Kroger shares surge after strong earnings

The company beats analysts' forecasts in first-quarter profit and 2012 projections, with management expecting future dividend growth.

By Benzinga Jun 14, 2012 6:25PM
Image: Dad and daughter selecting produce © Katrina Wittkamp/Lifesize/Getty ImagesBy Alex Shek, Benzinga Staff Writer

Kroger (KR) reported first-quarter earnings Thursday of 78 cents a share, beating analyst estimates by 6 cents. The grocery chain operator matched revenue estimates of $29.1 billion.


Kroger also impressed analysts with its full-year profit projections. Management estimated earnings for the year at $2.33 to $2.40 a share -- outpacing analyst expectations of $2.32.


The stock jumped 6.1% Thursday to close at $22.58.


"We were very pleased with the results of the first quarter," CEO David Dillon said in a statement. "We exceeded our expectations, and as a result raised our earnings per share guidance for the year."


Kroger also announced a $1 billion share repurchase program. Such programs are often viewed as a signal that management believes a company's shares are undervalued. In fact, Kroger management called the company's stock "inexpensive" in Thursday's earnings conference call.


Before Thursday's release, Kroger had beaten consensus analyst expectations for each of the previous four quarters. Despite these results, shares of Kroger were trading approximately 4% lower than they were 12 months ago. The Standard & Poor's 500 Index ($INX) was up about 4% during the same period.


Kroger has a quarterly dividend of 12 cents. On the call, management said that they see the dividend growing in the future.


Other Kroger news

Kroger has been pursuing a "Customer 1st" strategy aimed at improving a shopper's experience. Consistent with this strategy, Kroger announced in March that it would stop selling lean finely textured beef, otherwise known as "pink slime." The treated beef has received negative attention from consumers.


Kroger is planning to release its own single-serve coffee packs for use in the Keurig coffee makers made by Green Mountain Coffee Roasters (GMCR). Kroger-branded coffee packs could be a lower priced substitute for Green Mountain's K-Cups, and could negatively influence Green Mountain's bottom line. 


Competitor comparisons

Whole Foods Market (WFM), a natural and organic food retailer, traded higher Thursday after Kroger's earnings release. On May 2, Whole Foods reported earnings that exceeded analyst expectations and raised management projections for full-year profit.


Investors might construe Kroger's first-quarter success as a positive sign for grocery spending in general. For reference, Whole Foods is trading at a price-to-earnings (P/E) ratio near 41, while Kroger's ratio is closer to 23.


Alternatively, investors might interpret this success as a sign that consumers attempted to save money by purchasing food at Kroger, rather than more expensive stores like Whole Foods.


Discount retailer SuperValu (SVU) also traded higher after Kroger's earnings release. The company has a dividend yield near 7.6%, as compared to Kroger's 2.04% yield and Whole Foods' 0.6% yield. 


On April 10, SuperValu released fourth-quarter adjusted EPS and full-year 2013 management EPS projections that exceeded analyst expectations. Bloomberg reported Thursday that SuperValu might attract private equity buyers on the basis of the company's free cash flow. SuperValu closed Thursday down over 43% this year.


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