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Things You Need to Know Before Lowe's (LOW) Q2 Earnings

Zacks Equity Research

Lowe's Companies, Inc. LOW is scheduled to report second-quarter fiscal 2019 numbers on Aug 21, before the opening bell. In the last reported quarter, the company underperformed the Zacks Consensus Estimate, recording average negative earnings surprise of 8.3%. Let’s see what’s in store for the company this time around.

How Are Estimates Faring?

The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.03, indicating a decline of 1.9% from $2.07 reported in the year-ago quarter. However, the consensus mark has moved north by 2 cents over the past 7 days.

For revenues, the consensus estimate stands at $20,991 million, suggesting a marginal increase of about 0.6% from the year-ago quarter.

Lowe's Companies, Inc. Price, Consensus and EPS Surprise

 

Lowe's Companies, Inc. Price, Consensus and EPS Surprise

Lowe's Companies, Inc. price-consensus-eps-surprise-chart | Lowe's Companies, Inc. Quote

 

Factors to Consider

Pro customers have been a significant driver in Lowe's business growth. Moreover, in a bid to continue augmenting sales from pro customers, the company has been boosting pro-focused brands. Lowe’s has refurbished its pro-service business website, LowesForPros.com, in order to give special attention to the needs of its Pro-customers.

Also, the company’s strong digital presence has been aiding its performance for a while. It achieved 16% comps growth on Lowes.com during the last reported quarter driven by robust traffic. Management’s focus on improving omni-channel capabilities, enhancing consumers’ digital shopping experience and inventory rationalizing, are likely to generate incremental sales. Lowe’s is also ramping up the amount of SKUs and assortments on lowes.com. Together, these upsides paint an impressive picture about Lowe’s top line in the quarter to be reported.

However, margins will remain one of the key areas to watch this earnings season. We note that the metric shrunk around 160 basis points to 31.5% during the last reported quarter due to systems & process limitations and pricing issues, increased supply chain costs associated to new facilities along with higher transportation costs and customer deliveries, and adverse product mix shift.

Nevertheless, the company is on track to undertake the necessary pricing and other actions to battle cost-related headwinds. It is to be seen how much it has succeeded on this front. Surely, any deleverage is likely to hurt the bottom line.

What Our Model Says

Our proven model does not conclusively show that Lowe's is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Lowe's carries a Zacks Rank #3, an Earnings ESP of -2.88% makes surprise prediction difficult.

Stocks With Favorable Combination

Target Corporation TGT has an Earnings ESP of +1.04% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Casey's General Stores, Inc. CASY currently has an Earnings ESP of +8.43% and a Zacks Rank #2.

The Home Depot, Inc. HD currently has an Earnings ESP of +0.71% and a Zacks Rank #3.

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