CHARLOTTE, N.C. — Lowe's Cos. reported a profit increase of nearly 11 percent yesterday for the third quarter and warned its fourth-quarter results would be weaker than expected.

But investors sent shares of the nation's second-largest home-improvement chain higher. One analyst said investors appear to be looking beyond the slowing housing market and deflation in certain commodity categories.

"The point is, everyone knows about the economic bad news. Now it's time to look forward," said Stephanie Hoff, senior retail analyst with Edward Jones. "This time next year, we should see a rebound."

Lowe's shares rose 10 cents to close at $30.58 on the New York Stock Exchange.

Lowe's said it earned $716 million, or 46 cents a share, for the three months ended Nov. 3, up from $646 million, or 40 cents a share, a year earlier.

Revenue rose to $11.2 billion from $10.6 billion a year earlier. But same-store sales, or sales in stores open at least one year, a key measure of industry performance, fell 4 percent.

"Much slower sales trends at Lowe's lately do not bode well for prospects for the company over the next several quarters," UBS analyst Brian Nagel said in a research note.

Analysts surveyed by Thomson Financial had been looking for net income of 43 cents a share on revenue of $11.49 billion.

Still, its net income was down from the $935 million reported in the second quarter as home-improvement chains face pressure from the weakening housing market.

For the fourth quarter, Lowe's expects a 4 percent decline in sales from last year's $10.8 billion, implying sales of $10.37 billion and missing analysts' revenue expectations of $10.8 billion.

"With a declining housing market as the backdrop, we believe that Lowe's will struggle with weak sales" over the next several quarters, Prudential analyst Mark J. Rowen wrote in a client note, adding that "shares will continue to be under pressure."

Lowe's and larger rival The Home Depot Inc. benefited from strong U.S. home sales and hurricane-related demand a year ago but now face difficult comparisons as the housing market cools.

Last week, Home Depot reported lower-than-expected third-quarter results and cut its full-year sales and profit forecasts, blaming the downturn in the housing sector.

Lowe's said fewer damaging hurricanes and lower lumber prices also hurt third-quarter sales, and it forecast a same-store sales decline of 4 percent to 6 percent for the fourth quarter, and a profit of 36 cents to 38 cents per share. Analysts expect 41 cents per share.

"If we had to declare a winner from Q3 results, it would be Home Depot," Credit Suisse analyst Gary Balter said in a research note. He added that while Lowe's has better distribution and cleaner stores, it trails Home Depot in sales per store and has not been as successful with contractors.

Lowe's chief executive Robert A. Niblock said he expects headwinds will remain through the end of the year and the first half of 2007, and told analysts on a call that the "second half of next year we should start trending more favorably."

Yesterday, the National Association of Realtors reported that sales of existing homes fell in 38 states during the summer, dipping to a seasonally adjusted annual rate of 6.27 million units nationwide, down by 12.7 percent from the same period a year ago.

"We have a more conscious consumer now because they hear about the housing trends," Niblock said. "Consumers will take a little breather, understand that we are moving through the housing cycle, and then traditional home-improvement projects will pick up."

Lowe's earnings increase, but weaker 4th quarter expected