For Immediate Release
Chicago, IL – November 17, 2010 – Zacks.com Analyst Blog features: Wal-Mart Stores Inc. (WMT), The Home Depot Inc. (HD), Lowe's Companies Inc. (LOW), Freeport McMoRan (FCX) and Peabody Energy (BTU).
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Here are highlights from Tuesday's Analyst Blog:
Wal-Mart Reports In Line, Ups Outlook
Wal-Mart Stores Inc. (WMT) reported better-than-expected third-quarter 2011 results and raised its EPS outlook for the rest of fiscal 2011. The retailing giant reported quarterly earnings of 95 cents a share, reflecting a 15.8% increase over the prior-year earnings of 82 cents a share.
However, (excluding the benefit of one-time items) earnings were in line with the Zacks Consensus estimate of 90 cents per share.
Management raised its full year 2011 EPS guidance to a range of $4.08 to $4.12 per share. The previous guidance was between the range of $3.95 to $4.05. For the fourth quarter, the company expects earnings in the range of $1.29 to $1.33 per share. The Zacks Consensus Estimate for the year and the fourth quarter are $4.02 and $1.28, respectively.
Revenue Details
Wal-Mart's net sales recorded a growth of 2.6% to $101.2 billion from $98.7 billion in the year-ago quarter. The expansion was primarily driven by a robust 9.3% expansion in the International segment, which benefited from favorable currency translations, coupled with a 2.7% growth in the Sam's Club segment. However, sales at the Wal-Mart's U.S. segment were almost flat year-over-year, declining marginally by 0.1%. Net sales were below the Zacks Consensus Estimate of $102.5 billion.
Wal-Mart, widely regarded as a bellwether for the U.S. economy, stated that U.S. same-store sales decreased 1.3% year-over-year, while that for Sam's Club grew by 2.4%. Meanwhile, quarterly operating income grew by 3.1% year-over-year to $5.6 billion, while the operating margin increased marginally by 3 basis points to 5.5%. The growth was primarily caused by favorable foreign currency translations.
Wal-Mart added almost 10 million square feet of retail space during the reported quarter, with 37% of the square footage growth in Wal-Mart International.
Balance Sheet and Cash Flow
For the third quarter of fiscal 2011, Wal-Mart generated free cash flow of $2.9 billion, a decline of 19.4% from $3.6 billion in the year-ago period due to higher inventory costs. However, the company benefitted from a Return on Investment (ROI) of 18.6% during the quarter compared to 18.4% in the prior year period. The company has a debt-to-capitalization ratio of 38.4%.
Home Depot Earnings, Outlook Up
The Home Depot Inc. (HD) posted third-quarter 2010 earnings of 51 cents per share, beating the Zacks Consensus Estimate of 48 cents. Results also surpassed 41 cents reported in the year-ago period. Net income was $834 million, up 21% from $689 million in the prior-year quarter.
Higher revenue coupled with lower expenses aided Home Depot to deliver solid results in the quarter.
Store Update
Home Depot currently operates 2,244 retail stores, including 1,976 Home Depot stores in the United States, 179 stores in Canada, 80 stores in Mexico and 9 stores in China.
Full-Year 2010 Guidance
Home Depot expects sales to increase 2.2%. Earnings are expected to increase 25% to $1.94 per share.
Peer Comparison
Lowe's Companies Inc. (LOW), which competes with Home Depot, reported earnings of 31 cents, up 35% year-over-year from 23 cents in the year-ago period. Sales in the third quarter increased 1.9% year-over-year to total $11.6 billion. Comparable store sales increased 0.2% in the quarter.
We maintain our long-term “Neutral” recommendation on Home Depot. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term. Industrial Production Unchanged.
Factories
Factory utilization rose to 72.7% from 72.3% in September (revised up from 72.2%) and 72.2% in August. That is up from 68.2% a year ago, and the cycle (and record) low of 65.4%. That is still well below the long-term average level of 79.2%, so as with total capacity, we still have a long way to go on the factory utilization level.
The increase in utilization over the last year, both total and factory, has been aided by a decline in capacity, with the total falling 0.4% and factory capacity dropping 0.3%. If some factories are closed and dismantled, it is easier to run the remaining ones closer to full time.
Mines
Mines were working at 87.9% of capacity in October, down from 88.0% in September and August. A year ago they were only operating at 81.8% and the cycle low was 79.6%. We are actually now above the long term average of 87.4% of capacity.
Since there is a lot of operating leverage in most mining companies, this probably means very good things for the profitability of mining firms with big U.S. operations like Freeport McMoRan (FCX) and Peabody Energy (BTU). Mine capacity was unchanged year over year.
Utilities
Utility utilization dropped to 76.6% from 79.4% in September and 81.3% in August. This is lower than it ever got during the official portion of the Great Recession, when the cycle low was 77.6%. We are far below the long-term average utilization of 86.7%.
The decline was probably more a function of the weather than a change in economic activity, while the year-over-year increase is probably more reflective of a better economy. Increasing utility utilization faces a headwind because, unlike factories, our power plant capacity has actually been increasing significantly, up 1.6% year over year.
The drop in utility utilization is a significant distorting factor in the overall figures for both utilization and production figures. In assessing the state of the overall economy, it is better to just look at the manufacturing numbers.
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