Stationery and office supplies group, Corporate Express Australia (CXP) experienced a third quarter slowdown, but is confident about the full year's result.
After tax earnings for the three months to September 30 fell 4.7% to $16.6 million from $17.422 million, after earnings before interest, tax, depreciation and amortisation rose 4.6% to $30.4 million.
That was after revenue rose 4.1% to $338.18 million in the September quarter, from the $325 million of the comparable period of 2006.
A major factor in the lower after tax profit was a sharp rise in the interest bill in the quarter to $2.15 million from just $343,000 in the third quarter of last year.
The company didn't really explain the slower third quarter result in commentary accompanying the brief quarterly profit figures, except to mention a higher interest bill from a share buyback.
The shares shed 6c to $6.89 for the company, which is 53% owned by its US parent.
The company instead concentrated on its nine months figures.
The result was released yesterday ahead of the running of the Melbourne Cup. For the nine months to September 30, it showed a 9.1% lift in earnings before interest, tax, depreciation and amortisation (EBITDA) to $90.6 million.
However, Net profit after tax was only 1.9% higher at $50.9 million over the previous comparable period.
Net interest expense jumped to $4.9 million from $1.25 million in the same period of 2006.
Managing director Grant Harrod said the higher interest cost was associated with the $90 million off-market share buyback successfully completed in April of this year.
He also said that operating expenses increased with the inclusion of recent acquisitions that have yet to be integrated.
The business supplies company said that revenue for the first nine months had increased 6.7% to $979.3, so the third quarter revenue growth of 4.1% indicates a slight slowdown and pressure on profit margins.
Mr Harrod said that the roll out of its single source model had delivered new growth opportunities as a platform for sustainable long-term benefits.
"Gross profit improved 5.9% in the quarter to $89.3 million, with the continued consolidation by our customers of their business-related purchases into a single supplier relationship," he
Mr Harrod stated that as a single-source B2B supplier of choice with the most comprehensive sales and distribution network in the industry, Corporate Express continues to actively pursue a range of new growth opportunities – both organically and via acquisitions – to leverage its existing infrastructure and brand equity.
Mr Harrod said the relocations of the Corporate and NSW Sales Offices and the NSW Warehouse is progressing to schedule. The consolidation of warehouse facilities and the consolidation of office accommodation will both be completed in the third quarter of 2008 and will provide a range of upsides as previously announced, after one-off expenses of $5 million 2008.
Mr Harrod added that as part of the continuous review of technology to further capitalise on business efficiency opportunities, an external supply chain assessment is well under way and an update will be provided with the release of annual results next February.
In commenting on the outlook for the remainder of 2007, Mr Harrod was confident that the company's single source model will maintain and grow its market share positions, while focus on the back-end of the business will continue to achieve incremental operational and supply chain improvements.
"We anticipate most of our markets will remain steady. We have seen, consistent with market trends, a softer business environment in NSW which has been offset by strong performances in the resource-rich markets of Western Australia, Queensland and Northern Territory.
The company had been mentioned as a possible target for a buyout with all the activity at Coles and interest in its Officeworks chain from Harvey Norman, Woolworths and Wesfarmers.
The US parent is struggling, and there's speculation of corporate action around it. But the turmoil in credit markets would rule out a lot of buyouts and takeovers for the time being.
