Why Home Depot Earnings Don’t Seem to Be Enough for Investors

August 15, 2017 by Paul Ausick

Home Depot Inc. (NYSE: HD) reported second-quarter 2017 results before markets opened Tuesday. The home improvement store posted diluted net earnings per share of $2.25 on revenues of $28.1 billion. In the same quarter last year, the company reported EPS of $1.97 and revenues of $26.47 billion. Consensus estimates called for EPS of $2.21 and revenues of $27.82 billion.

Second-quarter same-store sales rose 6.3% worldwide and 6.6% in the United States. Those totals are better than the company’s first-quarter results: 5.5% worldwide and 6.0% in the United States.

The company raised its sales guidance from a prior estimate for an increase of 4.6% year over year to an increase of 5.3%. Same-store sales guidance was raised from an increase of 4.6% to 5.5%. Home Depot also lifted diluted EPS guidance from a prior estimate of $7.15 (up 11% year over year) to $7.29, up 13%, including $7 billion in share buybacks for the 2017 fiscal year.

Gross margin for the quarter increased by 6% year over year, even though cost of sales rose 6.3%. Operating income of $4.46 billion was up 8.8% year over year, and net profit rose 9.5% to $2.67 billion.

CEO Craig Menear said:

We were pleased with our results this quarter as our customers rewarded us with the highest quarterly sales in company history. We also achieved the highest quarterly net earnings in company history. These results were made possible by our hard working associates and the outstanding values brought forth by our supplier partners.

Analysts have a consensus forecast for third-quarter EPS of $1.79 on sales of $24.33 billion. For the full year, analysts are looking from EPS of $7.25 and revenues of $99.33 billion.

Home Depot said cash flow from operations rose by nearly $1 billion year over year to $7.86 billion. The company repurchased $3.92 billion in stock and paid $2.13 billion in dividends for the quarter.

Although retail has been one of the worst performing industries this year, one silver lining has been home improvement stores. However, there has also been some concern surrounding Amazon and its move into selling Kenmore appliances. Still, appliances make up only a small portion of Home Depot’s overall sales, and appliances tend to be bought in store as opposed to online.

While the beat on revenues and profits was solid, the raised guidance barely improved on the consensus estimate for full-year EPS. That may account for why the stock is moving so little in premarket trading.

Home Depot’s stock traded up about 0.6% in Tuesday’s premarket, at $155.11 in a 52-week range of $119.20 to $160.86. The consensus price target is $171.27. The stock’s dividend yield was 2.31% at Monday’s closing price.

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