Lowe's (LOW) Stock Falls On Q4 Earnings Miss, Soft '18 View

Lowe’s Companies, Inc. (NYSE:LOW) reported fourth-quarter fiscal 2017 results, wherein earnings lagged the Zacks Consensus Estimate after delivering a positive surprise in the preceding quarter. Moreover, the company’s bottom line declined year over year. As a result, shares of this North Carolina-based company are down roughly 8% in pre-market trading hours. However, in the past three months, the stock has increased 15% compared with the industry’s growth of 8.2%.

Notably, this home improvement retailer’s quarterly earnings of 74 cents per share, fell short of the Zacks Consensus Estimate of 88 cents. Bottom line declined 14% from 86 cents in the year-ago quarter, following an increase of 19.3%, 14.6% and 18.4% registered in the third, second and first quarter, respectively. Higher SG&A expenses impacted the bottom line.

However, net sales of $15,494 million came ahead of the Zacks Consensus Estimate of $15,288 million. Top line decreased 1.8% year over year after increasing 6.5%, 6.8% and 10.7% in the third, second and first quarter, respectively.

Comparable sales (comps) rose 4.1% in the quarter under review, following an increase of 5.7%, 4.5% and 1.9% recorded in the third, second and first quarter, respectively. Comps for the U.S. business climbed 4.7%, after increasing 5.1%, 4.6% and 2% in the respective quarters.

While, gross profit decreased 3.8% year over year to $5,226 million, gross profit margin contracted roughly 70 basis points to 33.7%.

Other Financial Aspects

Lowe’s, which competes with The Home Depot, Inc. (NYSE:HD), ended the quarter with cash and cash equivalents of $588 million, long-term debt (excluding current maturities) of $15,564 million and shareholders’ equity of $5,873 million.

In the reported quarter, the company kept its promise of returning surplus cash to stockholders as it repurchased shares worth $133 million and distributed $341 million as dividends.

Lowe's Companies, Inc. Price, Consensus and EPS Surprise

Outlook

Management projects total sales growth of approximately 4%, with comps increase of about 3.5% for fiscal 2018. Lowe’s envisions operating margin to decline approximately 30 basis points in the fiscal year. Earnings are anticipated in the band of $5.40-$5.50 per share. The Zacks Consensus Estimate for 2018 is pegged at $5.89 per share, which might witness a downward revision in the coming days.

Moreover, the company intends to open 10 home improvement and hardware stores in fiscal 2018. As of Feb 2, 2018, the company operated 2,152 stores in the United States, Canada and Mexico.

Zacks Rank & Key Picks

Lowe's has a Zacks Rank #2 (Buy). Some other stocks that warrant a look from the same space are Builders FirstSource, Inc. (NASDAQ:BLDR) , Fastenal Company (NASDAQ:FAST) and Beacon Roofing Supply, Inc. (NASDAQ:BECN) carrying the same bullish rank as Lowe’s. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Builders FirstSource’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarter, with an average beat of 58.6%.

Fastenal has an impressive long-term earnings growth rate of 14%.

Beacon Roofing Supply has an impressive long-term earnings growth rate of 32.5%.

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