Home Depot Raises Outlook Again After Strong Quarter

Reuters
Updated
A Home Depot sign is shown on Tuesday, Aug. 14, 2012, in Nashville, Tenn. The Home Depot Inc. is feeling more optimistic about the recovery of the housing market after customers spent more on remodeling and repair projects in the second quarter. The biggest U.S. home-improvement retailer said Tuesday, Aug. 14, 2012 that stronger sales of paint, bath accessories and kitchen installations helped lift its net income by 12 percent during the period. Lower costs also contributed to the improved results. (AP Photo/Mark Humphrey)
Mark Humphrey/AP

By Dhanya Skariachan

A recovery in the U.S. housing market helped Home Depot top profit and sales estimates for the third quarter, prompting the No. 1 home improvement chain to raise its fiscal-year outlook for the third time this year Tuesday.

The results boosted its shares by 3.2 percent and gave fresh evidence the U.S. housing market continued to heal after years of weakness. A bubble in the sector was at the core of the 2007-2009 financial crisis.

A rise in home prices has encouraged homeowners to take up delayed projects and invest more in their properties this year. The housing recovery has also sparked professional contractors to spend more, helping sales at home improvement chains.

Home Depot (HD) has also improved distribution, cut costs and tailored marketing and merchandising efforts to local markets. Smaller rival Lowe's Cos. (LOW) is due to report results Wednesday.

Janney Capital Markets analyst David Strasser said he was impressed with Home Depot's performance, but planned to stick with a "neutral" rating on the stock.

"We just continue to struggle with the current valuation, against a backdrop of slower housing and rising rates," Strasser said.

In the third quarter, %VIRTUAL-article-sponsoredlinks%Home Depot's net earnings rose to $1.4 billion, or 95 cents a share, from $947 million, or 63 cents a share, a year earlier. Analysts, on average, looked for a profit of 90 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 7.4 percent to $19.5 billion, beating the average analyst estimate of about $19.2 billion. Sales at stores open at least a year rose 7.4 percent, with an 8.2 percent increase in the United States.

For the year, the company raised its earnings forecast to $3.72 a share from $3.60 and said it expected sales to rise about 5.6 percent, versus previous expectations of a 4.5 percent increase.

Home Depot said the number of customer transactions increased 4 percent and the average ticket rose 3.2 percent in the quarter.

The stock rose to $82.25 in premarket trading from a close of $79.67 on Monday.

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