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Lowe's (LOW) Stock Gains on Q3 Earnings Beat & Raised View

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Lowe’s Companies, Inc. (LOW - Free Report) reported third-quarter fiscal 2019 results, wherein earnings improved year over year and beat the Zacks Consensus Estimate but revenues missed the same. Nonetheless, management raised its adjusted earnings guidance for fiscal 2019, based on expectations for the fourth quarter. Markedly, shares of the company gained nearly 5% during the pre-market trading session.

Adjusted earnings of $1.41 a share exceeded the Zacks Consensus Estimate of $1.35 and increased 35.6% year over year. Bottom-line growth was backed by better execution. Including pre-tax charges related to the strategic review of Lowe’s Canadian operations, earnings came in at $1.36 per share compared with 78 cents reported in the year-ago period.

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

Markedly, the company commenced a strategic review of its operations in Canada during the third quarter, which included impairment of long-lived assets and amendments in the leadership team. Also, management decided to take several actions to enhance sales and profits. These include reshuffling the corporate support system in Canada to cater to stores better, shut down 34 underperforming Canadian stores, simplifying Canadian store banners and rationalizing assortments across these banners.

Q3 in Detail

Net sales of $17.39 billion edged down 0.2% year over year and missed the Zacks Consensus Estimate of $17.69 billion. Comparable sales for the U.S. home improvement business rose 3% in the quarter, following an increase of 3.5% and 2.3% in the first and second quarters of fiscal 2019, respectively.

Management is impressed with its U.S. home improvement stores’ performance in the third quarter. This was backed by a strong macroeconomic landscape along with constant efforts to enhance customers’ experience, solid performance of the merchandise category and strength in the Pro business.

Gross profit grew 4.9% year over year to $5,640 million, while gross margin expanded 150 basis points to 32.4%.

Other Financial Aspects

Lowe’s ended the quarter with cash and cash equivalents of $794 million, long-term debt (excluding current maturities) of $16,635 million and shareholders’ equity of $2,458 million.

The company generated cash flow from operations of $4,111 million in the nine months ended Nov 1. In the reported quarter, Lowe’s repurchased shares worth $835 million and distributed $428 million as dividends.

The company ended the quarter with 2,004 home improvement and hardware stores across the United States and Canada.

Outlook

Management focuses on improving its Canadian operations. Further, the company is seeing solid momentum in its U.S. business and on track to drive the top line, expand margins and attain operational efficacy. For fiscal 2019, management continues to project total sales growth of nearly 2%, with comparable sales expected to rise roughly 3%.

Additionally, management raised its adjusted earnings and operating margin guidance for fiscal 2019. Lowe’s now envisions adjusted operating margin to expand 40-60 basis points in fiscal 2019, up from growth of 20-50 basis points projected earlier.

The company now anticipates adjusted earnings per share of $5.63-$5.70 compared with the prior view of $5.45-$5.65. The Zacks Consensus Estimate for earnings in the fiscal is currently pegged at $5.67 per share.

Stock Price Performance

This Zacks Rank #3 (Hold) stock has rallied 25.2% so far this year compared with the industry’s growth of 36.9%.

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