Photo: Jason Scragz via Flickr
It was only a few months ago that economic data was coming in strong thanks to the unusually warm winter. Construction activity was up, and jobs were being added at a relatively high clip.But now we have a drought, which is crushing America’s farms. Corn crop yields are collapsing and prices are surging.
Among the losers in all this are the home centres: Home Depot and Lowe’s.
“Categories such as tractors, live goods, fertilizers and irrigation products are likely being negatively impacted by the drought,” writes Deutsche Bank analyst Mike Baker.
Home Depot and Lowe’s are currently struggling with a trifecta of issues: a slowing economy, a drought, and “a pull forward in demand into 1Q12 due to very favourable weather.”
That last point means that consumers are buying things now what they already bought during the warm winter.
From Baker’s note: “We are reducing comp estimates by 0.5%-1.5% for each for the next two quarters and EPS by $0.01- $0.03. For LOW our quarterly comp estimates for 2Q and 3Q are now 0.7% and 1.5% and for HD we are at 2.5% and 3.0%. These new estimates represent a deceleration from 5.8% and 2.6% last quarter.”