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Dow Jones News: Home Depot Slashes Outlook; Microsoft Powers Ahead of Slack

By Timothy Green - Nov 19, 2019 at 2:07PM

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Sales growth will be lower than expected this year for Home Depot, and Microsoft Teams is gaining millions of users.

Home Depot ( HD 0.11% ) dragged down the Dow Jones Industrial Average ( ^DJI 1.40% ) on Tuesday thanks to a mixed earnings report and a guidance cut. The Dow was down 0.34% at 1:35 p.m. EST, badly trailing the other major stock indices.

While Home Depot stock sank, shares of Microsoft ( MSFT 2.68% ) managed a small gain. The trillion-dollar software company disclosed that its Teams product was racking up millions of users, a blow to rival Slack Technologies ( WORK ).

Home Depot lowers its outlook

Home improvement retailer Home Depot's third-quarter results were far from bad. Comparable sales grew 3.6%, which drove a slight increase in earnings per share (EPS). But the company fell short of analyst expectations, and it cut its full-year guidance because various strategic investments are taking longer than expected to bear fruit. The stock was down 5.1% on the news.

A Home Depot store.

Image source: Home Depot.

Home Depot produced third-quarter revenue of $27.2 billion, up 3.5% year over year but $290 million below the average analyst estimate. EPS was $2.53, up from $2.51 in the prior-year period and exactly what analysts were expecting.

"Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments," explained Home Depot CEO Craig Menear.

Home Depot maintained its full-year EPS guidance of $10.03, up 3.1% from 2018. But the company was forced to lower its outlook for revenue. Home Depot now expects 2019 sales to grow by 1.8%, down from a previous outlook of 2.3%. Comparable sales are now expected to rise 3.5%, instead of the 4% previously expected.

Shares of Home Depot have soared this year, still up about 32% year to date. But with softening sales growth, investors took a step back after the report.

Microsoft Teams hits 20 million users

Workplace messaging software company Slack sells a popular product, with 12 million daily active users and more than 100,000 paying customers. But despite its popularity, shares of Slack have tumbled since the company went public earlier this year. Slack stock is down around 45% from its all-time high.

One reason for the poor performance is Microsoft. The software giant is waging war on Slack, and its weapon is Microsoft Teams. Microsoft has been able to drive Teams usage by bundling it with some of its Office 365 business plans, giving it a pretty serious advantage.

On Tuesday, Microsoft announced that Teams had reached 20 million daily active users. That beats Slack by a wide margin, although Microsoft essentially giving away Teams for free to some Office 365 users muddles the comparison. Still, it's an impressive feat.

Shares of Microsoft were up 0.3% Tuesday, while shares of Slack had plunged roughly 10%. While Slack is a disruptive company, Microsoft turned around and disrupted the disrupter. It will be difficult for Slack to ever live up to its nosebleed valuation with Microsoft on the attack.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

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Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
$334.92 (2.68%) $8.73
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$416.18 (0.11%) $0.48
Slack Technologies, Inc. Stock Quote
Slack Technologies, Inc.
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$35,719.43 (1.40%) $492.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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