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Unhealthy Obsessions

Sept. 1, 2006
Media bashers like to blame the world's ills on the ink-stained wretches who bang away at their keyboards trying to make sense of the markets they cover.

Media bashers like to blame the world's ills on the ink-stained wretches who bang away at their keyboards trying to make sense of the markets they cover.

It's true some unethical journalists don't let the truth get in the way of a good story, and that they enjoy titillating their readers with some “newsy” scrap of half-true gossip they publish in their newspapers, magazines, Web sites, e-mail newsletters or blogs. This industry is fortunate the publications covering it do their jobs responsibly, and are more concerned with reporting the news rather than trying to make or shape it.

EW's editors are now wrestling with an intriguing journalistic dilemma. Two of the biggest news stories in 2006 are Home Depot Supply's interest in the electrical world and the climate change in the home-building market. (See this month's cover story on page 26.) It's our responsibility to report on these stories and all news — good or bad — if it affects the electrical distributors, independent manufacturers' reps, electrical manufacturers and other electrical professionals who rely on us to give them a monthly overview of the news and trends that have the most effect on their businesses. It's always a balancing act, and we constantly must ask ourselves, “When is enough, enough?” and, “What's the real long-term impact on our readers?”

Take Atlanta-based Home Depot Supply. Our readers want to read about Big Orange, and it's tempting to run any and all stories we dig up on the company because we know readership will be high. Indeed, when Contributing Editor Dale Funk broke the story in the electrical market on Home Depot Supply's purchase of Edson Electric Supply, Phoenix, the article that ran on got several hundred hits in just two days.

Although readers apparently have a burning interest in Home Depot, we want to be careful not to throw more logs on the fire just for crowd appeal. You can't discount the impact Home Depot Supply will have on the electrical market because of the quality of the companies it has purchased and the estimated $12 billion in 2006 sales it will do with electrical contractors and other professional customers through its fast-growing stable of distributors. (See “NewsWatch,” page 6.)

But the real story on Home Depot Supply is that it must not only master the distribution market but also make that strategy profitable enough to drive up its stock price. It makes sense for Home Depot to diversify away from its core retail business because it has pretty much covered available geographic markets, but Home Depot Supply must produce a return on the investment to keep Wall Street happy.

That hasn't happened yet. On Jan. 17, after Wall Street had about a week to digest the impact of Home Depot's Hughes Supply acquisition, its stock closed at $41.50. On Aug. 31 — not long after Home Depot announced its gaudy forecast for $12 billion in 2006 sales and several days after the Associated Press reported the company cut 300 jobs at its Atlanta headquarters, its stock price closed at $34.11 — down approximately $7 per share from January. Even though Home Depot Supply's new endeavors were well reported in the business press, it apparently didn't have a positive impact on the company's stock price.

Now consider the current obsession on Wall Street and in the financial business press with the decline in the stock prices of publicly held home builders. Big-name builders including Pulte Homes, Bloomfield Hills, Mich., and Toll Brother Inc., Horsham, Pa., recently reported double-digit declines in their stock prices because of a softening in the housing market. I believe many financial journalists were irresponsible in their builder-bashing after the release of these earnings reports.

Many journalists didn't bother to look at the big picture or report that the home-building industry is an inherently cyclical business because of fluctuating interest rates, demographics and the occasional speculation-induced bubbles in some of the hottest housing markets. They also didn't mention that over the past five years many of these stocks have paid very handsome returns, or how much residential construction bolstered the U.S. economy in recent years when other market segments were floundering. Instead, they threw rocks at the builders.

Journalists must always look at the big picture and report on all sides of an issue. EW's editors take that responsibility very seriously.

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