ODP Projects $115M Free Cash Flow in 2025 as Hospitality Growth Surges

Key Highlights from ODP Corporation’s Q2 2025 Earnings Call

During the recent earnings call, The ODP Corporation (ODP) provided insights into its performance for the second quarter of 2025. The company emphasized improved operational results and a stronger focus on strategic growth areas. CEO Gerry P. Smith highlighted that the business is showing momentum across both B2B and consumer segments, with a clear emphasis on leveraging supply chain and distribution strengths to drive growth.

Smith noted that ODP delivered $47 million in adjusted EBITDA and $13 million in free cash flow during the quarter. He pointed out that these figures reflect an upward trend in cash flow generation, which is helping to strengthen the company’s balance sheet and liquidity position. This improvement is seen as a positive sign for future financial stability.

One of the key developments mentioned was the onboarding of approximately 1,000 new hotel properties under a major hospitality partnership. This initiative is gaining traction and beginning to contribute positively to the company's results. Smith described this expansion as a significant step forward in entering higher-growth markets.

In addition, the company launched the "Optimize for Growth" plan, which involved closing about two dozen retail stores and three distribution facilities in Q2. The goal of this plan is to reduce fixed costs and improve operating margins, allowing the company to better allocate resources toward high-growth opportunities.

Co-CFO Max W. Hood shared that total revenue for the quarter reached $1.6 billion, representing an 8% decline compared to the same period last year. However, he noted that this result reflects an improvement in year-over-year trends, indicating that the company is making progress despite challenging market conditions.

Adam Haggard, another co-CFO, highlighted that adjusted free cash flow increased significantly compared to the previous year, reaching $13 million in the quarter. Additionally, the company has made strides in reducing debt, having paid down approximately $35 million so far in 2025.

Outlook for 2025

Looking ahead, management has raised its adjusted free cash flow target for the full year 2025 to over $115 million. This increase comes as the company continues to execute its strategy and focus on working capital management. Smith expressed confidence in the company’s ability to deliver on this target, noting that the revised guidance reflects a more optimistic outlook.

The CEO also projected continued top-line improvement in the ODP Business Solutions segment, while maintaining strong performance in the retail channel. Furthermore, the company anticipates sustained momentum in the hospitality sector, with plans to secure agreements with one or two additional major hotel management companies this year.

Financial Performance Overview

For the second quarter, ODP reported $47 million in adjusted EBITDA and $13 million in adjusted free cash flow. Total revenue came in at $1.6 billion, down 8% year-over-year. The decline was attributed to factors such as 60 fewer stores in operation, reduced consumer traffic, and lower enterprise sales.

GAAP operating income for the quarter was $9 million, including $16 million in charges related to restructuring. Adjusted net income from continuing operations stood at $15 million, or $0.51 per diluted share.

The Office Depot segment reported $716 million in sales, down 10% year-over-year, with 23 retail stores closed during the quarter. ODP Business Solutions revenue totaled $859 million, down 6% year-over-year, though adjacency product categories accounted for 45% of total revenue.

The Veyer supply chain business saw notable growth, with third-party revenue reaching $19 million, up 90% year-over-year, and third-party EBITDA increasing by 32% to $5 million.

Analyst Questions and Management Response

Analysts raised several questions during the Q&A session, focusing on strategic alternatives, macroeconomic assumptions, and the impact of labor market conditions on the business. Smith emphasized the company’s commitment to maximizing shareholder value and reiterated the importance of disciplined cash management.

He also addressed concerns about tariffs, stating that about 57% of the company’s inventory is either MAP priced or exempt from tariff impacts. This helps mitigate potential risks associated with trade policies.

Regarding the B2B segment, Smith expressed optimism about the momentum in securing large contracts, citing the successful onboarding of 1,000 hotel properties. Co-CFO Hood added that product margins remain strong, though the company still faces challenges from fixed costs and deleveraging.

Sentiment and Strategic Shifts

Analysts maintained a slightly skeptical to neutral tone, particularly regarding the pace of B2B growth and potential labor market impacts. However, management remained confident and optimistic throughout the call, emphasizing strong execution and operational excellence.

Compared to the previous quarter, the tone from management was more assertive, especially regarding cash flow and hospitality progress. Analysts, however, continued to focus on similar concerns, including B2B ramp-up and macroeconomic risks.

Risks and Concerns

Management acknowledged ongoing softness in enterprise spending and the potential impact of tariffs on the business. However, they noted that the company is well-positioned to manage these risks due to its diverse sourcing structure and flexible operating model.

Analysts also questioned the sustainability of retail trends and the timeline for B2B growth. Despite these concerns, the company remains focused on high-growth areas and is committed to delivering long-term value to shareholders.

Final Takeaway

Overall, ODP is executing its strategy effectively, delivering improved operational results and strong free cash flow. The company is seeing momentum in hospitality and B2B onboarding, supported by disciplined cash management and expanding partnerships. While macroeconomic and tariff-related risks remain, the company is taking proactive steps to mitigate these challenges and continue its growth trajectory.