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OfficeMax Shares Surge After Profit Tops Estimates

OfficeMaxposted a better-than-expected quarterly profit Tuesday, helped by cost-cutting measures amid declining sales, and its shares were up more than 7 percent.

The nation's third-largest office supplies retailer said fourth-quarter profit rose to $71.5 million, or 92 cents a share, from $58 million, or 76 cents, a year earlier.

Office Max
Office Max

Excluding special items, OfficeMax said its profit was $51.1 million, or 65 cents a share.

Quarterly sales fell 2.6 percent to $2.2 billion.

Analysts, on average, were expecting OfficeMax to earn 52 cents a share for the quarter, on $2.3 billion in sales, according to Reuters Estimates.

"The company controlled costs admirably in a tough environment, driving a far higher operating margin rate than we would have expected with a sharp sales shortfall," Goldman Sachs analyst Matthew Fassler said in a research note.

Sales at office supply chains have ebbed in recent quarters as slowing job growth, the weak U.S. housing sector, and credit market jitters have led small businesses to cut spending.

"The selling environment in Q4 proved to be particularly difficult as we continue to face the impact of a weaker U.S. economy that has impacted our contract and retail segments," Chief Executive Sam Duncan said on a conference call.

Duncan said OfficeMax has experienced "pressure" on sales so far this year.

Sales in OfficeMax's contract business fell 0.8 percent during the quarter, while its retail segment saw a 4.5 percent drop in sales.

The company also said gross margin at its retail segment rose 30 percent during the quarter.

Despite OfficeMax's success in managing expenses, the weak sales environment warrants some caution among investors, Lehman Brothers analyst Bradley Thomas said in a research note.

"While management is doing a solid job in a challenging environment, we believe 2008 will be a difficult year to report a material margin improvement."

OfficeMax shares were trading Tuesday morning at 9.71 times 2008 earnings, while rivals Staples and Office Depot were trading at respective multiples of 15.41 times and 9.28 times 2008 earnings.

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