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Growth & Income

Ruddick Corporation (RDK) recently delivered its sixth consecutive positive earnings surprise as business continues to improve. The stock has risen almost 50% year-to-date, but because estimates continue to rise too, valuation remains in check.

The company also recently announced its first dividend hike in three years. It is a Zacks #2 Rank (Buy) stock.

Company Description

Ruddick Corporation operates two subsidiaries: Harris Teeter, Inc., a regional supermarket chain in the southeastern and mid-Atlantic United States, and American & Efird (A&E), a global manufacturer and distributor of industrial sewing thread, embroidery thread and technical textiles.

Harris Teeter is definitely the bigger of the two, accounting for 93% of total revenue in the fourth quarter of 2010.

Fourth Quarter Results

Ruddick reported fourth quarter earnings per share of 64 cents, a 31% increase over the same quarter in 2009. This beat the Zacks Consensus Estimate by 8 cents.

Total sales for the fourth quarter increased 13.5% over the same quarter in 2009 due in part to an extra week of operations in the quarter. The Harris Teeter division saw sales growth of 12.5% due to incremental sales from new stores and the extra week. Same-store sales were down 0.1%.

A&E sales jumped 30.2% year-over-year thanks to a rebound in retail sales of the apparel and automobile industries.

Meanwhile, the overall gross margin inched up from 29.2% of sales to 29.4%, while operating profit increased 30%.

Outlook

The company stated that it remains cautious in its expectations for 2011 due to the current economic environment.

Nonetheless, estimates moved higher off the strong quarter. The Zacks Consensus Estimate for 2011 is $2.45, representing 7% EPS growth over 2009. The 2012 is $2.70, equating to 10% growth.

Dividend

Ruddick recently raised its quarterly dividend for the first time since 2007 - from 12 cents a share to 13 cents. It marks just the fourth increase since 2000, however.

The stock currently yields about 1.4%.

Valuation

Shares are trading at 15.5x forward estimates, a discount to the industry average of 17.1x. Its PEG ratio is a reasonable 1.3.

The price to book ratio of 2.1 is also slightly below the industry average of 2.3.

Ruddick Corporation was founded in 1891 and is headquartered in Charlotte, North Carolina. It has a market cap of $1.9 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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