Via financialskeptic.blogspot.com/:
Home Depot (HD) continues to twist in the wind. The only joy in the executive suite is the firm knowledge that Nardelli's fingerprints are still on most of the files. I am sure that this has been forensically isolated to protect the current incumbents.
Home Depot has had to drop the price significantly and start to guarantee some of the debt. Bankers are on the hook and are liable to pay failure fees and face subsequent litigation. Lenders, now sober, are concerned about cash flow because they have just relearned how to read financial statements. Its a bizarre circle shoot of obligations driving even more bizarre behaviours.
Home Depot is suffering from a bad case of Financial Glaucoma . Yes the wholesale division is a major disappointment. Yes it has Nardelli's finger prints all over it. The strategy to amputate the entity was always similar to a wolf gnawing off its leg once its been caught in the trap.
It is also true that market conditions have changed dramatically. No one will argue that fact. The wholesale division is a major operating problem within a very tough and declining housing/construction market. Everyone is focused on a financial engineering solution hence the Financial Glaucoma.
Businesses are supposed to have some long term perspective. No one is talking about how to fix the problems. Everyone wants to drop the hot potato.
Home Depot this is what a real business with a focus on operating would do. Let the financial engineering nonsense lapse and let the participants run away. They will secretly love you. Announce that you will retain the division but write the asset value down and take the hit. Write the values down hard and big. Everyone assumes that the division is a dog so there will not be too much surprise. A very low asset value will set up the value play on the other side.
Take the hit now when you can still point to Nardelli and tough market conditions. Rethink (abandon) you stock buy back program which this sale would supposedly help finance. Concentrate on running the business. Home Depot used to be really good. Return to your roots.
We need courage, leadership and vision in the executive suite. Another namby pamby financial engineering move that needs to close before the next namby pamby engineering move can move into play will not win investor confidence. Operating a company properly by recognizing problems and then fixing them properly will create serious long term shareholder support, confidence and respect.
But then again that requires the financial glaucoma to be corrected. Eventually someone will fix it. This team or the next is the real question.
$35.13 (08/29/07)
