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Reading the Housing Tea Leaves Through Lowe's


Many mixed signals from the residential real-estate market.

As we've all learned by now, hope is not a strategy.

Still, Lowe's (LOW) Chief Executive Robert Niblock tried to evoke that feeling of hopefulness in announcing the company's dismal third-quarter earnings on Monday.

The number two home-improvement retailer said third-quarter profit fell 30% as customers continued to delay large purchases amid a weak economy.

Profit in the quarter at Lowe's was $344 million, or $0.23 per share, down from $488 million, or $0.33 per share, in the same quarter last year. Excluding certain extraordinary expenses, profit was $0.24 per share, matching analyst expectations polled by Thomson Reuters.

Revenue edged down 3% to $11.4 billion from $11.7 billion, narrowly beating an average analyst estimate of $11.3 billion.

Niblock said the company is beginning to see better performance in some of the hardest-hit housing markets, including California, Florida and parts of the desert Southwest. But, as Douglas McIntyre at 24/7 Wall Street notes, those areas "have been crushed so flat that it would require a massive turnaround the regions to do much to help the prospects of Lowe's or Home Depot."

Home Depot
(HD) is scheduled to report earnings on Tuesday. Earlier in the quarter, the big box retailer raised its 2009 earnings outlook. Analysts are expecting it to earn $0.36 per share on $16.3 billion in revenues for the quarter.

Although the housing market seems to have stabilized somewhat, not everyone believes the worst is behind us. Dan Alpert of Westwood Capital tells Tech Ticker that prices still have more room to fall. Rent prices continue to drop, which gives potential new buyers little incentive to jump into the home ownership game, even at deflated prices.

In October, the Federal Reserve reported that most districts around the country reported that housing demand improved slightly, "primarily from a pickup in sales of low- to middle-priced houses." It was attributed to the tax credit for first-time homebuyers.

However, the Fed didn't indicate that the areas like California, Florida, and the Southwest reported any particular strength as Lowe's says it saw.

Still, the homebuilding sector is starting to see the same signs of that Niblock does. Citigroup analyst Josh Levin raised his price target on Toll Brothers (TOL) this morning after the company indicated that the distressed land market for luxury builders has seen a jump in activity in the past month.

Copyright 2009 Minyanville. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.

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