Office Depot (NASDAQ: ODP) reported Q1 EPS of $0.16, $0.04 better than the analyst estimate of $0.12. Revenue for the quarter came in at $2.7 billion versus the consensus estimate of $2.71 billion.

Outlook (2)

Office Depot continues to expect total company sales in 2017 to be lower than 2016, primarily due to the impact of planned store closures, prior year contract customer losses, continued challenging market conditions and returning to a 52 week fiscal year. However, the company expects the rate of sales decline to improve throughout 2017 based on improvements in customer retention, implementation of new customer wins and continued growth in the contract channel sales pipeline.

The company expects to be substantially complete with the OfficeMax integration and realize the majority of the remaining synergy benefits by the end of 2017. Merger integration expenses are estimated to total approximately $45 million in 2017 with approximately $25 million in capital expenditures.

Office Depot announced a number of cost saving programs in 2016 and expects to deliver over $250 million in annual benefits by the end of 2018. About half of these benefits are anticipated to be realized in 2017. In addition, the company estimates it will incur up to approximately $125 million in costs to implement the cost saving programs. With more than one-third of these costs already incurred in 2016, the company anticipates the majority of the remaining costs to be incurred in 2017.

The company continues to expect adjusted operating income of approximately $500 million in fiscal 2017, including funding a number of strategic initiatives to grow the business throughout the year. The 2017 target is a comparable year-over-year increase of about 10%, excluding the $15 million estimated 53rd week operating income benefit realized in 2016.

In 2017, capital expenditures are expected to be approximately $200 million including investments to support the company’s critical priorities and the Store of the Future test format. Depreciation and amortization is expected to be approximately $150 million in 2017.

Office Depot anticipates free cash flow(3) from continuing operations to be more than $300 million in 2017.

The company anticipates an estimated cash tax rate of 15% as the company continues to utilize available tax operating loss carry forwards and credits and expects a non-GAAP effective tax rate of approximately 41% in fiscal 2017, dependent on the mix and timing of income.

(2) The company’s outlook for 2017 included in this release, includes expected adjusted operating income, a non-GAAP number, which excludes charges or credits not indicative of our core operations, which may include but not be limited to merger integration expenses, restructuring charges, executive transition costs, asset impairments, and other significant items that currently cannot be predicted. The exact amount of these charges or credits are not currently determinable, but may be significant. Accordingly, the company is unable to provide equivalent reconciliations from GAAP to non-GAAP for these financial measures.

(3) Free cash flow is defined as net cash provided by operating activities less capital expenditures.

For earnings history and earnings-related data on Office Depot (ODP) click here.