What to look for when Lowe’s Companies reports Q2 earnings

Lowe’s Companies (NYSE: LOW) is scheduled to report its earnings results for the second quarter on Wednesday before the market opens. The results will be hurt by the convergence of cost pressure, a significant transition in merchandising organization, and ineffective legacy pricing tools and processes.

The company’s products revenue will be benefited by the in-store and online merchandise purchases, while services revenue will be driven by the professional installation services made through subcontractors. The majority of revenue for goods and services will be recognized in the quarter following revenue deferral.

The company’s future success depends on its ability to adapt the business concept to respond to customers’ changing shopping habits and demands as the home improvement retail environment is rapidly evolving. The results will be impacted by the failure to identify changing trends, business concept adaptation, implement change, growth and productivity initiatives.

The company has relied on the public debt markets to fund portions of its capital investments and the commercial paper market and bank credit facilities to fund its working capital needs. The company’s credit strength depends on liquidity and access to capital that relies on efficient, rational and open capital markets.

Analysts expect the company’s earnings to fall by 3.40% to $2.00 per share while revenue will rise by 0.30% to $20.96 billion for the second quarter. In comparison, during the previous year quarter, Lowe’s posted a profit of $2.07 per share on revenue of $20.89 billion. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters.

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For the first quarter, Lowe’s reported a 2% increase in earnings helped by a tax benefit arising from its sale of the assets of Mexico retail operations. Total sales rose by 2.2% and comparable sales grew by 3.5%. Comparable sales for the US home improvement business increased by 4.2%.

For fiscal 2019, the company expects total sales growth of about 2% and comparable sales to increase by about 3%. The earnings are predicted to be in the range of $5.54 to $5.74 per share and adjusted earnings are anticipated to be in the range of $5.45 to $5.65 per share.

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