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Category: Stock Market and Kroger Company
Date: 7 March 2020 Stock Price: $32.04 We take a look at the 4th quarter earnings release of their 2019 fiscal year of Kroger one of the world's largest retail companies, with annual sales topping $122 billion.
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About The Kroger Company
With nearly 2,800 stores in 35 states under two dozen banners and annual sales of more than $121.1 billion, Kroger today ranks as one of the world’s largest retailers.
Mergers have played a key role in Kroger’s growth over the years. In 1983, 100 years after the company’s founding, Kroger merged with Dillon Companies Inc. in Kansas to become a coast-to-coast operator of food, drug and convenience stores.
The biggest merger in Kroger’s history came in 1999, when the company teamed up with Fred Meyer, Inc. in a $13 billion deal that created a supermarket chain with the broadest geographic coverage and widest variety of formats in the food retailing industry. The merger also enabled Kroger to generate huge economies of scale in purchasing, manufacturing, information systems and logistics. In an era when many larger mergers failed, the success of the Kroger-Fred Meyer merger stands out.
In 2014, Kroger finalized its merger with Harris Teeter, a regional chain of more than 200 stores. This merger brought to Kroger an exceptional brand and complementary base of stores in high-growth markets, primarily in the Mid-Atlantic region and the District of Columbia. Later that year, Kroger merged with Vitacost.com, one of the largest pure e-commerce companies in the nutrition and healthy living market. The company’s e-commerce platform accelerated Kroger’s entry into the e-commerce space by several years, bringing the ability to serve customers through ship-to-home orders, and expanding Kroger’s reach into all 50 states and internationally. Then in late 2015, Kroger merged with Roundy’s in Wisconsin, adding Pick ‘N Save, Metro Market and Mariano’s stores in Wisconsin and Illinois to the Kroger family.
Today Kroger offers a store format for nearly every kind of shopper. Our formats include supermarkets, multi-department stores, Marketplace stores, price-impact stores, and fine jewelry stores.
Mergers have played a key role in Kroger’s growth over the years. In 1983, 100 years after the company’s founding, Kroger merged with Dillon Companies Inc. in Kansas to become a coast-to-coast operator of food, drug and convenience stores.
The biggest merger in Kroger’s history came in 1999, when the company teamed up with Fred Meyer, Inc. in a $13 billion deal that created a supermarket chain with the broadest geographic coverage and widest variety of formats in the food retailing industry. The merger also enabled Kroger to generate huge economies of scale in purchasing, manufacturing, information systems and logistics. In an era when many larger mergers failed, the success of the Kroger-Fred Meyer merger stands out.
In 2014, Kroger finalized its merger with Harris Teeter, a regional chain of more than 200 stores. This merger brought to Kroger an exceptional brand and complementary base of stores in high-growth markets, primarily in the Mid-Atlantic region and the District of Columbia. Later that year, Kroger merged with Vitacost.com, one of the largest pure e-commerce companies in the nutrition and healthy living market. The company’s e-commerce platform accelerated Kroger’s entry into the e-commerce space by several years, bringing the ability to serve customers through ship-to-home orders, and expanding Kroger’s reach into all 50 states and internationally. Then in late 2015, Kroger merged with Roundy’s in Wisconsin, adding Pick ‘N Save, Metro Market and Mariano’s stores in Wisconsin and Illinois to the Kroger family.
Today Kroger offers a store format for nearly every kind of shopper. Our formats include supermarkets, multi-department stores, Marketplace stores, price-impact stores, and fine jewelry stores.
Overview of Kroger's 4th quarter 2019 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Sales: $28.893 billion (up from $28.286 billion from the same quarter of the previous year)
- Sales increased by 2.14% over the last 12 months
- Net income: $327 million (up from $259 million for the same quarter of the previous year)
- Net profit margin for Kroger: 1.13%
- Diluted earnings per share: $0.40 (down from $0.32 for the same quarter of the previous year)
- PE ratio of Kroger: 15.7
- Dividend declared for the quarter: $0.16 (up from $0.14 for the same quarter of the previous year)
- Dividend yield: 1.99%
- Diluted weighted-average shares outstanding: 804 million (down from 806 million for the same quarter of the previous year)
- Cash and cash equivalents: $393 million
- Cash and cash equivalents per share: $0.48
- Cash and cash equivalents makes up 1.5% of Kroger's market capital
- Cash and cash equivalents makes up 0.87 % of Kroger's total assets
- Accounts receivable: $1.692 billion
- Accounts receivable makes up 3.7% of the Kroger's total assets.
- Inventories: $7.084 billion (up from $6.241 billion for the same quarter of the previous year)
- Inventories makes up 15.6% of Kroger's total assets
- Inventories grew by 3.5% over the last 12 months
- Stockholders equity in Kroger: $8.573 billion
- Stockholders equity per share: $10.66
- The Kroger Company is trading at 3 times its stockholders equity per share which is within the expected range of between 2 and 4 times that most firms tend to trade at
- Cash generated from operations (for full fiscal 2019): $4.664 billion
- Cash generated from operations per share (for full fiscal 2019): $5.08
Kroger's management commentary on the results and earnings guidance
CINCINNATI, March 5, 2020 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today reported its fourth quarter and Fiscal Year 2019 results and will update investors on how the Restock Kroger framework is repositioning the company to create value for shareholders, customers and associates.
Comments from Chairman and CEO Rodney McMullen
"We are pleased with our 2019 results and improving trends in our supermarket business. We delivered on our commitments for ID sales without fuel, adjusted FIFO operating profit, and cost savings in addition to generating over $100 million of incremental operating profit through alternative profit streams in 2019. We also delivered strong adjusted free cash flow during the year, consistent with the total shareholder return model outlined at our Investor Day.
More importantly, the way that we delivered the year is consistent with our long-term financial model and sets us up to connect with customers in a deeper way. Restock Kroger is the right strategic framework to position the company for sustainable growth in the future, continue to improve the core business, and deliver strong total shareholder return. This transformational foundation supports our competitive moats today – Fresh, Our Brands and Personalization - as well as building a seamless ecosystem of the future."
Comments from Chairman and CEO Rodney McMullen
"We are pleased with our 2019 results and improving trends in our supermarket business. We delivered on our commitments for ID sales without fuel, adjusted FIFO operating profit, and cost savings in addition to generating over $100 million of incremental operating profit through alternative profit streams in 2019. We also delivered strong adjusted free cash flow during the year, consistent with the total shareholder return model outlined at our Investor Day.
More importantly, the way that we delivered the year is consistent with our long-term financial model and sets us up to connect with customers in a deeper way. Restock Kroger is the right strategic framework to position the company for sustainable growth in the future, continue to improve the core business, and deliver strong total shareholder return. This transformational foundation supports our competitive moats today – Fresh, Our Brands and Personalization - as well as building a seamless ecosystem of the future."
Capital Allocation Strategy
Kroger's capital allocation strategy is to use its adjusted free cash flow to invest in the business and drive profitable growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its adjusted free cash flow to achieve these goals.
Consistent with its financial strategy, Kroger reduced net total debt by $1.1 billion over the last four quarters. Kroger's net total debt to adjusted EBITDA ratio is 2.48, compared to 2.83 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. In total, Kroger returned $951 million to shareholders in 2019.
Kroger repurchased $400 million shares in the fourth quarter of 2019 under its $1 billion board authorization announced November 5, 2019. In 2019, Kroger increased the dividend by 14 percent, from 56¢ to 64¢ per year, marking the 13th consecutive year of dividend increases, which resulted in a payout of $486 million. The company's quarterly dividend has grown at a double-digit compound annual growth rate since it was reinstated in 2006. The company continues to expect, subject to board approval, an increasing dividend over time.
Kroger's capital allocation strategy is to use its adjusted free cash flow to invest in the business and drive profitable growth while also maintaining its current investment grade debt rating and returning capital to shareholders. The company actively balances the use of its adjusted free cash flow to achieve these goals.
Consistent with its financial strategy, Kroger reduced net total debt by $1.1 billion over the last four quarters. Kroger's net total debt to adjusted EBITDA ratio is 2.48, compared to 2.83 a year ago (Table 5). The company's net total debt to adjusted EBITDA ratio target range is 2.30 to 2.50. In total, Kroger returned $951 million to shareholders in 2019.
Kroger repurchased $400 million shares in the fourth quarter of 2019 under its $1 billion board authorization announced November 5, 2019. In 2019, Kroger increased the dividend by 14 percent, from 56¢ to 64¢ per year, marking the 13th consecutive year of dividend increases, which resulted in a payout of $486 million. The company's quarterly dividend has grown at a double-digit compound annual growth rate since it was reinstated in 2006. The company continues to expect, subject to board approval, an increasing dividend over time.
The Kroger Company (NYSE: KR) stock price history
The image below shows the stock price history of The Kroger Company over the last 5 years. And to be honest its not been a good time for The Kroger Company over the last 5 years. 5 years ago the stock of Kroger was trading at $38.20 and its currently trading at $32.04. That's a loss of -16.1% suffered by Kroger stockholders over the last 5 years.
The stock of Kroger Company is trading at closer to its 52 week high of $33.70 than it is to its 52 week low of $20.70 which to us is an indication that the short term sentiment and momentum of Kroger Company stock is very positive at this point in time.
The stock of Kroger Company is trading at closer to its 52 week high of $33.70 than it is to its 52 week low of $20.70 which to us is an indication that the short term sentiment and momentum of Kroger Company stock is very positive at this point in time.
Recent coverage of The Kroger Company
The extract below touches on the latest news regarding Kroger Company as obtained from TheStreet.com
Shares of Kroger (KR) rose Thursday after the nation’s largest grocery chain reported fourth-quarter earnings that beat analysts’ estimates. Adjusted earnings of 57 cents a share rose from 48 cents a year earlier and topped analysts’ forecasts of 55 cents, according to FactSet. Revenue rose 2.1% to $28.9 billion in the fourth quarter from $28.3 billion a year earlier. The latest figure matched analysts’ revenue projections.
Net income totaled $327 million, or 40 cents a share, up from $259 million, or 32 cents, a year ago. "We are pleased with our 2019 results and improving trends in our supermarket business,” Kroger CEO Rodney McMullen said in a statement.
“We delivered on our commitments for ID [identical-store] sales without fuel, adjusted FIFO operating profit, and cost savings in addition to generating over $100 million of incremental operating profit through alternative profit streams in 2019,” McMullen added.
Read the full article here.
Shares of Kroger (KR) rose Thursday after the nation’s largest grocery chain reported fourth-quarter earnings that beat analysts’ estimates. Adjusted earnings of 57 cents a share rose from 48 cents a year earlier and topped analysts’ forecasts of 55 cents, according to FactSet. Revenue rose 2.1% to $28.9 billion in the fourth quarter from $28.3 billion a year earlier. The latest figure matched analysts’ revenue projections.
Net income totaled $327 million, or 40 cents a share, up from $259 million, or 32 cents, a year ago. "We are pleased with our 2019 results and improving trends in our supermarket business,” Kroger CEO Rodney McMullen said in a statement.
“We delivered on our commitments for ID [identical-store] sales without fuel, adjusted FIFO operating profit, and cost savings in addition to generating over $100 million of incremental operating profit through alternative profit streams in 2019,” McMullen added.
Read the full article here.
The Kroger Company (NYSE: KR) latest stock valuation
So what are The Kroger Company stock worth considering their latest earnings release? Based on the earnings released and the outlook provided our valuation models set a target (full value) price for The Kroger Company of $36.10 a stock (down slightly from our 3rd quarter 2019 earnings report valuation of Kroger) . We therefore believe Kroger Company stock is undervalued.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $36.10. a good entry point into the stock of Kroger Company would therefore be at $ 32.50 or below.
We expect that the stock of Kroger Company will kick upwards from its current price to levels closer to our target price/ full value price in coming weeks and months.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $36.10. a good entry point into the stock of Kroger Company would therefore be at $ 32.50 or below.
We expect that the stock of Kroger Company will kick upwards from its current price to levels closer to our target price/ full value price in coming weeks and months.
Next earnings release of Kroger Company
It is expected that Kroger Company will release their 1st quarter 2020 earnings report towards in early June 2020