Updated from 7:28 a.m. EST

Home Depot

(HD) - Get Report

said third-quarter earnings rose a better-than-expected 15% from last year as consumers continued to spend money to fix up their homes.

The company earned $1.32 billion, or 60 cents a share, in the three months to Oct. 31, compared with earnings of $1.15 billion, or 50 cents a share, last year. Analysts were expecting earnings of 57 cents a share, according to Thomson First Call.

"The strength of our core retail business, coupled with our growing services and professional supply businesses, is delivering solid returns," Home Depot said. "Our business strategy of enhancing the core, extending the business and expanding our markets is clearly driving consistent, profitable sales growth."

The company applied its third-quarter upside to its full-year forecast and said its 2004 profit is now likely to rise 19% to 20% over 2003, up from its old estimate of 14% to 17%.

Revenue in the third quarter rose 13% from a year ago to $18.78 billion, beating estimates calling for sales of $18.28 billion.

The results, combined with third-quarter sales and profit gains at its chief competitor,

Lowe's

(LOW) - Get Report

, are evidence of a trend in consumer spending, according to a report published by Customer Growth Partners LLC, a retail and marketing consultancy. The report said consumers are veering away from spending on disposable goods towards items with "sustained investment value," particularly home-related purchases.

Reflecting the trend, the

S&P 500

and the

Nasdaq Composite

have declined by 10% and 18% respectively since July 2001, while existing single-family home prices have appreciated by 28%, based on data through August from the National Association of Realtors.

Home Depot said its return on invested capital was 21.4% in the 2004 third quarter, up 260 basis points from a year ago. The average customer purchase in the period was $55.53, up 6.6% from a year ago. "We experienced average ticket growth across the store because of an enriched merchandising mix of products," the company said.

Home Depot's customer data reflected strong gains in shopping experience satisfaction, with improvements in speed of checkout and helpfulness of store employees.

"Our commitment to store modernization is paying off," Bob Nardelli, Home Depot's chairman, president, and chief executive said during a conference call with analysts.

Sales at its stores in Florida increased during the quarter, due to rebuilding purchases in the wake of a harsh hurricane season. CFO Carol Tome said the increase was offset by the rise in storm-related expenses and the company did not receive any earnings boost from the hurricanes.

Nardelli expressed enthusiasm about the acquisition of White Cap, a supplier for general contractors. He said the platform has penetrated a new $400 billion market for Home Depot, and it also provides valuable purchasing synergies.

"This business is exceeding expectations," he said.

He also pointed to strong growth in new North American markets like Mexico, where stores are showing double-digit comp growth; Canada and Manhattan.

Shares of Home Depot were recently down 77 cents, or 1.8%, to $43.02.