The first quarter was another financially challenging one for Essendant Inc., the top-tier distributor of office and industrial products to thousands of other distributors, wholesalers and resellers. Net sales fell 2.3% to $1.240 billion for the period ended March 31, down from $1.269 billion a year earlier.
The company’s traditional core market of office products took a particularly hard hit in the quarter, as a $4.5 million decline in e-commerce channel sales contributed to a 9.6% year-over-year decline in that category to $179.0 million from $198.1 million. Essendant also reported Q1 declines in both overall and e-commerce sales in the categories of JanSan, or janitorial-sanitation, technology products (primarily ink and toner supplies), and office furniture.
CEO Ric Phillips, when asked on a conference call with stock analysts last week about the competitive landscape in office products, said he expected the market to remain “very competitive,” with a growing presence “across e-commerce players, distributors, buying groups, club big-box stores and national resellers.”
Nonetheless, Phillips and Janet Zelenka, senior vice president and chief financial officer, told analysts that they expect Essendant to do well in office products and in company-wide e-commerce sales over the long term. “We like our value proposition and think that we can play effectively there,” Phillips said, according to a transcript of the call from Seeking Alpha.
Phillips repeated projections Essendant made earlier this year regarding operating efficiencies and capital improvements the company expects to realize through its pending merger with S.P. Richards, an office products subsidiary of Genuine Parts Co. Combined, the two distribution organizations did about $7 billion in 2017 sales—$5 billion for Essendant and $2 billion for S.P. Richard, according to the companies.
Zelenka added that, across multiple categories, Essendant sees its e-commerce channel generating strong growth. “We continue to see e-commerce growth with key customers,” she said. “We do experience some challenges with one key customer that we are working through, but we are encouraged by the growth we have on underneath the overall channel and key customers.” She did not identify the customer.
In other product categories, Essendant reported in a Q1 statement filed with the Securities and Exchange Commission:
- Cut-sheet paper—A $1.8 million increase in e-commerce sales contributed to growth of 12.6%, or $13.4 million, as cut-sheet sales increased as a share of total sales to 9.6% from 8.4%;
- JanSan—A $4.7 million drop in e-commerce sales contributed to a year-over-year decrease of 5.0%, or $17.2 million, as JanSan sales dipped as a share of total sales to 26.5% from 27.2%;
- Technology products (mostly ink and toner supplies)—A $1.9 million drop in e-commerce sales contributed to a category decrease of 0.8%, or $2.5 million, as technology sales increased slight as a share of total sales to 25.4% from 25.0%;
- Office furniture—A $2.4 million drop in e-commerce sales contributed to a decrease of 18.4%, or $13.3 million, as office furniture’s share of total sales fell to 4.7% from 5.7%.
Essendant didn’t break out e-commerce figures for industrial supplies or automotive products. It said sales of industrial supplies increased 5.7% in Q1, or $8.4 million, and accounted for 12.5% of total sales, up from 11.6%. Sales of automotive products increased 2.8%, or $2.2 million, and accounted for 6.5% of total sales, up slightly from 6.2%.
For the first quarter ended March 31, Essendant also reported:
- A net loss of $51.4 million, compared with a year-earlier net loss of $188.59 million (that wider loss was largely related to a “goodwill impairment” accounting charge related to softened demand in the industries it serves);
- Gross profit of $121.2 million, down 34.7% from $185.7 million, resulting in a gross margin rate of 9.8%, down from 14.6%.
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