Heads up, ETers. Home Depot Profit Probably Declined Most in 6 Years (Update2) By Mark Clothier http://www.bloomberg.com/apps/news?pid=20601109&sid=aZ4j74naVnIA&refer=home Feb. 16 (Bloomberg) -- Home Depot Inc., which ousted Chief Executive Officer Robert Nardelli last month, next week will probably report the biggest earnings decline in six years after the U.S. housing slump reduced demand for paint and hardware. The largest home-improvement retailer's profit dropped 15 percent to 51 cents a share from 60 cents in the fourth quarter ended Jan. 28, according to the average estimate of 20 analysts surveyed by Bloomberg. Sales likely increased 6.8 percent to $20.8 billion, based on the average estimate of 14 analysts. Revenue at Atlanta-based Home Depot and rival Lowe's Cos. slumped in the second half of 2006 as U.S. home sales dropped the most in 15 years. Nardelli's replacement, Frank Blake, reduced discounts and added workers to revive sales. ``The fourth quarter is going to be a tough one,'' said Keith Davis, a Washington-based analyst with Farr Miller & Washington LLC, which owns 250,000 Home Depot shares among the $540 million it manages. ``Spending by homeowners has lessened as housing turnover slows and prices have been going down. It's still a very difficult environment for them.'' Fourth-quarter net income probably dropped 19 percent, according to the average estimate of four analysts in a Bloomberg survey. That would mark the biggest decline since the fourth quarter that ended in 2001. Shares of Home Depot declined 22 cents to $41.44 at 4 p.m. in New York Stock Exchange composite trading. They fell 7.9 percent during Nardelli's six-year tenure, while shares of Lowe's more than tripled. Home Depot has gained 3.2 percent since the last close before Blake, 57, took over on Jan. 3. Compensation Complaints Nardelli, 58, was ousted after investors including the California Public Employees' Retirement System, the biggest U.S. public pension fund, complained he was overpaid. Nardelli earned $225 million during his years as CEO. He left with a $210 million separation package, including compensation and benefits not yet received. Blake declined to be interviewed, Home Depot spokesman Tony Wilbert said. The company expects to release fourth- quarter results Feb. 20 at 6 a.m. New York time. A 13 percent decrease in U.S. residential construction last year, the biggest since 1991, crimped demand for everything from plywood and doors to kitchen appliances. Masco Corp., which makes Behr paint and KraftMaid cabinets sold in Home Depot and Lowe's stores, on Feb. 14 reported its first loss in five years. The Taylor, Michigan-based company said it will cut 8,000 jobs and forecast 2007 profit that trailed analysts' estimates. Superior Service Home Depot has lost market share to Lowe's, whose stores and service were ranked higher in a University of Michigan survey. Home Depot's customer service rating fell to 67 from 75 under Nardelli, according to the university's latest American Customer Satisfaction Index. Lowe's score increased to 78 from 75. The next survey results are due Feb. 20. Mooresville, North Carolina-based Lowe's is the second-biggest home-improvement retailer. Home Depot's sales have grown an average of 12 percent the past three years. Revenue for Lowe's increased an average of 18 percent over the same period. Home Depot lowered its profit projections in November as the housing market weakened. Chief Financial Officer Carol Tome said on a conference call with analysts that fourth-quarter per-share profit would be 50 cents to 53 cents, down from 60 cents a year earlier and less than analysts' estimates of 59 cents at the time. Sales at Home Depot stores open at least a year probably fell 5 percent in the fourth quarter, said Michael Cox, a Minneapolis-based analyst at Piper Jaffray & Co. He is top- ranked by StarMine Corp. for accuracy. Wholesale Unit ``We believe Home Depot is in the process of operating its company for the benefit of customers, associates and shareholders, in that order,'' Stephen Chick, an analyst with J.P. Morgan Securities Inc., wrote in a note Feb. 6. ``This is different than how the company was managed under former CEO Bob Nardelli. It is a less tangible, yet integral, change.'' Home Depot, which expanded its HD Supply wholesale unit through 34 acquisitions since 2004, said Feb. 12 that it may sell or spin off the division. HD Supply has $12 billion in annual sales, about 12 percent of Home Depot's total revenue. Investors, including activist Ralph Whitworth called the HD Supply expansion ``strategic adventurism.'' The unit is less profitable than Home Depot's retail stores. Whitworth's San Diego-based Relational Investors LLC won a seat on Home Depot's board in exchange for dropping a proxy battle. Of 22 analysts rating the company in the past 12 months, 12 have it at ``buy,'' eight say ``hold,'' and two recommend selling. To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net Last Updated: February 16, 2007 16:14 EST
Tuesday morning get ready for 2 of the worlds biggest retailers to announce, WMT and HD. Both in my opinion dont look to well. However they will most likey spin something positive to give a boost to the entire overbought retail sector.