Lowe's (NYSE: LOW) , the second-largest home-improvement retailer behind Home Depot(NYSE: HD), reported third-quarter results this morning. It appears that a chunk of the money generated from refinancings continues to find its way into Lowe's, as customers shell out to fix up their homes.

Sales shot up 18% to $6.41 billion, while comp sales improved by 4.1% in the quarter. Lowe's earned $339.2 million, ahead of last year's third quarter by a whopping 35%. On a diluted per-share basis, that's $0.43 versus the prior year's $0.32. Analysts were looking for $0.40, so Lowe's handily scores a win there.

There are other measures to applaud, too. Both gross and net margins ticked up. And the company's roughly $3.7 billion in long-term debt remained stable, which is a very good thing.

On the free cash flow front, however, Lowe's continued a slide it began in the second quarter of this year. It generated $406 million from operations and spent $540 million on capital expenditures, meaning it was in the hole (free cash flow-wise) for the quarter by $134 million. For the first nine months of the year, it is still ahead by about $585 million, thanks to a cash-rich Q1.

While we'd like to see positive free cash flow growth quarter after quarter, Lowe's is on an expansion blitz here. So far, the situation's not completely out of whack, but it's something to keep an eye on. With a paltry cash-to-long-term debt position, the last thing we want to see is the company taking on more debt to fund growth.

Looking ahead, it projects sales growth of 16% to 17% for the fourth quarter, and expects to earn $0.33 a share, in line with estimates. It plans to open 37 new stores in its Q4, bringing the 2002 total of new stores to 123. No word on whether Lowe's will reverse its declining free cash flow trend, but we'll be watching.