Q1 Preview: Analysts Moderate on Kroger (KR) Into Results; Fuel, Inflation are Headwinds

June 13, 2012 2:52 PM EDT
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Price: $33.58 -1.5%

Rating Summary:
    13 Buy, 13 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 22 | Down: 17 | New: 13
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Kroger (NYSE: KR) shares are lower Wednesday afternoon heading into the grocer's first-quarter 2012 report, expected out before the market opens Tuesday.

The Street is looking for earnings of 73 cents per share on revenue of $29.14 billion. The EPS consensus compares with 50 cents reported for Kroger's fourth-quarter and 70 cents in the same period last year, indicating a modest 4.3 percent year-over-year growth rate. Over the last six quarters, Kroger has beat views by an average of 5.4 percent.

Shares of Kroger moved just 1.6 percent lower to $23.15 during the last quarter. Shares are 7.3 percent lower since, and off 10.6 percent for the year. Over the last 52 weeks, Kroger has moved between $21.14 and $25.85.

Data from Bloomberg shows 13 analysts rate the stock a Buy, seven rate the stock a Hold, and three say Sell on Kroger. The Street's price target average is $25.75, with a low of $18 and high of $32.

Analyst Comments
  • Goldman Sachs is anticipating EPS of 72 cents, noting management guided to flat-to-slightly-higher EPS growth from last year's first quarter. Goldman sees comps up 4 percent, shy of the 4.9 percent consensus.

    The lower comps outlook stems from lower personal consumption expenditures, muted growth from Nielsen scanner data, and softer comps industry wide.

    Looking at fiscal 2012, Goldman sees guidance remaining flat: "a sharp moderation in inflation towards the end of the quarter will likely weigh on top-line trends heading into 2Q."

  • Deutsche Bank sees EPS of 72 cents, modeling non-fuel ID's growth of 4.5 percent.

    On IDs, Deutsche expects flat-to-slightly positive tonnage with the balance of IDs made up of higher average ticket (inflation driven). The firm sees FIFO gross profit margin down 70 basis points from last year, though that outlook might be a little conservative.

    Positive catalysts moving forward include (1) increased share buybacks; (2) a potential dividend boost; and (3) Analyst Day in mid-October. "Importantly, we see little downside risk at current levels," a Deutsche analyst said.

  • Cantor Fitzgerald is looking for EPS of 72 cents, recently lowered from an estimate of 74 cents. The firm cites tough comps on the cut along with a challenging operating environment. The firm based the EPS outlook on: i) non fuel IDs of 4.0%; ii) LIFO gross margin of 20.3% (down 100 bps); iii) OG&A of 15.2% (improvement of 50 bps over last year); iv) tax rate of 36.5%."

    Looking to the rest of 2012, Cantor is positive on Kroger's outlook based on an extra week in the fourth quarter, EPS benefit from under-funded pension plan consolidation, moderating inflation, and tailwinds from the generic pipeline.
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Kroger's past performance at StreetInsider's Kroger's Income Statement.

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