Home Depot, Wal-Mart Post Strong Earnings

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Two companies included in the Dow Jones 30 reported better-than-expected earnings today, but the markets barely noticed as European debt troubles and concerns about rising inflation in Asia put pressure on stocks. The Home Depot (NYSE: HD) said it earned 51 cents a share on revenue of $16.6 billion, better than expectations 48 cents a share in earnings and about even with revenue estimates of $16.59 billion. Wal-Mart Stores (NYSE: WMT) posted earnings of 95 cents a share on revenue of $101.95 billion, compared with estimates of 90 cents a share in earnings and revenue of $102.43 billion.

Home Depot competitor Lowe’s (NYSE: LOW) yesterday reported earnings of 31 cents a share, excluding items, on revenue of $11.6 billion. Analysts were expecting earnings of 30 cents a share on revenue of $11.75 billion. Costco Wholesale (NASDAQ: COST) reported its fourth-quarter results in October, and Target (NYSE: TGT) is scheduled to report results tomorrow.

Today’s report from Home Depot also included a brighter forecast for its full fiscal year ending in January, raising its earnings forecast from $1.90 to $1.94 per share. At the same time, it lowered its revenue growth forecast from 2.6% to 2.2%. Home Depot projected last May that revenue would grow 3.5% in the current fiscal year.

Same-store sales at Home Depot rose just 1.4% in the quarter, but coupled with a 1.4% decline in operating expenses, revenue for the quarter reached growth of 1.4% year-over-year. Without the operational savings, Home Depot would have easily missed revenue estimates.

Wal-Mart saw earnings rise 9.3% year-over-year based on strong international sales. Wal-Mart’s international sales rose 9.3% and earnings jumped 14%. In the U.S., same-store sales fell 1.3% though profit was up 1.9%. Operating expenses were up 2.1% year-over-year. The company raised its fourth-quarter earnings estimate from $1.29 to $1.33 a share and raised its full fiscal year guidance from $3.95-$4.05 to $4.08-$4.12 a share.

Costco’s positive earnings report was due primarily to its ability to collect membership fees. Home Depot posted good earnings as a result of its ability to control operating costs. Wal-Mart posted solid earnings growth on the basis of its international business, but operating expenses rose. Is there a pattern here?

Yes, there is. U.S. sales are no better than flat. At some point, all the earnings that are based on something other than sales will disappear. Costco and Home Depot need to do something about this. Wal-Mart needs to boost U.S. sales, but that is costing it money in operating expenses. Free shipping and keeping stores open longer don’t cut those expenses.

Home Depot shares rose about 3.5% and Lowe’s shares rose about 2.5% in the first hour of trading today. Wal-Mart shares climbed about 1.75% while Costco shares are off about 0.5%.


Article printed from InvestorPlace Media, https://investorplace.com/2010/11/home-depot-wal-mart-post-strong-earnings/.

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