Home Depot beat earnings prospects and increased the dividend. Why the stock falls.
beat fourth-quarter earnings expectations but missed sales and issued disappointing guidance for fiscal 2023. It also boosted the dividend, but the home improvement retailer’s shares are falling.
) reported fourth-quarter earnings per share of $3.30, beating analyst consensus estimates of $3.28, according to FactSet.
Fourth-quarter revenue of $35.8 billion came in below estimates of $36 billion. Comparable sales for the quarter ended Jan. 30 fell 0.3%, below expectations for a 0.3% increase, as customer transactions fell 6%.
Also, Home Depot increased its quarterly dividend by 10% to $2.09 per share, from $1.90.
The company forecast fiscal 2023 earnings per share to fall by a mid-single-digit percentage, while analysts had expected earnings per share to be broadly flat. Home Depot expects flat sales growth for the full year, but Wall Street expected a slight uptick.
“[T]here is elevated inflation and rising interest rates, a tight labor market and declining equity opportunities in the real estate markets,” Home Depot CEO Edward Decker said Tuesday in a conversation with investors. “So with that in mind, we expect moderate demand for DIY.”
The stock is down 4.7% to $303.10 in Tuesday trading. Home Depot stock is down 5% this year and is down 13.5% over the past 12 months.
The company also said it would invest $1 billion to give hourly workers a pay rise. This is expected to contribute to an operating margin decline of about 0.65 percentage points to 14.5% in fiscal 2023. Margins have been under pressure in recent quarters. Gross margin declined 0.1 percentage point to 33.5% in fiscal 2022, management said on Tuesday.
Analysts had warned investors not to enter the course with caution
‘s merit. As the housing market has collapsed thanks to rising mortgage and interest rates, demand for home improvement has waned.
The company’s cautious outlook resonates with the tone of other companies in the home improvement sector, including coatings companies
“We will not be immune to what is expected to be a very challenging demand environment in 2023,” Sherwin-Williams CEO John Morikis said in late January. “Visibility beyond our first half of the year is limited.”
Home Depot’s outlook weighs on its peers Tuesday
) Shares fell 4% on Tuesday.
“4Q comp expectations for LOW were lower than HD and most likely will not increase with HD pressure,” Evercore ISI analyst Greg Melich wrote on Tuesday. He rates Home Depot as Outperform with a $370 target price and Lowe as Inline with a $235 target price.
Home Depot has often outperformed Lowe’s when it comes to pro sales or sales to contractors. Home Depot’s strength in this market is a good thing in the near term, as there’s still plenty of work on the contractors’ books that could boost demand in the first half of the year, analysts said.
On Tuesday, management said growth in Pro sales exceeded DIY sales and that the Pro backlog remained high compared to historical averages.
“Home Depot’s backlog of pro-services projects should remain significant through mid-2023, further propelling the company during this period of slower project launches,” Third Bridge analyst Shoggi Ezeizat said in an emailed statement. The consulting firm Third Bridge does not own any stock of Home Depot.
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https://www.barrons.com/articles/home-depot-earnings-stock-price-3aee0f51?siteid=yhoof2&yptr=yahoo Home Depot beat earnings prospects and increased the dividend. Why the stock falls.