United priorities


United Stationers’ announcement that it is ceasing work on the internal component of its Project Vision and selling its Canadian operations could signify that the wholesaler may have had too much on its plate.

Project Vision, which United began last summer, aimed to improve the company’s IT systems, increase its flexibility in serving customers and reduce operational costs. In an SEC filing last week, United said that it had decided to abandon work on the internal systems component of the initiative, which involved the replacement of its internal financial and order management systems.


Project Vision was expected to cost United $22 million in operating expenses and $37 million in capitalised system costs over two years.

United’s president/CEO Dick Gochnauer explained to OPI+: "United decided to stop work on its internal financial and order management system in order to focus on higher priority projects. Our primary focus was to address the ecommerce and back-office needs of our dealers."

Gochnauer refers to the other aspect of Project Vision called Reseller Technology Solution (RTS) which involves the launch of the SAP-hosted software for dealers, which is being taken up even faster than anticipated.

And there have been other distractions. In order to change the company’s financial accounting software and its order management software, United would need to make prior upgrades to its hardware that runs current and future software enhancements. Gochnauer admitted that this would stretch United’s resources. "We determined that the hardware change had to be made before we could proceed with any changes to our internal systems. This will take us until the end of 2007 to complete," he said. "Therefore, we stopped our work on our internal systems to focus on higher priority systems… This was an issue of people resources and priorities. You can only take on so many projects at once."

Gochnauer would not confirm to OPI+ if the internal tech project would go ahead at a later stage. "We will evaluate this question after we complete the more important investments to see how our internal systems project ranks with our priorities at that time," he said


The decision – combined with United’s announcement to sell its Canadian division – has led analyst group Buckingham Research to maintain a neutral rating on United’s shares. In its research report dated 10 April, SVP of the company Dan Binder writes: "The company’s decision to curtail its investment spending this year indicates to us that the organisation is under some stress and highlights our earlier concerns that management was simply taking on too many projects this year. 


"By any measure, this management team was taking on a workload that would be a challenge for any company," he adds. "Although one could argue that management should not have loaded itself up to begin with, we applaud it for its wise decision to reduce the stress on the organisation."


Current projects at United include the mammoth integration of Sweet Paper, SAP implementation, fixing or selling Canadian operations, and moving its corporate and Lagasse division headquarters.


Due to rising expenses during the period, slower sales, possible margin weakness and potentially higher expenses, Buckingham Research has therefore cut its Q1 EPS estimate by eight cents from $0.84 to $0.76. It added that the sale of the money-losing Canadian division and lower investment spending on technology should be accretive to EPS later in the year by about nine cents, before non-recurring charges. But it added that the wholesaler had recognised its limitations and acted early enough to save its full-year results.


Gochnauer would not be specific about how rising expenses would impact Q1, but to comments that United has had too much on its plate this year, he said: "We are prudently managing our resources and focusing our attention on our highest priority projects." And to speculation of the costs surrounding the sale of its Canadian division, he added: "The sale of the Canadian operation should actually provide more time to allow our management team to focus on delivering high priority projects."


While the wholesaler, which posted record sales and earnings for 2005, has admitted that it would have benefited from the internal overhaul of its systems, it is keen to focus attention on its continuing investments, such as RTS and content management.


"The RTS investment we are making with SAP is going extremely well, and is actually ahead of our expectations," said Gochnauer. "We’re up to 35 signed contracts with dozens more in some stage of negotiation. To support this, United is also investing in an improved content management system and marketing support software. We believe these are the right investments for both United and our dealers."

Although United does not get any kind of revenue as a result of SAP’s agreements with dealers, the wholesaler may well receive higher levels of vendor money as a result of the initiative. Binder says: "While the company does not quantify its vendor programmes, we suspect an ecommerce solution combined with an existing catalogue could fetch a greater level of vendor marketing dollars.  This should be used to offset the initial investment in the system and could be accretive to EPS in the future."