Kroger Earnings Call Summary: Positive Earnings and Guidance - Kroger (NYSE:KR)

KrogerKR

released the results of its Q1 2014 sales and guidance in its conference call Thursday morning. Kroger CEO Rodney McMullen expressed concerns of grocery inflation, but added that consumers are less cautious about spending. Overall Kroger's Q1 2014 conference call was relatively positive regarding its earnings and guidance. Shares of Kroger increase 5.06 percent, closing Thursday at $49.66 a share.

Highlights from the call:/b>

Estimate grocery inflation excluding pharmacy, to be 1.8 percent in Q1 and 2.1 percent with pharmacy included

Positive synergies show with Kroger's previous merger with Harris Teeter.

Real time temperature checks by store associates to assure fresh produce. Intentions of interactive sensors for temperature checks connected to an in-store network to save time and money.

Two external factors that affect financial results are rising healthcare costs and pension costs.

Super market sales growth guidance less fuel to be between three to four percent for fiscal 2014 (including Harris Teeter), original guidance was between 2.5 to 3.5 percent.

Return on investment capital on 52 week rolling four-quarters basis 13.5 percent, in line with returns on investment capital during last years Q1.

LIFO charges of $28 million, a $1 million increase from last years.

Corporate bands boosted sales growth, contributing approximately 26.2 percent of total units sold and 24.5 percent of sales, excluding fuel and pharmacy.

Net earnings totaled $501 million, or 98 cents per diluted share, includes charges related to the restructuring of certain employees pensions. Adjusted net earnings was $557 million, or $1.09 per diluted share for Q1. Net earnings in the same period last year were $481 million, or $0.92 per diluted share.

Kroger's goal is to keep its debt-to-EBITDA between 2 to 2.2 by mid to late 2015. It's current net total debt-to-EBITDA -adjusted EBITDA ratio, which is 2.42x compared to 1.85x during Q1 in 2013, this effect is due to the acquisition of Harris Teeter.The company expects to be closer to 2.2 times by the end of the year.

Kroger's net total debt is $11.3 billion, a $3.4 billion increase from a year ago, resulting from debt related to the Harris Teeter transaction and Kroger share repurchase activity.

Returned more than $1.9 billion to shareholders through buybacks and dividends over the last four quarters, dividends are expected to increase over time.

Repurchased 25.7 million common shares in Q1 2014, making a total investment of $1.1 billion.

Capital investments (excluding purchases of leased facilities and M&A) totaled $709 million in Q1 2014, $69 million more than Q1 2013's $640 million. Kroger projects capital investments to be in the $2.8 billion to $3.0 billion range including Harris Teeter for fiscal 2014.

Kroger narrowed its adjusted net earnings guidance to be between $3.19 to $3.27 per diluted share for FY 2014, previous guidance was to be between $3.14 to $3.25 per diluted share.

Comments from Kroger CEO Rodney McMullen: “We also achieved our 42nd consecutive quarter of positive identical supermarket sales, exceeded our goal to slightly expand FIFO operating margin without fuel on a rolling four-quarter basis, maintained a steady return on invested capital while increasing capital investment. We are achieving synergies from our merger with Harris Teeter; both Mike's will have more to say about this in a few minutes. And we returned over $1 billion in cash back to our shareholders this quarter through our buyback program.” “Our customers have exhibited less cautious spending behavior, for example. Consistent with the rise in consumer confidence index in May, our own customer research tells us that more customers perceive the economy to be in recovery. While it is obviously welcome news, the recovery remains fragile, especially for customers on a budget.”

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