Kroger (KR) Tops Q4 EPS by 14c; Issues Confident FY15 EPS Outlook

March 5, 2015 8:42 AM EST

Kroger (NYSE: KR) reported Q4 EPS of $1.04, $0.14 better than the analyst estimate of $0.90. Revenue for the quarter came in at $25.21 billion versus the consensus estimate of $25.19 billion.

Total sales increased by 8.5%. Total sales excluding fuel increased by 14.2%.

Financial Strategy

Kroger's long-term financial strategy continues to be to use cash flow from operations to maintain its current investment grade debt rating, repurchase shares, fund its dividend, and increase capital investments.

Kroger achieved its 2.00 – 2.20 net total debt to adjusted EBITDA ratio objective earlier than anticipated due to strong fiscal 2014 operating results. As of the close of the fourth quarter, net total debt to adjusted EBITDA ratio decreased to 2.15, compared to 2.43 during the same period last year (see Table 5).

Kroger's strong financial position allowed the company to return more than $1.6 billion to shareholders through share buybacks and dividends in 2014. During the fiscal year, Kroger repurchased 28.4 million common shares for a total investment of $1.3 billion.

Capital investments, excluding mergers, acquisitions and purchases of leased facilities, totaled $2.8 billion for the year, compared to $2.3 billion in 2013.

Kroger's strong EBITDA performance resulted in a return on invested capital for 2014 of 13.74%, compared to 13.43% for 2013.

Fiscal 2015 Annual Guidance

Kroger anticipates identical supermarket sales growth, excluding fuel, of approximately 3.0% to 4.0% for 2015. This range takes into account the expectation of lower inflation during the year.

Kroger sees FY2015 EPS of $3.80 - $3.90, versus the consensus of $3.72. This is consistent with the company's long-term net earnings per diluted share growth rate of 8 – 11%, growing off of 2014 adjusted earnings of $3.52 per diluted share. Shareholder return will be further enhanced by a dividend which is expected to increase over time.

For 2015, Kroger expects fuel margins to return to historical averages, a lower LIFO charge, and no comparable contributions to the pension and foundation; as a result, the company expects to achieve near the middle of the guidance range.

The company expects capital investments, excluding mergers, acquisitions and purchases of leased facilities, to be in the $3.0 to $3.3 billion range for 2015.

For earnings history and earnings-related data on Kroger (KR) click here.

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