Lowe’s Companies, Inc. Misses Another Round of Projections: Investors Concerned

Lowe’s Companies, Inc. (NYSE:LOW) recently downgraded forward earnings guidance. Where is this company headed long term?

| More on:

Lowe’s Companies, Inc. (NYSE:LOW), owner of Canadian hardware retailer Rona, has announced lower projections for fiscal year 2016 after two prior forecasts which showed rosier 2016 projections. The company has struggled in hitting its guidance estimates in contrast to its major competitors, such as Home Depot, which recently beat expectations with its Q3 earnings release and increased forward guidance for 2016.

Here’s why.

Store traffic remains slower than expected in Q3

Lowe’s notes in its third-quarter financial statements that the company “expected moderation in the second half of the year, [but] traffic slowed more than we anticipated in August and September before improving in October, which put pressure on our profitability in the quarter.” This slower than anticipated in-store traffic was offset partially by an increase in the average sale of 2.2%.

The company is operating in a mature industry with slowing sales, and this softening of traffic has been partially responsible for the company’s recent decline in stock price. The stock price of Lowe’s has dipped over 20% from its peak this past summer.

Overseas partnerships continue to be a drag on Lowe’s earnings

In the recent financial statements release, CEO Robert Niblock noted, “While we have made progress in driving productivity in recent years, we are in the process of evaluating meaningful incremental opportunities to drive shareholder value while continuing to meet customers’ needs in an omni-channel environment.”

This quote is a direct reference to the failed opportunities pursued in recent years, most notably a partnership in Australia, which resulted in a $290 million write-down in this most recent quarter. The partnership was with Hydrox, a company which operated a chain of hardware and home improvement stores throughout Australia, for which the company owned a one-third interest. The other party to the deal has similarly written down its ownership interest, initiating the winding down of the joint venture.

Where the company is going from here

Despite the recent negative news and forward earnings downgrade, Lowe’s continues to remain committed to returning value to shareholders–something I view as a long-term positive.

The company has announced that it has repurchased approximately $550 million of its stock during its repurchase program this past quarter; it also noted the $309 million in dividends it distributed to investors as well. For the fiscal year-to-date, Lowe’s has repurchased almost $3 billion of stock and delivered $815 million of dividends to investors. The payout ratio of the company is healthy, and the company returns the majority of its earnings to shareholders.

How the company performs over the coming quarters will be worth watching. I view the current policy of returning value to shareholders very positively, but it remains to be seen if the company can maintain earnings growth moving forward–the largest risk I see in the near future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any stocks mentioned. David Gardner owns shares of Lowe's.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »