United Stationers' Makeover Yields Promising Results

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United Stationers' Makeover Yields Promising Results

 user admin 2014-08-26 at 11:15:23 am Views: 214
  • #40592

    United Stationers' Makeover Yields Promising Results
    The office-products wholesaler could see fatter profits and a higher share price as it ramps up sales of janitorial products and industrial goods. Also, a beautiful relationship could blossom between FTD and John Malone.
    By David Englander

    High unemployment and the digital revolution have cut demand for traditional office supplies such as paper, envelopes, and toner, probably permanently. But United Stationers , North America's largest wholesale distributor of office products, hasn't taken the changing times sitting down. Its strategy could lead to bigger profits and a rising stock price.
    Less paper, more paper towels: United's line-up has morphed with the times. Barron's Graphics

    United (ticker: USTR) has shifted its focus to higher-growth, higher-margin products, including janitorial supplies and industrial goods such as power tools and welding supplies. Helped by acquisitions, those business lines have gradually risen to about 40% of sales, while office products have shrunk to 60%. Management aims to reduce office products to less than 50%.

    At a recent $38.58, United Stationers shares trade for an inexpensive 11 times 2015 earnings estimates and boast a 10% free-cash-flow yield. As earnings rise, investors might reward the company with a higher price/earnings ratio. At a still-modest 13 times estimates, the stock would fetch $46, or 20% more than Friday's close. Shares yield 1.4%.

    Founded in the 1920s, Deerfield, Ill.–based United has long been associated with the office-supply business. The company stocks more than 140,000 products, which it distributes through 64 centers in the U.S. Its 25,000 customers include W.B Mason, Staples (SPLS), and Office Depot (ODP).

    United distributes a range of office supplies, from computer supplies and printers to pens, paper, mailing supplies, and office furniture. In the 1990s, the company added janitorial and break-room products to its lineup, stocking cleaning supplies, vacuums, and mops. Industrial products came more recently, from acquisitions in the past seven years.

    Janitorial products account for 27% of sales, and the industrial business, 11%. This year, analysts expect United to earn $128 million, or $3.26 a share, on $5.2 billion in revenue. Earnings could rise to $3.50 a share in 2015, on higher sales from janitorial and industrial products.

    Both businesses have grown in the past few years. Sales of janitorial products were up 4% in 2013, while industrial products rose 27%, helped by a major acquisition in 2012. Office-products sales fell 5%.

    The industrial segment, in particular, represents a big opportunity. Wholesale products account for only a small slice of this $25 billion market, with most manufacturers selling directly to customers. Going through a distributor could save the customers money, and management aims to grow the business to $1 billion in sales in the next five years from $518 million last year. Industrial goods also carry higher profit margins than office supplies.