Home Depot Inc. Earnings Leap Higher on Housing Market Recovery

By Markets Fool.com

Home Depot's profit machine keeps plugging along. The home-improvement retailer today announced first-quarter earnings results that included higher-than-expected profit and sales. Management also raised its full-year outlook as the housing market recovery continues.

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Here's a look at how the headline results stacked up against Wall Street's targets:

Metric Expected Actual
Revenue $20.8 billion $20.9 billion
Earnings $1.15 per share $1.16 per share

"Expected" is the average forecast of the 27 analysts who cover Home Depot stock. Source: Company financial filings and Yahoo! Finance.

Sales and profits
Sales growth beat analysts', and management's, expectations, with comparable-store sales rising 6% globally and a whopping 7% in the U.S. market. While a slowdown from the prior quarter's 8% gain, that overall comps figure represents significantly faster growth than most retailers can manage these days.

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Source: The Motley Fool.

"We had a stronger than expected start to the year as we experienced a more normal spring across much of the country and continued recovery of the U.S. housing market," CEO Craig Menear said in a press release. The "more normal" phrase refers to the extreme winter weather conditions that pushed sales growth down in the year-ago period.

Profits surged higher in the quarter, with earnings jumping 21% to $1.22 per share. Adjusting for a one-time tax benefit, Home Depot's per-share profit beat the Wall Street target by a penny.

Costs rose at a much slower pace than revenue, which improved profitability. Home Depot booked a 14% gain in operating income on just 2% higher costs. As a result, operating margin expanded from 11.6% of sales to 12.4%, putting the company on pace to easily reach its 13% long-term target this year.

Capital returns and outlook
Home Depot returned mounds of cash to shareholders in the quarter. Management spent $1.1 billion buying back stock, reducing the outstanding share count by 5%. The company's capital allocation plan calls for spending an additional $3.4 billion on buybacks this year as part of an $18 billion outlay through 2017. Home Depot also paid out $770 million in dividends, up from $650 million a year ago.

Meanwhile, Menear and his executive team raised their 2015 sales and profit guidance. Prior expectations had Home Depot booking comps growth of between 3.3% and 4.5%. But management now sees comps rising by between 4% and 4.6%, or just slightly below 2014's 5.5% jump. That's impressive considering that currency exchange rates are expected to lop $1 billion from the company's top line in 2015.

Home Depot now projects earnings to improve by double digits to roughly $5.25 per share this year, up from the initial target of $5.14 per share. The updated goal is just ahead of Wall Street's expectations.

The article Home Depot Inc. Earnings Leap Higher on Housing Market Recovery originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Apple and Home Depot. The Motley Fool recommends Apple and Home Depot. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.