When Construction Is Booming, Home Depot Rakes It In
In case anyone needed any persuading, Home Depot's most recent financial results prove once again that construction and construction jobs are flourishing.
According to Bloomberg News, second-quarter net income at Home Depot Inc., the world's largest home-improvement retailer, rose to $1.77 billion.
Home Depot benefited from sales of high-end items such as $949 Hampton Bay patio sets and $899 Ducane gas grills, which are more profitable than hardware. But the company also acquired Williams Bros. Lumber Co. and National Waterworks Holdings Inc. to expand offerings to professional builders, who account for 30 percent of Home Depot's sales.
Strength in Construction Jobs
"The professional [construction] business is going to move the needle," said Dan Poole, a banker who helps manage about $34 billion at Cleveland- based National City Corp., including 3.3 million Home Depot shares. "They've been trying to crack that case for a while and I think they're starting to have some success."
Home Depot, has 1,950 stores in the U.S., and is aggressively entering new businesses to keep pace with the faster sales growth at No. 2 Lowe's, which is still expanding in major U.S. markets such as Chicago.
Numbers Support Wisdom of Construction Career
Home Depot's shares rose 22 percent in 2005, compared with a 34 percent gain for Lowe's. Shares of Home Depot rose 33 cents to $41.61 yesterday in New York Stock Exchange composite trading.
Home Depot in January forecast net income for the fiscal year would rise to $2.26 a share.
Home Depot Buys into Construction Business
Home Depot is expanding services for homeowners who want construction professionals to install kitchen cabinets, tile, decks and windows. To this end, the company acquired National Waterworks, a supplier of water-system products, last month, and added Georgia-based Williams Bros. in June.
The new businesses are now part of the company's Home Depot Supply division, which makes up about 4 percent of revenue and grew by more than 10 percent in the first quarter, the company said without being more specific.
Sales to Construction Professionals
Home Depot's total sales to construction professionals include sales at retail. For Lowe's, sales to construction contractors is a little less overall, at about 20 percent of revenue.
Home Depot Supply has lower margins than the rest of the company's business. But it's an important business to get into. Residential construction spending jumped 9 percent in June from a year earlier, the Commerce Department said. U.S. spending on home remodelling rose 4.5 percent in the second quarter, according to the Harvard Center for Housing Studies.
