The Kroger Co. KR came out with third-quarter fiscal 2024 results, wherein the bottom line increased year over year and matched the Zacks Consensus Estimate. However, sales declined and missed the consensus mark due to the divestiture of Kroger Specialty Pharmacy and soft fuel sales. Management narrowed its guidance range for fiscal 2024.
That said, Kroger’s third-quarter sales reflected strength in its pharmacy and digital segments, highlighting the diversity of its business model. The company achieved growth in total households during the quarter by providing exceptional value to customers through competitive pricing, personalized offers and quality ‘Our Brands’ products. While management expects near-term macroeconomic uncertainty, it remains confident about delivering value to customers due to its robust business model.
On Oct. 4, 2024, Kroger completed the sale of its specialty pharmacy business for $464 million. This transaction led to a decline of roughly $340 million in the company's third-quarter sales compared to the prior year and is projected to lower annualized sales by about $3 billion moving forward.
Analyzing Kroger’s Q3 Outcome
Kroger delivered adjusted earnings of 98 cents a share, which came in line with the Zacks Consensus Estimate and increased from 95 cents reported in the same quarter last year.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The Kroger Co. Price, Consensus and EPS Surprise
The Kroger Co. price-consensus-eps-surprise-chart | The Kroger Co. Quote
Total sales of $33,634 million came below the Zacks Consensus Estimate of $34,255 million and declined from $33,957 million reported in the year-ago period. The year-over-year sales decline mainly resulted from the divestiture of Kroger Specialty Pharmacy and soft fuel sales, which were impacted by a reduced average retail price per gallon.
Excluding fuel and the impact of Kroger Specialty Pharmacy divestiture, the company’s sales increased 2.7%. We note that identical sales without fuel rose 2.3%. Digital sales grew 11% during the quarter under discussion.
We note that the gross margin was 22.9% of sales. The FIFO gross margin rate, excluding fuel, expanded 51 basis points compared to the same period last year. The gross margin expansion was driven by the sale of Kroger Specialty Pharmacy, the performance of ‘Our Brands’ and reduced shrink, partly countered by soft pharmacy margins.
The operating, general & administrative rate rose by 22 basis points, excluding fuel and adjustment items. This increase was primarily attributed to the divestiture of Kroger Specialty Pharmacy and higher incentive plan expenses, partially made up by ongoing cost-saving initiatives.
The adjusted FIFO operating profit came in at $1,017 million, down from $1,022 million reported in the year-ago period.
KR’s Financial Snapshot
Kroger ended the quarter with cash of $235 million, total debt of $22,601 million and shareowners’ equity of $12,894 million. Net total debt decreased by $1,814 million over the last four quarters.
The company guided capital expenditures in the band of $3.6-$3.8 billion and expects to generate adjusted free cash flow between $2.5 billion and $2.7 billion in fiscal 2024.
Kroger Narrows FY2024 View
Kroger narrowed its guidance range for fiscal 2024. The company now foresees identical sales without fuel to increase between 1.2% and 1.5% compared with its earlier view of 0.75% and 1.75% growth.
Adjusted earnings are now envisioned in the range of $4.35-$4.45 per share compared with the prior guidance range of $4.30-$4.50 per share. Kroger’s adjusted earnings came in at $4.76 in fiscal 2023. Management anticipates the adjusted FIFO operating profit in the band of $4.6-$4.7 billion for fiscal 2024 compared with $4.6-$4.8 billion projected before and $5 billion reported in fiscal 2023.
Shares of this Zacks Rank #2 (Buy) company have risen 14.6% in the past three months compared with the industry’s growth of 21.5%.
Other Stocks Hogging in the Limelight
Sprouts Farmers SFM, which is engaged in the retailing of fresh, natural and organic food products, currently sports a Zacks Rank #1 (Strong Buy). SFM has a trailing four-quarter earnings surprise of 15.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Sprouts Farmers’ current financial-year sales and earnings implies growth of 12.2% and 29.6%, respectively, from the year-ago reported numbers.
Ingredion Incorporated INGR manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1. INGR has a trailing four-quarter earnings surprise of 9.5%, on average.
The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.
Freshpet Inc. FRPT manufactures, distributes and markets natural fresh meals and treats for dogs and cats. It currently carries a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings implies growth of 27.3% and 224.3%, respectively, from the prior-year reported levels.
5 Stocks Set to Double
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Freshpet, Inc. (FRPT) : Free Stock Analysis Report
Ingredion Incorporated (INGR) : Free Stock Analysis Report
Sprouts Farmers Market, Inc. (SFM) : Free Stock Analysis Report
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