It's been well more than a year since Home Depot (NYSE:HD) investors last had the pleasure of seeing their company "beat earnings." Big Orange reports its Q2 numbers on Tuesday -- will they provide gratification delayed, or just another disappointment?

What analysts say:

  • Buy, sell, or waffle? Twenty analysts wander the aisles at Home Depot, in search of a light bulb. Ten rate the stock a buy, nine a hold, and one a sell.
  • Revenues. On average, they're looking for sales to slide 15% to $22.03 billion.
  • Earnings. Profits are predicted to drop 20% to $0.72 per share.

What management says:
The big news at Home Depot this quarter didn't come during the second quarter at all, but rather last week. In a press release issued Thursday morning, Home Depot announced that it is "in discussions" with the three co-buyers of its Home Depot Supply unit -- Bain Capital Partners, The Carlyle Group, and Clayton, Dubilier & Rice -- regarding a change in sale terms. Care to guess who started these "discussions?" I'll give you a hint: The discussions involve "material changes to the terms and financing of the transaction, including a reduction in the $10.325 billion purchase price." And I'm guessing it wasn't Big Orange that offered to give back some of the cash.

The other big news, contained in the same press release, is that in anticipation of having less cash with which to buy back shares, Home Depot aims to pay less cash for its shares. Natch. As a result, Home Depot reduced by $2 the initial $39 to $44 price range on its modified "Dutch auction" tender offer to buy back as many as 250 million shares.

Key fact for shareholders who have (or thought they had) taken Home Depot up on its offer and tendered at anywhere from $42.25 to $44: Your tenders will not be honored unless withdrawn and resubmitted within the new, lower price range.

What management does:
In non-M&A news, Home Depot's business continues to deteriorate. Rolling gross, operating, and net margins have all slid steadily in each of the past four quarters. Adding insult to injury, they're also worse than archrival Lowe's (NYSE:LOW) numbers at every level.

Margins

1/06

4/06

7/06

10/06

1/07

4/07

Gross

33.5%

33.6%

33.2%

33%

32.8%

32.6%

Operating

11.6%

11.7%

11.6%

11.3%

10.8%

10.2%

Net

7.2%

7.2%

7%

6.8%

6.3%

5.9%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Over at Motley Fool Inside Value, Alex Dumortier recently took time to explain to our members how Home Depot's Dutch auction will work -- and perhaps more importantly, what the price range implies, even for those shareholders who choose not to tender their shares:

Shareholders can select a price within a range of $39 to $44 at which they are willing to sell their shares. The company then pays the lowest "clearing" price that will allow it to purchase the target number of shares. We believe this is a very positive development, but not for the obvious reason that shareholders have an opportunity to cash out at a premium to recent market prices. The Dutch auction format sends a strong signal from management that shares are undervalued, and we agree with them. It's important to note that none of Home Depot's directors or executive officers is tendering any shares as part of this offer.

You'll notice that the price Home Depot is now willing to pay to buy back shares ($37 to $42 per share) is still higher than where the shares currently trade. It follows that management still believes its shares undervalued, even if perhaps a bit less so than they were a few days ago.

Do we still agree? Take a free 30-day trial to Inside Value and find out.

Fool contributor Rich Smith does not own shares of any company named above. Get your free refresher course in The Motley Fool's disclosure policy right here.