Earnings Preview: Home Depot

From AP:

OVERVIEW: As the housing market cools off, home-improvement companies are suffering as well. Falling lumber prices have cut into revenue, and several suppliers have reported lower results and outlooks recently, including Home Depot’s largest supplier, Masco Corp.
In an effort to improve performance, Home Depot in October said it is putting chief executive Bob Nardelli in closer contact with top leaders throughout the company, with the four division presidents in the U.S. and Mexico reporting directly to him.
Chief Financial Officer Carol Tome also took responsibility for supporting store operations, including asset protection and customer service initiatives.
Home Depot is also reviewing Nardelli’s compensation in light of a sagging stock price.
In September, the company said it would hire 1,000 new employees across the country, part of a plan to invest $350 million in its stores during the second half of the year. In August Home Depot cut 300 jobs at its headquarters in Atlanta as part of the plan.
BY THE NUMBERS: Analysts are looking for a profit of 75 cents per share on revenue of $23.39 billion, according to a Thomson Financial poll.
ANALYST TAKE: Credit Suisse analyst Gary Balter, who rates shares of Home Depot “Neutral,” forecast earnings of 74 cents per share and expects investors to pay as much attention to whether Home Depot meets expectations as how it get there and where it’s going.
“Meeting expectations on cost cuts and share repurchases will not satisfy investors, in our view,” Balter wrote in a note on Monday.
He expects Home Depot to lower its 2007 earnings growth guidance of 10 percent, or $3. “Should they move closer to our level of $2.90 vs. consensus of $2.95, that could pressure shares,” Balter wrote. “More important are comments on how protracted the slowdown will be.”
Danielle Fox of Merrill Lynch, who rates Home Depot’s stock as a “Buy,” expects earnings in line with consensus.
“Existing home sales slowed in the relevant six-month prior period, commodity prices are down, and the company is lapping last year’s 37 basis point comps lift from hurricanes,” she wrote in a Nov. 6 analyst note. “We expect the revenue contribution from Home Depot Supply, cost controls, and accretive share repurchases to drive modest growth this quarter as the company reinvests in store labor to improve service levels.”

Posted by on November 13th, 2006 at 1:48 pm


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