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Closing Bell: Martha Stewart Living Omnimedia


Robert Nardelli's first three years as chief executive of Home Depot were painful. Overzealous cutbacks in inventory led to out-of-stock items. Customers complained about poor service. By the end of 2003, investors had sent Home Depot's stock tumbling 13%.

Still, Nardelli stuck to his vision for Home Depot's comeback: bank on aging baby boomers sprucing up their empty nests, renovate outdated stores, expand into international markets such as Mexico, add high-margin appliances, and roll out installation services.

Now Nardelli's gritty determination is paying off. In the third quarter, sales jumped 13.1%, to $18.8 billion. Home Depot has raised 2004 profit growth goals to 19% to 20%, from 10% to 14% at the start of the year. "Facts are friendly," says Nardelli. Although the company must still fend off inroads from archrival Lowe's, for now Nardelli has Home Depot humming like a powerful profit generator.

On Nov. 15, the troubles of the U.S. pension system doubled. That's when the Pension Benefit Guaranty Corp., a government-backed insurer of private pension plans, announced that its deficit had jumped from $11.2 billion last year to $23.3 billion, due largely to trouble at airline pension plans. Several lawmakers quickly called for a legislative fix in 2005. Among the reforms that experts are hoping to see: new tax rules that allow companies to contribute more in good times without penalty, more transparent and accurate reporting, penalties for plans that are underfunded, and more conservative investing by fund managers. PBGC Executive Director Bradley Belt last month warned that taxpayers could face a bailout of the pension system akin to the savings and loan rescue of the late 1980s.

Since navigating its turbulent initial public offering in August, Google's (GOOG) stock has seemingly defied gravity. So far, the release of millions of shares to public markets has made only minor dents in Google's stock price. On Nov. 16, the lockups expired on 39 million shares held by Google employees and investors -- a deadline that some analysts feared would hammer shares in the search giant. But Google's stock sank a mild 6%, to $173 -- still 104% above its IPO price of $85. Even so, the danger to this buoyant stock isn't over yet: In February, employees and investors will be free to trade an additional 177 million shares now locked up.

The bad news doesn't stop at Fannie Mae (FNM). On Nov. 15, Fannie said it may have to report a $9 billion loss if required to restate results back to 2001. In September, the Office of Federal Housing Enterprise Oversight concluded that the housing finance giant failed to account properly for derivatives used to hedge interest-rate risk. The regulator argued that Fannie must deduct any losses in the value of those derivatives from its earnings. If the Securities & Exchange Commission requires a restatement, Fannie's capital would decline by $9 billion, forcing it to issue stock, sell mortgages from its portfolio, or pare debt. Fannie also missed a deadline for filing third-quarter results because its auditor, KPMG, can't complete its review until the SEC finishes its investigation.

SBC Communications (SBC) moved closer toward launching TV service on Nov. 17 by agreeing to pay $400 million to Microsoft (MSFT) over 10 years for technology to deliver video over broadband pipes. The deal should help SBC battle cable operators muscling in on its telephone turf. It's also a win for Microsoft's TV biz. The service, which will allow customers to choose from thousands of TV shows on demand, will launch by late 2005. SBC expects to make it available to 18 million households by the end of 2007.

-- The founders of PBHG Funds agreed to pay $160 million to settle charges of improper trading.

-- Philips Electronics (PHG) will write off $753 million for its health-care unit MedQuist.

-- Wal-Mart Stores' (WMT) third-quarter net income rose 12.7% on a sales gain of 9.7%.

Finally, some good news for Martha Stewart Living Omnimedia (MSO): The $11 billion Kmart-Sears (S) merger gives it a much bigger retail reach. The prospect of Sears customers snapping up Martha Stewart Everyday gear sent MSO shares up 6.3%, to $18.49.


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