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Home Depot Net Income Surges 32% on Trump Tax Cuts, Company Raises Guidance

11:05 AM, Nov 13, 2018 — Home Depot (HD), helped by the Trump tax cuts at the end of 2017, reported blowout earnings and raised its forecast for revenue and profits even as sales of existing homes in the US are starting to show signs of a slowdown.

Sales in the third quarter ending Oct. 28 rose 4.8% to $26.3 billion on a comparable basis, while net income climbed 32% to $2.9 billion, lifting earnings per share by 36.4% to $2.51, the Atlanta-based company said on Tuesday. Revenue as well as earnings per share topped the $26.23 billion and $2.27 respective average estimate of analysts polled by Capital IQ as earnings were buoyed by stock buy-backs.

The company headed by Craig Menear set aside $779 million in taxes payable on third-quarter earnings, 39% less than the $1.27 billion in the year-earlier period. Taxes in the three quarters through October plummeted 32% to $2.67 billion as the company now expects the tax rate in fiscal 2018 to be roughly 24%.

Operational efficiencies at the company that employs 400,000 people also helped the bottom line as clients’ average spend rose 3.6% to $65.11. Sales per square foot at the 2,286 stores in the US and abroad improved 5.2% to $434.

Still, the stock declined 1.8% in early tradings to $176.18 per share. However, hurricane-related rebuilding may provide support for the stock going forward.

After earnings were released, Morgan Stanley maintained its “overweight” recommendation on the stock, with a price target of $200, or 12% above Monday’s $179.43 close.

“We think the combination of high quality underlying Q3 results and maintained full year/implied Q4 comp guidance should spark a modest relief rally given the stock has declined 15% since its September highs and appears to be pricing in a slowdown in 2019,” analyst Simeon Gutman wrote in the note to clients.

In the home appliance business, Home Depot may have the opportunity to gain market share after Sears filed for Chapter 11 bankruptcy protection from creditors and started shutting down stores.

Management now sees sales growth of 5.5% in fiscal 2018, up from an initial estimate of 5.3%. Growth in per-share earnings is expected to surpass 33% in the year to $9.75 as the company could spend as much as $8 billion buying back stock, or $2 billion more than previously planned.

Companies: Home Depot, Inc. (The)
Price: 173.29 Price Change: -6.14 Percent Change: -3.42

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