Home Depot Beats, Ups Outlook - Analyst Blog

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.

Operational Performance

Total revenue in the quarter under review was $16.6 billion, up 1.4% from $16.4 billion in the prior-year quarter. Reported revenue was in line with the Zacks Consensus Estimate. Comparable store sales in the quarter under review were positive 1.4% compared with negative 6.9% in the year-ago period.

Comparable-store sales for the U.S were positive 1.5% compared with negative 7.1% in third quarter 2009. The reported quarter represents the fourth consecutive quarter of positive same store sales.

Though cost of sales increased 1% year-over-year to $10.9 billion in the quarter, gross profit improved 2.2% year-over-year to total $5.7 billion. Total operating expense in the third quarter 2010 was $4.2 billion, down 1.4% year-over-year.

Operating Income was $1.45 billion, up 14.6% from $1.26 billion in the year ago quarter.

Interest expense in the quarter declined 13.4% year over year to total $142 million.

Financial Condition

The company ended the quarter with cash and cash equivalents of $1.4 billion lower than $2.7 billion at the end of third quarter 2009.

Long-Term Debt totaled $8.8 billion, almost flat compared to $8.7 billion at the end of third quarter 2009.

Cash from operations in the first nine months of 2010 totaled $3.99 billion; lower than $4.66 billion in the year-ago period.

Capital expenditures were lower at $689 million in the first nine months of 2010, compared with $568 million in the year-ago period

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.

 
HOME DEPOT (HD): Free Stock Analysis Report
 
LOWES COS (LOW): Free Stock Analysis Report
 
Zacks Investment Research