A month has gone by since the last earnings report for Lowe's (LOW). Shares have added about 3.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lowe's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lowe's Q4 Earnings Meet, Revenues Miss Estimates
Lowe’s Companies reported fourth-quarter fiscal 2018 results, wherein the top line missed the Zacks Consensus Estimate but the bottom line met the respective mark. Moreover, comparable sales fell short of analysts’ expectations. However, both net sales and earnings per share improved year over year. While the home improvement retailer remains optimistic about the U.S. economy, it anticipates softness in the Canadian housing market to persist in the near-term.
The company is streamlining its store portfolio, which along with its strategy of enhancing customer shopping experience with advanced technology and inventory rationalizing, is likely to generate incremental sales. There lies a significant opportunity to enhance pro-sales.
Meanwhile, Lowe’s is on track with its plans to exit Mexico retail operations, Orchard Supply Hardware business and certain non-core businesses in U.S. home improvements including Alacrity Renovation and Iris Smart Home. The decision is likely to enable the company to focus more on prospective areas such as home improvements, home furnishing products, repair and maintenance.
Q4 Performance
Lowe’s posted adjusted earnings of 80 cents a share that came in line with the Zacks Consensus Estimate and increased approximately 8.1% from 74 cents in the year-ago quarter.
Net sales of $15.6 billion fell short of the Zacks Consensus Estimate of $15.7 billion. Notably, sales in the quarter under review inched up 1% year over year. Prior to that, the company posted sales growth of 3.8%, 7.1% and 3% in the third, second and first quarters, respectively.
Comparable sales rose 1.7% in the quarter under review, following an increase of 1.5%, 5.2% and 0.6% recorded in the third, second and first quarters, respectively. Comparable sales for the U.S. home improvement business jumped 2.4%. Comparable sales for the U.S. business grew 2%, 5.3% and 0.5% in the third, second and first quarters, respectively.
Gross profit decreased 1.3% year over year to $4,898 million, while gross margin contracted around 74 basis points to 31.3%.
Other Financial Aspects
Lowe’s, which competes with Home Depot (NYSE:HD), ended the quarter with cash and cash equivalents of $511 million, long-term debt (excluding current maturities) of $14,391 million and shareholders’ equity of $3,644 million. Management incurred capital expenditures of roughly $328 million in the quarter and nearly $1.2 billion during the fiscal year.
The company generated cash flow from operations of $6,193 million and free cash flow of $5 billion for fiscal 2018. In the reported quarter, the company repurchased shares worth $529 million and distributed $387 million as dividends.
Management expects to generate cash flows from operations of approximately $6.5 billion and incur capital expenditures of nearly $1.6 billion during fiscal 2019. The company anticipates to generate free cash flow of approximately $4.9 billion during the fiscal year. The company plans to repurchase shares in the band of $6-$7.5 billion during the fiscal year.
Outlook
For fiscal 2019, management continues to project total sales growth of approximately 2% with comparable sales expected to increase roughly 3%. Additionally, Lowe’s envisions adjusted operating margin to increase 85-95 basis points and projects earnings per share in the band of $6.00-$6.10.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Lowe's has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lowe's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Lowe's Companies, Inc. (NYSE:LOW): Free Stock Analysis Report
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