May 21 (Bloomberg) -- Lowe's Cos., the second-largest home- improvement retailer, reported profit that fell more than analysts estimated and lowered its annual earnings forecast as fewer U.S. home sales hurt demand for cabinets and appliances.

Net income dropped to $739 million, or 48 cents a share, for the first quarter ended May 4, from $841 million, or 53 cents, a year earlier, Lowe's said today in a statement.

Profit fell for the second consecutive quarter, the first time that's happened in at least 10 years. Sales of previously owned homes may decline 2.9 percent this year to 6.29 million, the National Association of Realtors said earlier this month. Consumer spending on renovations and remodeling tends to slow amid a drop in home sales.

``They're in a housing and retail environment that's been decelerating for the last nine to 12 months,'' said Jon Fisher, who helps manage $21.6 billion for Fifth Third Asset Management in Minneapolis. Lowe's and bigger rival Home Depot Inc. ``are increasingly competing with each other in the same markets and using price to attract the customer,'' he said.

Lowe's Chief Executive Officer Robert Niblock said on a conference call with analysts today that the housing market in the U.S. is ``at or near the bottom.''

Shares of Mooresville, North Carolina-based Lowe's fell 79 cents, or 2.4 percent, to $31.88 as of 4 p.m. in New York Stock Exchange composite trading. They have gained 2.3 percent this year, compared with a 3.8 percent drop for Home Depot shares.

Lowe's had predicted first-quarter per-share profit of 49 cents to 51 cents, while analysts surveyed by Bloomberg estimated 49 cents. Sales rose 2.1 percent to $12.2 billion, Lowe's said, trailing the analyst estimate of $12.4 billion.

Annual Forecast

Lowe's forecast profit for the year ending Feb. 1 of $1.99 to $2.03 a share, down from its earlier prediction of $2.02 to $2.09. Analysts estimate $2.01. Sales will rise 7 percent, less than the company's earlier forecast of 10 percent. Sales in older stores should fall 1 percent to 2 percent, trailing its prediction of unchanged to an increase of 2 percent.

Lowe's said today profit this quarter, ending Aug. 3, would be 62 cents to 64 cents a share. Analysts estimate 59 cents. It forecast sales in older stores, a key measure of retailer health, to fall 1 percent to 3 percent and total sales to rise as much as 7 percent.

Falling Sales

First-quarter sales in stores open at least a year fell 6.3 percent, trailing Lowe's prediction for a drop of 2 percent to 4 percent. It was the worst performance in at least four years, Niblock said. Total revenue trailed Lowe's forecast for an increase of 5 percent to 6 percent, as unusually cold weather in early April slowed sales of patio furniture and gas grills.

``Spring is always a crapshoot,'' Larry Stone, chief operating officer, said on the call. ``You don't know when it's going to hit or how hard it's going to hit.''

Last year, Lowe's cut its sales forecast four times amid the drop in U.S. home sales.

Lowe's ranked higher than Home Depot in the University of Michigan's annual survey of customer satisfaction that was released in February. Lowe's has about 1,375 locations in the U.S., while Home Depot has 2,170 stores, with 1,895 in the U.S.

Of 23 analysts tracking Lowe's in the past 12 months, 11 rate it a ``buy,'' eight say ``hold,'' and one says `sell.''

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: May 21, 2007 16:07 EDT