How Tax Cuts Boosted Home Depot Earnings

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Home Depot Inc. (NYSE: HD) reported third-quarter 2018 results before markets opened Tuesday. The home improvement store posted diluted net earnings per share of $2.51 in the quarter on revenues of $26.3 billion. In the same period last year, the company reported EPS of $1.84 and revenues of $25.03 billion. Consensus estimates called for EPS of $2.26 and revenues of $26.26 billion.

Same-store sales rose 4.8% globally and 5.4% in the United States. Sequentially the increase pales compared with second-quarter results, when U.S. sales rose 8.1% and global sales rose 8.0%. In the first quarter, Home Depot posted a U.S. same-store sales increase of just 3.9% and 4.2% worldwide.

When the company reported second-quarter sales in August, it raised guidance. Third-quarter results generated another increase. Full-year sales growth is now forecast to rise 7.2% compared with fiscal year 2017, up from prior guidance of 7.0%. Home Depot guided worldwide same-store sales growth from a prior estimate of 5.3% to 5.5% and estimated diluted EPS jumped from $9.42 to $9.75.

Share repurchases are now forecast to reach approximately $8 billion, up from a prior estimate of $6 billion.

CEO Craig Menear said:

We are pleased with our third quarter results and the growth that we saw from both our professional and do-it-yourself customers. Our customers continue to respond to our expansive assortment and enhancements we are making to drive an interconnected shopping experience. We saw continued strength across the store, as well as healthy growth in our digital business. We believe this is a testament to the overall strength of demand in the home improvement market.

Results are also a testament to lower taxes. Home Depot reported that its provision for income taxes dropped 38.6%, from $1.29 billion to $779 million.

Cost of sales rose 4.7% to $17.15 billion and operating expenses were up 6.3% to $5.28 billion. Operating income rose year over year by 5.2% to $3.87 billion. Net profit rose 32.4% ($702 million) to $2.87 billion. The tax cut accounted for $500 million of the rise in net profit.

Customer transactions rose 1.4% to 394.8 million, and the average ticket rose by 3.6% to $65.11. Sales per square foot rose 5.2% to $433.99.

The stock traded up about 3.2% in Tuesday’s premarket session, at $185.16 in a 52-week range of $163.15 to $215.43. The 12-month consensus price target on the shares is $211.76.