper sales increased by $11.9 million (3%) to $415 million. The increase in this category was primarily driven by increased sales to independent resellers of $10.5 million and e-commerce sales increases of $3.4 million, partially offset by declines in sales to national resellers of $2 million.
Automotive product sales increased by $7.5 million (2.4%) to $324 million. The increase in this category was primarily due to increases in recreational vehicle and marine sales of $4.6 million and mobile sales of $2.6 million, partially offset by declines in collision sales of $3.6 million.
Office furniture sales decreased by $30.7 million (10.3%) to $268 million. The decrease was primarily the result of declines in sales to independent resellers of $16.4 million, with additional declines in the national reseller channel of $7.2 million and e-commerce channel sales declines of $7.1 million.
Gross profit for 2017 was $706.1 million versus $759.9 million in 2016, while gross margin fell by 20 basis points (bps) to 14%. The decline in margin was due to deleveraging of the distribution network and transportation costs (41 bps) and inventory-related valuation (29 bps), partially offset by favourable product margin (43 bps).
Adjusted operating profit in 2017 was $70.2 million (1.4% of sales), compared with $113.8 million (2.1% of sales) in 2016, primarily resulting from reduced gross margin, partially offset by reduced adjusted operating expenses.
Essendant reported an adjusted net profit for the year of $25 million, although the GAAP result was a net loss of $267 million after impairment write-downs, mainly in the office and facilities segments.
Commenting on the results, Essendant CEO Ric Philips said: "We are continuing to implement the strategic drivers that I described last quarter: 1) improving efficiency across our distribution network and reducing our cost base, 2) accelerating sales performance in key channels where we are positioned to grow, and 3) advancing supplier partnerships that leverage our network and capabilities.
"I am pleased with our early progress and we continue to build momentum. We have seen growth in our key jan/san reseller channel and the industrial reseller channel, though overall sales continued to be significantly pressured by changes in the sourcing strategies of the national resellers, as reflected in our product category sales results. We also have advanced our inbound freight consolidation consistent with our plans.”
https://www.opi.net/business/wholesalers/essendant-announces-more-restructuring-as-sales-and-earnings-drop/
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