Tuesday Profit Forecasting

Home Depot Inc. lowered its 2007 profit forecast Tuesday, saying the soft U.S. housing market is bruising earnings more than management had anticipated just two months ago.
The Atlanta-based retailer also unveiled a 250 million-share tender offer and set a price range and expiration date for the offering.

Home Depot (HD :
Home Depot, Inc
News , chart , profile , more
Last: 40.66+0.43+1.07%
11:15am 07/10/2007
Delayed quote data
Add to portfolio
Analyst
Create alert
Insider
Discuss
Financials
Sponsored by:
HD40.66, +0.43, +1.1% ) , whose executive are meeting with analysts in New York, said it expects adjusted earnings per share for the year to drop between 15% and 18% to a range of $2.30 to $2.36 a share, compared with an earlier forecast anticipating a decline of 15%.
The earnings-per-share update includes the impact from selling Home Depot Supply, the contractor-supplies business that it agreed to sell last month to a consortium of private-equity companies for $10.3 billion. See full story.
Home Depot on Tuesday estimated that selling off the division would depress second-half earnings per share by 18 cents. Adding that back in, the retailer's estimate for earnings between $2.48 and $2.54 a share is below the Thomson Financial-compiled consensus analyst estimate of $2.59 a share.
The retailer also said total retail sales would slip between 1% and 2% after subtracting the $12 billion in sales that Home Depot Supply contributed to the top line.
UBS analyst Brian Nagel, who has a reduce rating on Home Depot shares, said the forecast suggests that Home Depot is still struggling with an "increasingly challenging macro and competitive environment."
"We are encouraged with the company's efforts to aggressively return cash to shareholders." Nagel wrote in a note to clients. "We nonetheless believe that it remains too early to speculate on a turn at Home Depot."

Comparable-store sales, meanwhile, will fall at a percentage midway through the single digits, according to the company. The company also said it expects its operating margin to contract by between 1.2 and 1.5 percentage points due to a decline in same-store sales and its continued investment in its core operations.
"While we expect the housing market to remain challenging for the rest of 2007 and into 2008, we plan to continue our reinvestment plans for the long-term health of our business, understanding that it will put short-term pressure on earnings," said Chief Financial Officer Carol Tome.
Home Depot's shares, part of the Dow Jones Industrial Average, rose nearly 1% to $40.59 in morning trading.
"We believe Home Depot's guidance cut is modest in the grand scheme -- to the extent that the macro backdrop is tough and aggressive retail investment continues, guidance is taking a minor hit," Goldman Sachs analyst Matthew Fassler wrote in a note to clients.
Fassler has put his estimates and price targets under review until after Home Depot's morning analyst meeting.
Housing headaches

The slowdown in the housing market has hit No. 1 home-improvement retailer Home Depot as well as rival Lowe's Cos.(LOW30.16, -0.58, -1.9% ), not to mention their smaller rivals and suppliers. Home Depot and Lowe's rode high by ringing up robust sales amid a booming real-estate market in the first years of the century.
But the low interest rates that once encouraged consumers to refinance mortgages or take out home-equity lines of credit to remodel have risen, leaving many in a bind to finance such projects.
Home Depot's also juggling with a slowdown in new-home construction that has choked sales of windows and roofing as well as flooring, appliances and water heaters. Falling lumber prices have added further to this volatile mix, pressuring the retailer's sales.
The forecast issued Tuesday also includes Home Depot's estimate of how many shares it will repurchase this year as part of a $22.5 billion authorization. The company said it's planning to pay for the buyback of up to 250 million shares through a combination of cash on hand and proceeds from the sale of the supply business.
On Tuesday, it announced a price range for the self tender of $39 to $44 a share. The tender offer's scheduled to expire Aug. 16

source:marketwatch.com