Kroger Rings Up Big Gains

The grocer's stock surged to a new 52-week high Tuesday after boosting its earnings outlook

Kroger (KR)'s CEO David B. Dillon is winning more sales in his battle against the tough competition in groceries. When the company announced a better than expected profit for the recent quarter and raised its earnings forecast, investors bid up his company's shares on Dec. 5 to a new high of the year.

The Cincinnati-based company, which owns stores such as Kroger, Fry's, and City Market, said net earnings during the quarter ended Nov. 4 rose 15.8% to $214.7 million compared to the prior year.

As the company continued slashing prices on its products and getting more sales, earnings per share amounted to 30 cents. The mean analyst estimate had been for 28 cents per share, according to the San Francisco research firm StarMine, which aggregates data from Thomson Financial.

"Our associates continue to put customers first as Kroger's third quarter performance indicates," Dillon said in a press release. "These results once again demonstrate Kroger's ability to consistently deliver strong, sustainable growth over time."

Dillon said total sales increased 4.8% to $14.7 billion for the third quarter. Kroger is now expecting earnings per share growth in fiscal 2006 between 8 and 10%, compared to the 6 and 8% previously forecast.

Standard & Poor's equity analyst Joseph Agnese hiked his earnings forecasts for the company's fiscal year 2006 ended in January and fiscal year 2007, bringing a 12-month target price on the stock up by $2 to $28 per share. (S&P, like, is owned by The McGraw-Hill Companies.)

The stock climbed 4.8% to $23.39 per share in early afternoon trading on the New York Stock Exchange. It hit a 52 week high of $24.33 per share earlier Dec. 5.

"Kroger KR continued to generate impressive sales growth in its third quarter," said Morningstar analyst Mitchell P. Corwin in a research note. "While Kroger continues to perform well in a tough industry, we remain comfortable with our long-term assumptions for the firm." Corwin expects to keep a fair value estimate at $23 per share after reviewing the company's results in greater detail.

Kroger has been battling a host of rivals like Wal-Mart (WMT), Trader Joe's and Costco (COST) for customers in recent years.

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