Essendant Inc. (ESND), a leading national wholesale distributor of workplace items, today announced financial results for the first quarter ended March 31, 2017. Key results for first quarter 2017 were as follows:

First Quarter 2017 Summary

Revenue declined 6.1% or $(82.9) million, year-over-year to $1.3 billion
The Company recognized a goodwill impairment charge of $(192.3) million, after-tax, in the quarter as a result of market capitalization declines compared to book value
GAAP diluted loss per share in the quarter of $(5.15) decreased compared to earnings of $0.45 in the prior year
Adjusted diluted earnings per share(1) of $0.25 in the quarter decreased as compared to $0.45 in the prior year
Free cash flow(1) was $44.7 million in the quarter, an increase of $65.1 million as compared to $(20.4) million in the prior year

"Our first quarter operating results reflect the impact of our transformation initiatives which enabled us to deliver sequential earnings growth," said Robert B. Aiken, Jr., president and chief executive officer of Essendant.

"We are pleased to be building momentum behind our initiatives, including improvement in our industrial supplies category, and we are on track to enhance Essendant's long-term earnings power, while recognizing we still have work to do to improve our top line. Our transformation actions are centered upon driving merchandising excellence through better sourcing and assortment and stronger alignment between our pricing and our cost to serve. We are also taking action to win back revenue in the JanSan distributor channel, diversifying and growing our industrial channel, driving productivity and cost reductions and further reducing our working capital. Through these actions we expect to deliver improved financial performance and value for shareholders."

First Quarter Performance

Net sales decreased 6.1% in comparison to the prior year quarter, driven principally by reduced sales in our technology products and JanSan categories, partly offset by growth in our cut-sheet paper products and industrial supplies categories. Net sales by product category were:
- JanSan: revenues of $334.4 million, a decrease of $(31.1) million or 8.5%, primarily driven by declines in national big-box retailers
- Technology Products: revenues of $306.4 million, a decrease of $(45.6) million or 13.0%, due to reduced supplier promotions in low-margin ink and toner sales
- Traditional Office Products: revenues of $194.0 million, a decrease of $(18.3) million or 8.6%, primarily driven by sales declines in the independent dealer channel
- Industrial Supplies: revenues of $146.7 million, an increase of $7.3 million or 5.2% driven by growth initiatives and improving sector environment
- Cut-sheet Paper Products: revenues of $102.0 million, an increase of $10.6 million or 11.6%, due to independent dealer channel sales increases
- Automotive: revenues of $78.8 million, a decrease of $(0.6) million or 0.8%
- Office Furniture: revenues of $70.1 million, a decrease of $(4.6) million or 6.1%, driven by sales declines in the independent dealer channel and national big-box retailers
Gross profit was $185.7 million, a decline of $(14.4) million versus the prior year quarter resulting from:
- Lower sales volume of $(10.5) million
- Higher freight costs of $(3.1) million
- Lower supplier allowances of $(2.6) million driven by lower product purchases
- Partially offset by favorable inflation benefits of $0.9 million.
Operating expenses were $371.9 million, an increase from $167.7 million in the prior year quarter resulting from:
- Goodwill impairment of $(198.8) million
- Increased litigation accrual of $(6.0) million
- Transformational consultancy expenses of $(3.0) million
- Reductions in occupancy expenses of $1.7 million
- Reductions in employee related expenses of $1.4 million
Income tax benefit was $4.3 million in the first quarter of 2017 as compared to expense of $10.0 million in the prior year quarter due to pretax loss in the current quarter.
GAAP diluted loss per share was $(5.15) compared to GAAP diluted earnings per share of $0.45 in the quarter last year. Adjusted diluted earnings per share(1) were $0.25 compared to adjusted earnings per share of $0.45 in the quarter last year.

Outlook for 2017

The following outlooks exclude the impacts of any new acquisitions or unusual charges.

Net sales are expected to be flat to down 4%
Adjusted diluted earnings per share(1) are expected to improve sequentially throughout 2017
Free cash flow(1) generation expected to be in the range of $50 million to $70 million

Essendant Announces CFO Transition

Essendant also announced today that Janet Zelenka has been appointed Chief Financial Officer, effective May 26, 2017. Ms. Zelenka will succeed Earl Shanks who will be retiring from the Company after assisting in a brief transition.

Ms. Zelenka joined Essendant in 2006 and currently serves as the Company's Chief Information Officer. Previously, she held senior finance roles at the Company, including Vice President of Finance and Margin Management. Prior to joining Essendant, Ms. Zelenka held executive positions at SBC-Ameritech, including Chief Financial Officer of Information Technology. The company's IT function will continue to report to Ms. Zelenka in her new role as Chief Financial Officer.

Mr. Aiken commented, "I want to thank Earl for his commitment to Essendant and the many contributions he has made to the Company during his tenure. He has played a key role in guiding the Company as we have developed and implemented our transformation plan. I appreciate Earl's willingness to assist us in ensuring a smooth transition and wish him well in the future."

Mr. Aiken continued, "I am also pleased that Janet will assume the role of CFO going forward. Janet brings a clear understanding of our business developed over more than 10 years with the Company along with deep financial expertise. We have worked closely together and I am confident she is the right person to lead our finance organization going forward."