Home Depot Beats Earnings Estimates, Raises Guidance

Home Depot HD reported another strong quarter Tuesday, topping second-quarter analyst estimates. Net income increased 12 percent to $1.53 billion, or $1.01 a share from $1.36 billion, or $0.86 per share in the year ago period. Analysts surveyed by Bloomberg projected earnings per share of $0.97 on average.

"Based on its year-to-date performance, the company raised its fiscal 2012 diluted earnings-per-share guidance and now expects diluted earnings per share to be up approximately 19 percent to $2.95 for the year," said Home Depot in a statement. "This earnings-per-share guidance includes the benefit of the Company's year-to-date share repurchases and the Company's intent to repurchase $1.4 billion in additional shares over the remainder of the year."

The Atlanta-based retailer reaffirmed that it expects full-year sales to rise 4.6 percent year-over year according to the statement.

The strong showing was largely credited to CEO Frank Blake's ability to navigate Home Depot through a tough existing housing market and a retrenched consumer. Blake has cut spending and improved the customer experience.

Through the use of new handheld technology devices, employees have been able to pinpoint inventory and expedite sales at the register. Operating expenses declined 2.7 percent to $4.46 billion and the average transaction value rose 1.8 percent, thanks in large part to these initiatives.

On CNBC's Squawk on the Street segment, Jim Cramer said Home Depot is one of the great American stories and the stock is undervalued. Shares have been steadily climbing over the past 12 months, rising from around $30.47 to $52.82 as of Monday's close. In early Tuesday trading, the stock was up 3.4 percent to $54.60, a new 52-week high.

Lowe's LOW initially traded higher by around 1.5 percent Tuesday in sympathy with Home Depot, but later traded down slightly for the day. Lowe's shares were hit hard after the company's failed bid to acquire Canadian home improvement and hardware retailer RONA in July. Following May highs, Lowe's shares dropped from around $32.10 to $25.60.

Home Depot has reported five consecutive quarters of increased same store sales, including a second-quarter increase of 2.1 percent. This second-quarter increase may have reaffirmed Home Depot's commitment to improving customers' experience.

In the Tuesday earnings release, Blake said, “As expected, second-quarter sales reflected the pull forward of seasonal activity into the first quarter. But we saw continued demand for core products and delivered second-quarter earnings above our expectations.”

The prospects for the home improvement sector largely depend on ongoing improvement in the new home sales market that has propelled home builder shares like Lennar LEN, The Ryland Group RYL, PulteGroup PHM and D.R. Horton DHI up between 25 percent and 60 percent since June lows.