Earnings Scorecard: Kroger

The Kroger Company ( KR - Analyst Report ) holds a significant position among the nation’s largest grocery retailers, and remains committed to battle the tough economy, and keep its head high.

In the paragraphs that follow, we cover the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.

Last Quarter Synopsis

Kroger reported its fourth-quarter 2011 results on March 1, 2012. The quarterly earnings of 50 cents a share beat the Zacks Consensus Estimate by a penny, and rose 8.7% from 46 cents earned in the prior-year quarter. The increase in the bottom line came ahead of Kroger’s long-term goal of 6% to 8% growth.

Total revenue (including fuel center sales) climbed 7.7% to $21,405.8 million from the prior-year quarter, but fell short of the Zacks Consensus Estimate of $21,415 million.

Excluding fuel center sales, total revenue rose 5% and identical supermarket sales (stores that are open without expansion or relocation for five full quarters) climbed 4.9% to $16,525.3 million.

The Cincinnati-based Kroger now expects fiscal 2012 earnings between $2.28 and $2.38 per share.

Kroger, which faces stiff competition from Wal-Mart Stores Inc. ( WMT - Analyst Report ) and Whole Foods Market Inc. ( WFM - Analyst Report ) , predicted identical supermarket sales (excluding fuel) growth of 3% to 3.5% for fiscal 2012, including the anticipated adverse impact from prescription drugs coming off patent.

(Read our full coverage on this earnings report: Kroger Beats by a Penny)

Agreement of Estimate Revisions

The agreement of estimate revisions indicates that the majority of analysts were unidirectional following Kroger’s results.

In the last 7 days, 2 out of 16 analysts covering the stock raised their estimates, whereas 4 analysts lowered the same for the first quarter of 2012. For the second quarter, 4 analysts revised their estimates upward and none made a downward revision.

For fiscal 2012, 15 analysts increased their estimates, while none of the analysts revised their estimates in the downward direction in the last 7 days. As for fiscal 2013, 6 analysts made an upward revision to the estimate, while none lowered the same.

What Drives Estimate Revisions

Clearly, a positive sentiment is palpable among most of the analysts, who remain optimistic on Kroger’s performance. Following the earnings release, the Zacks Consensus Estimate has been portraying an upward trend with the majority of analysts remaining bullish on the stock.

The better-than-expected results and upbeat earnings guidance impressed the analysts, who went on to revise their estimates to better align with management’s guidance range. Going forward analysts remain confident about the company’s earnings growth potential, customer loyalty program, cost containment efforts, and increase in identical supermarket sales as well as share repurchase activity providing cushion to the bottom line.

However, a subdued operating income performance during the fourth quarter of 2011, kept some of the analysts on the back foot, in particular those who expect a somewhat similar performance in the first quarter of 2012. Moreover, analysts also feel that gross margin may remain under pressure due to higher fuel cost.

Magnitude of Estimate Revisions

The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.

The Zacks Consensus Estimate for the first quarter of 2012 dropped 4 cents to 73 cents a share in the last 7 days. For the second quarter, the Estimate climbed 3 cents to 49 cents a share.

For fiscal 2012 and 2013, the Zacks Consensus Estimates jumped 11 cents and 10 cents to $2.33 and $2.49, respectively, in the last 7 days.

Our Say

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain growth in top line, expand its store base, and boost its market share. The company’s customer-centric business model provides a strong value proposition to consumers. It is well positioned to continue its growth momentum primarily through identical supermarket sales growth.

Kroger is also actively managing its capital and returning much of its free cash to shareholders via share buybacks and dividends. Moreover, management continues to deploy capital to concentrate more on remodels, merchandising, and other viable projects.

The company currently operates 2,435 supermarkets and multi-department stores in 31 states under approximately 24 local banners. Currently, we have a long-term Outperform recommendation on the stock. Moreover, Kroger’s shares maintain a Zacks #1 Rank that translates into a short-term Strong Buy rating and correlates with our long-term view.

About Zacks Earnings Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education