After reaching a new 14-month high yesterday, the Dow took a breather and ended the day just a smidge over even. It's good to see investors weren't plunging headfirst into stocks just because an index of 30 blue chips struck a 14-month high. Remember, look before you leap. Buy businesses, not ticker symbols. And when it comes to investing, think years out, not months.
In today's Motley Fool Take:
- Home Depot's Self-Improvement
- Shameless Plug: Going for Broker
- Staples Guns It
- Quote of Note
- Underfunded Pension? Just Add Stock
- Discussion Board of the Day: Discount Brokers
- Quick Takes: Gartner, Broadcom, Agilent Technologies, more
- And Finally...
Home Depot's Self-Improvement
For the quarter ended August 3, Home Depot's revenues grew 10.5% to nearly $18 billion. Gross margins expanded to 31.2% from 30.4%. Same-store sales increased by 2.2%, reversing course from Q1's comps drop of 1.6% and Q4's decline of 6%.
The company earned $1.3 billion, up almost 10% over the prior-year quarter's net income. Earnings per share shook out at $0.56 vs. $0.50. Net margins remained roughly the same at 7.2%.
While Home Depot's results lagged Lowe's, the larger company is making progress with its remodeling and expansion efforts. Home Depot's definitely shelling out the cash for its growth, as it projected it would. It spent $1.7 billion in capital expenditures through the first six months of the year, compared to $1.3 billion during the same time period last year.
The company doesn't release a full cash flow statement with its earnings reports, but it did close the quarter with $5.2 billion in cash, a little below the $5.7 billion at the close of the prior year's Q2, but more than the $4.3 billion it had as of May 4.
After tanking in January to around $20 a share on pessimism that Lowe's was killing it, shares of Home Depot have risen to $32 and change. The company continues to make progress and is looking for 2003 sales growth of 9%-12% and earnings-per-diluted-share growth of 9%-14%.
Given that its share price has recovered so quickly this year, the stock's current P/E of around 21 assumes continued progress and benefits from the company's remodeling.
Shameless Plug: Going for Broker
Just back from vacation and ready to start working on your bottom line instead of your tan line? Start by sizing up your broker. If you haven't looked in a while, you'll be surprised what's out there. Our Broker Center is ripe with account basics, comparison tables, and -- it being our 10th anniversary and all -- do check out Ten Ways to Size Up a Broker.
Staples Guns It
Net income advanced by a whopping 47% over year-ago levels to $88 million. Quarterly sales rang in at $2.87 billion. Sales at North American stores open at least a year (referred to by those in the know as "same-store sales") increased by 6%. Given our current sluggish economy and many businesses' tentative purchasing outlooks, that 6% is pretty welcome news.
A Reuters report noted that, "To boost sales, Staples has been improving lighting and product presentation, hoping to make its nearly 1,500 stores more shopper friendly. Staples has also increased marketing to small businesses that use a greater number of more profitable items such as ink cartridges."
Management engaged in a common Wall Street dance today, expressing confidence that Staples would exceed analyst earnings estimates for the full year, which was met with huzzahs, an upward-propelled stock price, and upgrades (a U.S. Bancorp Piper Jaffray analyst upped his rating to "strong buy").
Such ratings make Fools wonder what the difference really is between "buy" and "strong buy" -- isn't the bottom line that we're being urged to buy?
Meanwhile, if you're interested in Staples, keep an eye on its competitor Office Depot
Quote of Note
"And he is oft the wisest man, who is not wise at all." -- William Wordsworth
Underfunded Pension? Just Add Stock
The U.S. Department of Labor has granted struggling Northwest Airlines
So, instead of the $223 million scheduled funding requirement for Northwest's pension coming this year in cash, it will all be satisfied with stock of a closely held subsidiary, Pinnacle Airlines. Other companies that have massive pension liabilities are bound to be watching this with great interest. The Labor Department is calling this action at Northwest exactly what it should be known as: an exemption.
Some pension experts have pointed to this as another in an unnerving set of moves by companies to avoid putting cash into their pension plans. Northwest has received some dispensation to delay large components of its scheduled contribution for 2003. But by opting to pay other due amounts in stock, Northwest Airlines keeps from falling further behind on its funding requirements. It's just using a source that is normally unqualified to keep up.
Northwest has plans to take Pinnacle public, but at its present implied valuation, Northwest's pension fund will own more than 60% of the company. Under the Employee Retirement Income Safety Act, or ERISA, companies are generally prohibited from making in-kind contributions, but can be granted exceptions if they appoint independent fiduciaries. In this case, Aon Consulting
This seems to be a dangerous precedent, as in-kind assets are generally less secure than good old cash, and provide the pension administrator substantially less flexibility in determining asset mixes. Northwest's pension manager cannot easily sell a 60% stake in Pinnacle, except back to Northwest. On the other hand, pension realities are pushing companies to the breaking point. Given the choice between taking an illiquid security into pension and the threat of the company collapsing, we suspect most people would accept Column A, even if it's not necessarily ideal.
Discussion Board of the Day: Discount Brokers
So, the idea of a new broker has got you thinking. It never hurts to share your thoughts with your fellow Fools. Who is doing it right? Who is getting tripped up? All this and more -- in the Discount Brokers discussion board. Only on Fool.com.
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Semiconductor stocks climbed for a second day after Gartner
Housing starts hit their highest monthly level in 17 years: 1.872 million homes in July. Residential construction comprises 5% of the total value of U.S. goods and services.
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