Kroger Earnings Beat Estimates: Pick This Stock For A Slow And Steady Ride

  • Kroger delivered another solid beat on earnings, and raised its dividend slightly.
  • The gains were in the single digits, but come steadily.
  • Roundy's will add to debt, but also to sales, profits, and diversification.

Kroger Earnings Beat Estimates

Kroger (NYSE:KR) delivered another solid beat on earnings on Thursday morning, sending the stock higher. The gain wasn’t dramatic, and neither was the earnings beat, but both were solid and steady. If stocks like Amazon (NASDAQ:AMZN) are hares, Kroger is a turtle. Investors seeking diversification need to own both.

Quarterly profits for Kroger came in at $428 million, 44 cents per share, on revenues of $25.085 billion.

The profit gain of 19% came on sales rising 5.4%, excluding fuel, and the company guided its estimate on earnings for the full year up from $2.02 per share to $2.04. Including fuel, whose price was down year-over-year, per-store sales were up only 1%.

Shares spiked to as high as $39.33 in early trade before settling back down with the rest of the market to $38.93. The company’s shares had closed at $38.07 on Wednesday. Operating cash flow came in at $3.766 billion for the quarter, up 11% from the $3.384 billion achieved in the same period last year. Like many retailers the company operates on a fiscal year ending in January.

For the year, Kroger is unlikely to report sales larger than Costco (NASDAQ:COST), but it will take its place as the third-largest retail company in the country, behind Costco and Walmart (NYSE:WMT), and the largest grocery and “mainstream” retailer in the country by far. Kroger operates under many names in different parts of the country – it’s King Sooper in Denver, Dillon’s in Kansas City and Harris-Teeter in Charlotte for instance – and runs convenience stores, department stores like Fred Meyer, and jewelry stores as well.

Having noticed Kroger’s performance while writing for this site, I picked up 100 shares for my retirement account in February, and after a stock split, now have a capital gain of 6%, plus another 1.7 shares acquired through reinvested dividends. Not a home run, more like a ground ball with eyes, but a solid performance in a market, where the S&P 500 is basically flat on the year.

KR stock chart

Kroger stock price chart by amigobulls.com

TV analyst Jim Cramer praised the company’s management on Wednesday evening, before the earnings came out, and this was an important story in many newspapers, as Kroger is a major employer in many markets, with 400,000 employees overall.

Last month Kroger announced it is buying Roundy’s, which operates 151 groceries in the Midwest under a variety of names, including Mariano’s in Chicago. The $800 million cash deal is being financed with new debt, which will raise the debt-to-assets ratio over 33% until some of that debt is retired. The company could be hurt, then, by a rise in interest rates by the Federal Reserve, expected later this month.

Having a variety of stores under a variety of formats gives Kroger the opportunity to measure how various retail formats work, expanding-and-contracting the Kroger stores to accommodate. The success of stores like Harris-Teeter and Mariano’s in prepared foods, for instance, has resulted in Kroger increasing floor space in that area, and fresh vegetable space is also being increased in response to changes Kroger can see in the market from its various operators.

Kroger is not the kind of stock you trade. It tends to move slowly, but unlike other grocers it moves, responding to changes in the market. It’s the kind of stock that you can put in a portfolio and be proud of five years from now, or even (in my own case) one year from now.

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