Annual Shareholder Meeting Conference Call

May 23, 2013, 09:00 am ET

Executives

Frank Blake - Chairman & CEO

Analysts

Presentation

Unidentified Speaker

Ladies and gentlemen please welcome Chairman and CEO Frank Blake.

Frank Blake

Good morning and good morning and thank you all for coming to the 2013 Annual Shareholders Meeting. Before we start the meeting, I would like to make a few introductions. First, it’s my pleasure to introduce our Board of Directors. I think you may have had a chance to meet some of them earlier this morning. They are Duane Ackerman, Ari Bousbib, Greg Brenneman, Frank Brown, Al Carey, Armando Codina, Karen Katen, Mark Vadon, and our lead director Bonnie Hill. The members of our senior leadership team are also here and I would like them just to stand, thank you all. Finally, I would like to recognize [Dave Mindorff] and Larry

The Japanese Admiral Isoroku Yamamoto, in regards to the attack on Pearl Harbor, was portrayed in the movie Tora! Tora! Tora! as saying, "I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve."

Housing has been the sleeping giant in the U.S. economy. According to the Bureau of Economic Analysis, at its peak in 2005, housing made up as much as 6.3% of GDP and the historical average from 1980-2007 was 4.5% to U.S. GDP. As you can see by the infographics (below) from the Bipartisan Policy Center, housing has essentially been hibernating since 2008 and has yet to exhibit the strong recovery that we've traditionally seen following a recession.

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Housing was definitely overbuilt in the last boom and while a period of contraction is logical, the contraction in housing has gone on far

Shares of Lowe's (LOW) managed to stay in the green in Wednesday's trading session after the home improvement retailer announced its first-quarter results before the market open.

Initially shares were trading with sizable losses in pre-market trading, but the fact that the company sticks with its full-year targets comforted investors. This came after the company reported a slightly disappointing set of first-quarter results.

Unlike its competitor Home Depot (HD), which reported a strong set of results yesterday, Lowe's missed on both revenues and earnings consensus estimates.

First-Quarter Results

Lowe's generated first-quarter revenues of $13.1 billion, down 0.5% on the year before, driven by a 0.7% decrease in comparable sales. Revenues severely missed consensus estimates of $13.46 billion.

Net earnings came in at $540 million, up 2.5% on the year despite the fall in revenues. Earnings per share advanced by a more impressive 14% following the company's

Yesterday we came across the chart of Japan's Nikkei we have included in the 'Chart of the Day' and wanted to include it in our article and went to the trouble to email it to ourselves so we would have it this morning. Our goal was to use it to point out that maybe we would be facing some resistance at these levels and to our surprise we woke up this morning with the risk-on trade in Japan seeming to have swung to a risk-off trade overnight.

We doubt a high has been put in simply because of the way this all happened. Markets hardly ever reach a top by falling off of a cliff one day. If North American futures markets are any indication, then the reaction in Japan to the news out of the US yesterday and China last night is in fact an overreaction.

Chart of the

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday May 22.

CEO Interview: Jim Reid-Anderson, Six Flags (SIX)

Six Flags (SIX), the largest theme park operator in the U.S., has given investors a 38% return since Cramer spoke to the CEO, Jim Reid-Anderson, last July. SIX yields 4.6%, and the company returns 100% of its profits to shareholders. SIX is introducing the world's tallest swing ride, has successfully promoted its brand through e-commerce and gets 44% of its sales through season passes. SIX issues a special season pass that allows customers to skip long lines for a higher fee. The stock has run 28% since the beginning of the year, but, in spite of the fact SIX has run, Cramer thinks the dividend and potential upside are appealing.

Jim Reid-Anderson discussed the immense barriers to entry that allow SIX to dominate the space. Not

Due to the recent strength in the US stock market, we thought it would be helpful to followers to understand the history of our core investment beliefs and where our portfolio is in relation to those core beliefs. A review of the ongoing tension between valuation mattering dearly and the enormous benefits of long-term business ownership is especially interesting after a significant upward move in the stock market. How do you keep turnover and trading expense low, while maintaining a meaningful margin of safety? How do you maximize long-term returns by practicing "long-duration" common stock investing?

Our core belief is three-fold. 1) Valuation matters dearly, 2) we want to be business owners, and 3) to be long-term business owners we need to own very high quality businesses. We execute our belief by using our eight proprietary criteria for stock selection which are listed below.

• Meets an economic need
• Strong competitive

Top Stories
Bird watching: Doves may offer policy hints in testimony, meeting minutes. Fed watchers (a title which nowadays seemingly encompasses nearly every market participant) will be listening closely to Ben Bernanke's testimony before the Joint Economic Committee (10 a.m.) in hopes of gleaning some hint as to the future course of monetary policy, even as the Chairman is likely to reveal little in his remarks. Perhaps more interesting will be minutes from the FOMC's latest policy meeting due, as usual, at 2:00 p.m.

A Dimon by any other name… A bid to strip Jamie Dimon of his chairmanship at JPMorgan (JPM) failed Tuesday when "only" one in three shareholders voted for a proposal to split the dual role of chairman and CEO. It appears the considerable time expended by the board over the past several weeks lobbying for votes indeed paid dividends (no pun intended) as support

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday May 21.

Home Depot's (HD) Treasure Trove of Investing Ideas. Other stocks mentioned: Whirlpool (WHR), Cree (CREE), General Electric (GE), Masco (MAS), Fortune Brands (FBHS), Stanley Black & Decker (SWK), Lumber Liquidators (LL), Wendy's (WEN)

Home Depot (HD) not only delivered a knockout quarter, its conference call provided a "treasure trove of investing ideas." Management spoke about strength and growth as well as new trends. Sales in California were strong, areas like Las Vegas, which had been very sluggish, are showing signs of life. Professional customers drove growth, and this hasn't been true for a long time; the trend has been that sales from consumers have exceeded sales to professionals. This is an indication that housing and small businesses are coming back, and hiring might pick up.

HD management identified strong areas, which have implications for

Shares of Home Depot (HD) are trading with large gains of up to 3.5% in Tuesday's trading session. The home improvement specialty retailer announced its first-quarter results before the market open, accompanied by an increase of its full-year outlook.

The strong results sent shares to fresh all time highs, approaching $80 per share. At these elevated levels, shares have become too expensive to my taste.

First-Quarter Results

Home Depot generated first-quarter revenue of $19.12 billion, up 7.4% on the year before. Adjusting for the fact that the fourth quarter of 2012 had 14 working weeks, first-quarter sales are inflated by $574 million.

Factoring in these adjustments, comparable-store sales rose by 4.3%, driven by a robust growth rate of 4.8% in the U.S. Revenues came in far ahead of consensus estimates of $18.69 billion.

The company reported net earnings of $1.23 billion, up 18% from last year's

Q1 2013 Results Earnings Call

May 21, 2013 9:00 AM ET

Executives

Diane Dayhoff - Vice President, IR

Frank Blake - Executive Chairman and CEO

Craig Menear - Executive Vice President, Merchandising

Carol Tomé - Chief Financial officer

Marvin Ellison - Executive Vice President, U.S. Stores

Analysts

Dennis McGill - Zelman & Associates

Gary Balter - Credit Suisse

Aram Rubinson - Nomura Securities

Dan Binder - Jefferies & Company

David Gober - Morgan Stanley

Christopher Horvers - J.P. Morgan

Michael Lasser - UBS

Matthew Fassler - Goldman Sachs

Brian Nagel - Oppenheimer

Peter Benedict - Robert Baird

Greg Melich - ISI Group

Michael Baker - Deutsche Bank

Alan Rifkin - Barclays Capital

Scot Ciccarelli - RBC Capital Markets

Presentation

Operator

Good day, everyone. And welcome to today’s Home Depot First Quarter 2013 Earnings Conference Call. (Operator instructions)

Beginning today’s discussion is Ms. Diane Dayhoff, vice

Top Stories
Senate says Apple used Irish subsidiaries to avoid taxes. A Senate report purports to show Apple (AAPL) used three Irish subsidiaries that have no tax residency in either Ireland or the U.S. to avoid paying taxes on some $74B in profits from 2009-2012. Although the practice was legal and is to a certain extent commonplace, the report says AAPL's scheme was unprecedented in terms of both its complexity and its brashness in the "use of multiple affiliates that had no semblance of a physical presence." The most glaring example is an Irish affiliate which reported profits of $30B over the period in question but paid no taxes whatsoever. Tim Cook will defend the company (which he says has done nothing wrong) before Congress today.

Cohen, SAC square off with prosecutors. A settlement between SAC Capital and the federal government regarding allegations of insider trading was likely

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday May 17.

17 Things To Watch In The Week Ahead: Campbell Soup (CPB), Best Buy (BBY), AutoZone (AZO), Home Depot (HD), TJX Companies (TJX), NetApp (NTAP), Target (TGT), Lowe's (LOW), Hewlett-Packard (HPQ), Toll Brothers (TOL), Ross Stores (ROST), Sears Holdings (SHLD), Salesforce.com (CRM), Williams-Sonoma (WSM), Abercrombie & Fitch (ANF), Foot Locker (FL). Other stocks mentioned: Wal-Mart (WMT), Nordstrom (JWN), Dell (DELL), William Lyon Homes (WLH)

With the Dow roaring 121 points on Friday, Cramer said he believes earnings are driving the rally. The S&P 500 is up 2.4% year over year, exceeding expectations of a 1.8% rise. Of the companies that have reported so far, the majority have had positive results and only 23.6% have been negative. However, before outlining the game plan for the week ahead, Cramer cautioned that he is worried about disappointing results

Lowe's (LOW) reports its fiscal q1 '14 earnings before the bell on Wednesday, May 22, 2013, a day after Home Depot (HD). Analyst consensus, per ThomsonReuters is looking for $0.51 in earnings per share (EPS) on $13.45 billion in revenues for expected year-over-year growth of 16% and 2%, respectively.

Quarterly comps are expected between 2%-3%.

You cannot talk about LOW without also talking about Home Depot , since the two competitors are like dueling banjos in the oligopolistic, do-it-yourself home improvement business, and in terms of competitive strategy, they've "yinged and yanged" their way through the last 13 years, i.e., when HD flags, LOW seems to do better, and vice versa. (Read our HD preview here, since HD reports its fiscal q1 '14 the day prior to LOW.

To give readers some background or history, HD and LOW had many tailwinds in the housing market of the late 1990s

This article is part of a series that provides an ongoing analysis of the changes made to George Soros' U.S. stock portfolio on a quarterly basis. It is based on George Soros's regulatory 13F Form filed on 05/15/2013. Please visit our Tracking Soros Fund Management Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q4 2012.

Soros Fund Management invests globally and the long positions in the U.S. market reported in the 13F filings represent only ~25% of the overall portfolio. The 13F portfolio increased this quarter from $8.36B to $8.56B. The number of positions also went up 181 to 209. Very small stock positions and large debt holdings together account for the vast majority of the portfolio holdings. U.S. long stock holdings of significant size (>0.5%) represent about 49%

The Dow Jones industrial average sits above 15,000, an all-time high. But don't be fooled, this doesn't mean that stocks are expensive. I understand that it seems logical to assume that if the Dow Jones industrial average, what many believe to be the bellwether index of the stock market, is at an all-time high, then it must simultaneously be overvalued. Herein is the danger of relying on headlines and simple statistics.

This article intends to demonstrate that more than one third of the 30 Dow stocks (11) are undervalued, another 6 are fairly valued, another 6 fully valued, but not overly so, and finally, only 7 that could rightfully be classified as overvalued. In other words, the Dow Jones industrial average is rather cheap, even though it sits near an all-time high.

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But as I often like to say, "The Angels are in the details." The beauty

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday May 15.

A Decree Against Cree (CREE)? Other stocks mentioned: General Electric (GE), Home Depot (HD)

Cree (CREE) is one of the most controversial stocks around. It rose 52% last year and has gained 78% so far this year. One analyst raised estimates from $62 to $73 on stronger demand for LED lights, while another analyst downgraded CREE from Buy to Neutral. Cramer confessed his rocky history with the stock. He recommended it in 2010, only to see it drop from $70 to $52 in six weeks. At that time, he apologized for having recommended it, but insists that now, Cree is a different company than it was a few years ago. The company is specializing more in popular LED lightbulbs and has made some accretive acquisitions.

So who is right, the bearish analyst or

Home Depot (HD) reports its fiscal Q1 '14 earnings before the bell on Tuesday morning, May 21st, with analyst consensus expecting $0.76 in earnings per share (EPS) on $18.68 billion in revenues for expected year-over-year growth of 17% and 6% respectively. Both annual and quarterly revenue and EPS estimates continue to tick higher.

HD's stock rose 47% in calendar 2012 and is up another 22% year-to-date in 2013 (excluding the dividend) with the monster returns being driven by sharp recovery in housing off the 2008 financial crisis-induced housing depression. There were a number of different headlines we could have given today's preview, and one was the phenomenal job management has done generating earnings growth from little to no store growth in the last 5 years.

Since January 2008, HD has added a total of about 20 new stores, which is really nothing in terms of 5-year store growth, and "trailing