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Home Depot (HD) Gains on Q3 Earnings Beat, Raises FY18 View

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Home Depot (HD) Gains on Q3 Earnings Beat, Raises FY18 View

Home Depot's (HD) strong third-quarter fiscal 2018 results show strength in both professional and do-it-yourself categories as well as customer demand.

The Home Depot, Inc. HD posted top- and bottom-line beat in third-quarter fiscal 2018. Notably, the company retained its five-year-long trend of beating earnings estimates. Moreover, the company delivered positive sales surprise in eight out of the last nine quarters.

Shares of this home-improvement retailer have rallied 2.3% in the pre-market session, following strong fiscal third-quarter results and an upbeat view for fiscal 2018. However, this Zacks Rank #3 (Hold) stock has decreased 6.5% in the past three months, wider than the industry’s decline of 3.8%.



The company posted fiscal third-quarter earnings of $2.51 per share, which escalated 36.4% from $1.84 recorded in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.27.

The Home Depot, Inc. Price, Consensus and EPS Surprise

The Home Depot, Inc. Price, Consensus and EPS Surprise | The Home Depot, Inc. Quote

Results gained from strength in both professional and do-it-yourself categories. Further, the company benefited from positive customer response for its assortments as well as enhancements to drive interconnected shopping experience. Home Depot is witnessing strength across store operations while delivering solid digital growth. This reflects persistently strong customer demand in the home improvement markets.

Quarterly Details

Net sales grew 5.1% to $26,302 million from $25,026 million in the year-ago quarter and beat the Zacks Consensus Estimate of $26,235 million. The company's overall comparable-store sales (comps) increased 4.8% while comps in the United States grew 5.4%.

During the reported quarter, comps benefited from 3.6% rise in average ticket and 1.4% increase in customer transactions. Moreover, sales per square foot rose 5.2%.

Gross profit margin expanded 20 basis points (bps) to 34.8%. In dollar terms, gross profit improved 9.6% to $9,151 million from $8,648 million in the year-ago quarter, primarily driven by higher sales. Excluding the impact of the ASU No. 2014-09 revenue recognition standards adopted in first-quarter fiscal 2018, gross margin was 34.3%.

Operating income increased 5.2% to $3,870 million while operating margin expanded 10 bps year over year to 14.7%.

Balance Sheet and Cash Flow

Home Depot ended third-quarter fiscal 2018 with cash and cash equivalents of $1,764 million, long-term debt (excluding current maturities) of $23,332 million and shareholders' equity of $1,320 million. In the nine months ended on Oct 28, 2018, the company generated $10,036 million of net cash from operations.

Outlook

Backed by solid year-to-date performance, the company has raised its earnings and sales forecast for fiscal 2018.

Home Depot now expects sales growth of nearly 7.2% for fiscal 2018, including the 53rd week. The company earlier anticipated sales growth of 7%. Comps growth is now estimated to be 5.5% (for the comparable 52-week period) versus 5.3% increase stated earlier. Further, the company anticipates earnings per share of $9.75 for fiscal 2018, up nearly 33.8%. Earlier, it projected earnings per share growth of 29.2%.

Want More? Check These Lucrative Picks

Some better-ranked stocks in the same industry are GMS, Inc. GMS, Fastenal Company FAST and Tecnoglass Inc. TGLS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GMS has a long-term earnings growth rate of 7%. Moreover, the company’s estimates for the current fiscal witnessed an uptrend in the last 60 days.

Fastenal, with long-term earnings growth rate of 14%, has gained 14% in the past year.

Tecnoglass has a long-term earnings growth rate of 20%. Further, the stock has improved 19.3% in the past year.

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