Home Depot (HD) Shares Rise on Q2 Earnings Beat: What's Next for the Company?

Home Depot HD reported second quarter earnings before the opening bell, sending shares up over 4%. The home improvement company has soared 26.5% year-to-date, outpacing the broader building products retail market by 11.3%.

Home Depot’s second quarter earnings retained its over five-year long trend of surpassing our earnings estimates. The company has also beaten revenue estimates in 9 out of the past 12 quarters. Can Home Depot continue to outperform its respective industry in the second half of 2019? Let’s take a closer look at how the company did in Q2 and how they might perform going forward.

Q2 Performance and Fiscal 2019 Outlook

In Q2, Home Depot generated $30.84 billion in revenue, falling short of our $30.95 billion estimate but still growing 1.2% Y/Y. The company reported earnings of $3.17, beating our estimate by 3.26%. The company’s reported earnings were a 3.9% jump from the year ago quarter. Net income for the quarter was $3.48 billion, which was a 0.8% drop from Q2 2018. Same store sales grew 3% in the quarter as well.

As a result of its top line miss, Home Depot lowered its sales outlook for the full-year, citing that the ongoing trade war may reduce consumer spending. The company is now calling for fiscal 2019 revenue to gain about 2.3% and same store sales to grow roughly 4%, which are both down from the previously estimated 3.3% revenue growth and 5% same-store sales jump the company estimated.

Home Depot had previously warned about the toll a slump in lumber prices had been having on their business. Lumber futures are down around 16% from their highs in February, and account for roughly 8% of Home Depot’s total sales.

Looking ahead, our consensus estimates are projecting for HD to make a top line leap of 4.86% to $27.58 billion while earnings will increase 1.2% to $2.54 per share in Q3.

Takeaway

While Home Depot lowered its total revenue and same store sales this quarter, the company’s bottom line projections remain intact with an expected 3.1% earnings jump to $10.03 per share. Home Depot has been reporting strong financial figures since 2008, with steady top and bottom-line improvements.

Home Depot’s pro segment has been a catalyst for the company’s growth with pro sales, outpacing the do it yourself (DIY) sales for the past several quarters. However, the company remains susceptible to the trade war and economic contractions as slowed consumer spending would hinder HD’s top line.

A weakened housing market stemming from a recession (that many people fear may arrive sooner than later) is also a headwind for HD. Industry peer Lowe’s LOW as well as super store giant Target TGT are set to report tomorrow before the market opens. HD investors should pay attention to Lowe’s Q2 performance and if they will continue to trail behind HD and the broader industry, up only 7.3% YTD.

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