Home Depot Sees Higher Costs As Tight Transport Markets Bite Retailer

Home Depot Inc. HD results took a hit from higher transportation costs that were close to $49 million higher than in Q2. The company's full-year results also expected to feel an impact due to higher expenses.

The world's largest home retailer joins a litany of other major companies seeing costs driven up by tighter trucking and freight markets.

Carol Tome, the chief financial officer for one of the largest beneficial cargo owners in the U.S., singled out transportation costs on the company's second quarter earnings conference, and guided full-year gross margin guidance lower due to higher costs.

"We're doing our best to manage through it, but there is a real issue in the transportation markets in our country," Tome told analysts.

While overall gross margin for the second quarter was up 36 basis points from a year earlier to 34%, she said the gains were offset by 16 basis points "due to higher transportation and fuel costs in our supply chain."

Overall, higher transportation costs added roughly $48.7 million to the $20.1 billion in cost of sales for the quarter.

Moreover, Tome does not see any let up in transportation costs. She says Home Depot's gross margin should expand 41 basis points for fiscal 2018, which is down from an earlier guided expansion of 44 basis points.

The guidance translates to $32.3 million in higher transportation costs for full-year results.

"We, like the rest of the nation, are facing higher transportation and fuel costs, and we reflected that in the guidance that we gave for our gross margin for the year," Tome said.

Home Depot's view echo those of other U.S. companies calling out higher freight costs as impacting the bottom line. Tyson Foods TSN chief executive Tom Hayes said on the company's last conference call that "rising freight costs have been a challenge for all our businesses."

Tyson Foods expects freight costs to be about $270 million higher in 2018 than last year.

In July, General Mills, Inc. GIS reported that freight costs were among the factors affecting operating profit for the year.

Procter & Gamble PG chief executive Jon Moeller said that fiscal 2018 saw commodities and transportation costs as impacting after-tax results by $500 million. Moeller say trucking costs for some consumer goods are a big part of costs and "the transportation market, particularly in the U.S., has presented us with some challenges as the year progressed."  

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