Refinances push revenues in home improvement industry

Mortgage & Real Estate

While Lowe’s Companies’ earnings may have fallen short of Capital IQ Consensus estimate, they still increased from last year, a sign that more homeowners are no longer struggling, but looking to make home improvements.

In fact, recent financing activity continues to swing up and down, falling 4% from one week earlier, according to the newest data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending Aug. 12, 2016, however this comes just after last week’s rise, which was driven by a surge in refinance applications. 

A recent Fitch Ratings report suggested that the current low interest rate environment will drive some homeowners to refinance, pushing mortgage lending to its best year since 2013.

All in, the reports indicate a tendency of homeowners to stay put, and improve their current living environment, instead of attempting to move up the property ladder with a new mortgage origination.

What’s different about the homeowner approach to home financing than previous years, is that, according to a recent survey by Accenture, a company that provides a broad range of services and solutions in strategy, consulting, digital, technology and operations, borrowers increasingly view home equity loans as a means of making home improvements, less so as a potential source of cash for unseen challenges.

These home improvements are pushing sales forward in stores such as Lowe’s and Home Depot.

Lowe’s earnings increased 3.7% annually to $1.2 billion for the second quarter, which ended on July 29, 2016. Diluted earnings per share increased 9.2% to $1.31, up from last year’s $1.20.

This comes after last quarter when Lowe’s reported earnings of $884 million for the first quarter, a 31.4% increase over the same period a year ago.

For the first half of the year in 2016, net earnings increased 14% to $2.1 billion from the same period last year. Diluted earnings per share increased 20.5% to $2.29.

Sales for the U.S. home improvement business increased 1.9% for the second quarter and 4.4% for the six-month period.

“We delivered solid results for the first half of the year, in line with our expectations,” said Robert Niblock, Lowe’s chairman, president and CEO.

“We believe we are well positioned to capitalize on a favorable macroeconomic backdrop for home improvement in the second half of this year as we continue to execute on our strategic priorities to provide better omni-channel experiences, deepen our relationships with professional customers, and drive productivity and profitability,” Niblock said.

That being said, it’s no wonder that Lowe’s is experiencing strong growth. In fact, it expects the growth to continue as it plans to, among other things, increase sales by 10% and add 45 new home improvement hardware stores for the fiscal year of 2016.

That being said, while Lowe’s says their earnings came in in-line with their expectations, others aren’t as optimistic. Revenues rose 5.3% annually to $18.26 billion, missing the Capital IQ Consensus of $18.42 billion. Diluted earnings per share also came in below the estimated $1.42.

Lowe’s is losing ground to its rival, Home Depot, as Lowe’s fails to control its expenses, according to an article by Matthew Townsend for Bloomberg.

While Lowe’s fell short of analysts’ expectations, Home Depot did not, the article states.

This is a sharp contrast to last quarter, when Lowe’s beat Home Depot in same-store sales for the first time in 10 years.

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