Like a hawk waiting to zoom in on a field mouse, a Wall Street Journal article attacked Mr. Robert Nardelli, former head of Home Depot, the day after HD reported a 28% drop in fiscal fourth quarter profits. The article, entitled "Nardelli's Flawed Strategy Hits Home Depot Profits," said "The quarter offered further evidence that the house that former chief Robert Nardelli remodeled during his six years in charge has some deep seated flaws." It then went on to say what the alleged flaws were. What the article says may or may not be true, but I'm willing to bet that if Mr. Nardelli were still CEO, Home Depot would not have posted that big a drop in profits.

Nardelli was a numbers guy and he learned the CEO game from the best: Mr. Jack Welch of General Electric. Chapters one and two of the game plan are that you always squirrel away some profits for a rainy day and you always bury some expenses to be taken when the sun shines brightly. It's all done legally of course, but every CEO knows that the way to get analysts to love you is to make the numbers quarter after quarter after quarter.

In Mr. Nardelli's case, however, something went wrong. He made his numbers alright, but the analysts still disliked him. I don't know exactly why, but the shareholders hated him and, apparently, the employees weren't too fond of him either. HD's board ousted Mr. Nardelli in January, allegedly over a reduction in his compensation package of $450 million for six years work. Maybe people didn't like him because he was making so much money. Maybe it was because HD's stock price went essentially nowhere while rival Lowes' stock price more than doubled. Not that HD's earnings performance was that bad, it was just less than Lowes'. So much for Mr. Nardelli. What about the new guy, Chairman and CEO Mr. Frank Blake? What did he do when he got his new job?

Why he turned to chapter three of the CEO's game plan where he was instructed on how to look good even when you're not. So he squirreled away every penny of profit he could report at a later date and then he dug up every chargeable expense his predecessor left behind. The bigger the loss was, the better. Mr. Nardelli was going to get blamed for it, and Mr. Blake would get the credit for clearing up "the mess" Mr. Nardelli left behind.

So what's the moral of this essay? When you read a company's earnings report, it may not be what it appears to be or what the papers say it is. So you need to know what's going on in the corner office and a few things about the Games CEOs Play.

P.S. Make sure you see this week's "Strategy of the Week" on the VectorVest University. There's more there than meets the eye.