Q4 Preview: Kroger (KR) Analysts Skeptical as Inflation Could Weigh on Volume

Shares of Kroger Company (NYSE: KR) are trading up about 0.4 percent Wednesday ahead of the release of the company's fourth-quarter results before the opening bell on March 1st.

The Wall Street quarterly consensus for Kroger is $0.49 per share in earnings on $21.43 billion in sales. During the fourth quarter of last year, the company reported earnings of $0.46 per share on $19.93 billion in total sales. The company’s guidance range calls for earnings of $0.44 to $0.49 per share.

For the full year 2011, analysts on the Street are currently estimating $2.00 per share in earnings on $90.40 billion in total sales.

The fourth-quarter conference call is scheduled for 10:00 am ET. Dial in: (866) 543-6411, Passcode 10358691.

According to data from Bloomberg, shares of Kroger have 12 Buy ratings, six Hold ratings and three Sell ratings. The average price target on shares of KR is $26 with a range from $18 to $31.

Analyst Comments:

• Goldman Sachs said it prefers The Fresh Market Company (NYSE: TFM) over Kroger; the firm continues to favor growing non-traditional grocers over mature traditional ones. Goldman anticipates EBIT will miss expectations by 3 percent as a result of incremental price investments, which were used to drive up deteriorating volumes.
  
  An analyst at Goldman said, “Beyond the quarter, we continue to believe that consensus estimates do not appropriately factor in the combination of cyclical and secular pressures in 2012. In contrast, current consensus estimates actually factor in improving EBITDA growth in each quarter of the year.”
  
  Goldman reiterated a Sell Rating and $21 price target on the company ahead of the release.
  
  
• Deutsche Bank recommended buying shares ahead of the release given Kroger's Customer First strategy, solid B/S & share repo and valuation current valuation, which stands at 10.5x FY12 earnings. The firm called the company “The Best House On a Bad Block” and believes despite the decline in volumes, Kroger will still gain market share.
  
  An analyst at Deutsche said, “KR’s competitive advantages—large scale, strong local market share positions, superior customer loyalty program, private brand portfolio-- are more evident in a difficult consumer environment. KR continues to leverage these advantages to drive out cost and invest in price; thus, KR remains priced below conventional competitors.”
  
  For the quarter, Deutsche forecasts earnings will total $0.49 per share. The firm reaffirmed a Buy rating and $28 price target on Kroger.
  
  
• Cantor Fitzgerald estimates earnings will total $0.47 per share for the quarter as sales volume declined by 50 basis points. The firm noted with inflation remaining around 6 percent, a 1-2 percent decline in volumes would not be a surprise.
  
  An analyst at Cantor Fitzgerald stated, “While we expect that fundamentals for Kroger will improve once the demand destruction from inflation abates, we lack visibility on when underlying improvement will take shape at the operating income level. As it relates to Q4, however, we expect to see some continued divergence between reported EPS growth and underlying volume/EBITDA trends.”
  
  Cantor Fitzgerald maintains a Hold rating and $24 price target.

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