Lowe's Companies' Second Quarter Earnings Report

By Investopedia Staff | August 20, 2012 AAA

Lowe's Companies (NYSE:LOW) announced its results for the most recent quarter on August 20, 2012. Lowe's Companies is a home improvement retailer offering products to homeowners, renters, and commercial business customers.

In most situations, when earnings do not meet analyst estimates, a business' stock price will tend to drop. On the other hand, when actual earnings beat estimates by a significant amount, the share price will likely surge. SEE: Can Earnings Guidance Accurately Predict The Future?

The Numbers: Lowe's Companies posted revenues above analyst predictions, though the company's EPS came up short of expectations. The company reported adjusted net income of 65 cents per share versus the 71 cents per share estimate and revenues of $14.25 billion versus the $12.98 billion estimate. Revenue fell 2% from the same period last year. Slumping revenue in the last quarter ends Lowe's Companies' streak of four consecutive quarters of revenue increases. The company's net income for the quarter was $747 million. This is a 10% decline from last year. With last quarter's falling profit, the company breaks a streak of two consecutive quarters of year-over-year profit increases.

Management Quote: "Our results fell short of our overall expectations," commented Robert A. Niblock, Lowe's chairman, president and CEO. "However, I have confidence in our strategy and in our employees, and while we recognize the significant magnitude of change that we've asked the organization to absorb as we transform our business, we fully understand that we must improve our level of execution."

A Look Back: Last quarter was the fifth in a row that the company saw shrinking gross margins, as they fell 0.6 percentage point from the year-earlier quarter to 33.9%. In that span, margins have contracted an average of 0.8 percentage point per quarter on a year-over-year basis.

Net income has dropped 5.4% year-over-year on average across the last five quarters. Performance was hurt by a 44.3% decline in the third quarter of the last fiscal year from the year-earlier quarter.

Looking Ahead: Analysts appear increasingly negative about the company's results for the next quarter. The average estimate for the third quarter has moved down from 41 cents a share to 40 cents over the last 60 days. A decreasing earning estimate is a negative sign and usually leads to a drop in the stock price. For the fiscal year, the average estimate has moved down from $1.87 a share to $1.81 over the last 60 days.

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