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Kroger Surges After Strong Earnings, Announces Share Repurchase Program

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Thursday morning, Kroger (NYSE: KR) reported first quarter 2012 earnings per share of $0.78, exceeding the consensus analyst estimate by $0.06. The grocery store chain operator effectively matched the consensus analyst revenue estimate of $29.1 billion.

Kroger released management projections for full year 2012 EPS that exceeded analyst expectations. Kroger's management projected 2012 earnings per share in the $2.33 to $2.40 range, which fell entirely higher than analyst expectations of $2.32.

"We were very pleased with the results of the first quarter. We exceeded our expectations, and as a result raised our earnings per share guidance for the year," CEO David Dillon said in Kroger's Q1 earnings release.

Along with earnings, Kroger announced a $1 billion share repurchase program. Share repurchase programs are often viewed as a signal that management believes a company's shares are undervalued. In fact, Kroger management specifically said the company's stock is “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 S&P 500 Index was up about 4% during the same period.

Kroger has a quarterly dividend of $0.12. On the call, management said that they see the dividend growing in the future.

Following Thursday's news, shares of Kroger traded more than 4% higher for the day.

Other Kroger News

Kroger has been pursuing a “Customer 1st” strategy aimed at improving customers' shopping experiences. Consistent with this strategy, Kroger announced in March that it would stop selling “Lean Finely Textured Beef.” This beef had been widely known as pink slime, a modified form of beef that received negative attention from consumers.

Monday, Reuters reported that Kroger would release its own individual sized coffee packs for use in Keurig coffee makers. Green Mountain Coffee Roasters (NASDAQ: GMCR) produces Keurig coffee makers, but generates a substantial portion of its profit from selling K-Cups. Kroger-brand coffee packs could be a lower priced substitute for K-Cups, negatively influencing Green Mountain's bottom line. Thursday, Green Mountain was trading more than 10% lower than its Monday open.

Competitor Comparisons

Whole Foods Market (NASDAQ: WFM), a natural and organic food retailer traded higher Thursday after Kroger's earnings release. Investors might construe Kroger's Q1 success as a positive sign for grocery spending in general. 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.

On May 2nd, Whole Foods reported adjusted earnings per share that exceeded analyst expectations and raised management projections for full year 2012 earnings per share. For reference, Whole Foods is trading at a price-to-earnings (P/E) ratio near 41, while Kroger has a P/E ratio closer to 23.

Discount retailer SuperValu (NYSE: SVU) also traded higher after Kroger's Q1 earnings release. The company has a dividend yield near 7.7%, as compared to Kroger's 2.1% yield and Whole Food's 0.6% yield. On April 10, SuperValu released Q4 2012 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 traded more than 40% lower year to date.

Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.

Posted-In: Earnings Long Ideas News Guidance Short Ideas Dividends Dividends Buybacks Best of Benzinga


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