December 8, 2009

AutoZone and Kroger Co. Earnings Report

Many investors sold their positions throughout the December 8 trading session, as an increase in the value of the Dollar and Treasuries aided in the market’s down day. The selloff was also attributed to a weaker than expected earnings report from Kroger Co., a lowered earnings forecast from 3M Co. (MMM) and a weak sales report from McDonald’s Corp. (MCD).

With earnings season winding down, there were only a handful of companies reporting on Tuesday. First off was the nation's leading specialty retailer of automotive parts and accessories, AutoZone Inc. (AZO). Prior to the opening bell, AutoZone announced that earnings during the 1Q advanced year-over-year, as cash conscious customers repaired older vehicles rather than purchasing new ones.

For the quarter, AZO posted a net profit of $143.3M, or $2.82 per share, compared to last year’s 1Q profit of $131.4M, or $2.23 per share, an increase in earnings of more than 9%. Results were bolstered by the company’s 38 new store openings, while existing stores showed improvements.

Net sales for the period came in at $1.59B, up from last year’s tally of $1.48B, an increase in revenues of 7.4%. Meanwhile, same store sales were up 5.6%, in contrast to last year’s 1.5% decrease. On average, analysts within the industry were looking for a quarterly profit of $2.66 per share based on $1.59B in total revenues.

Commenting on the company’s results was Bill Rhodes Chairman, President and CEO, "We are pleased to report a 26.4% increase in diluted earnings per share, which is our 13th consecutive quarter of double digit EPS growth. I would like to thank all AutoZoners across North America for their dedication and commitment to providing the type of customer service and trustworthy advice our customers have come to expect from AutoZone. This past quarter, both our Retail and Commercial businesses reported strong sales growth."

As trading concluded, shares of AZO were up 2.3%, adding $3.54 to end the day at $156.90 per share. During the past year, the company’s stock has traded within a broad range, reaching a high of $169.99 per share, while dipping as low as $115.26 per share.

Operating as one of the larger grocery retailers in the U.S., Kroger Co. (KR) made it known that the company recorded a net loss for the 3Q, as a massive write-down destroyed the bottom-line. During the quarter, Kroger reported a net loss of $875M, or $1.35 per share, versus a net profit of $237.7M, or $0.36 per share a year ago.

Kroger took a $1.05B charge related to the company’s Ralph’s grocery units, stating that California’s double-digit unemployment rate and housing slump exacerbated the situation. Excluding the writedown, Kroger would have posted a profit of $176.7M, or $0.27 per share.

Overall sales advanced marginally year-over-year, climbing from $17.6B to $17.7B. Same store sales, a key economic indicator, increased 1.3% during the quarter. Analysts, on average, were looking for the grocer to post a quarterly profit of $0.37 per share based on total sales of $17.69B.

David Dillon, Chairman and CEO of Kroger, remarked, "The operating environment we saw during the third quarter was more challenging than we anticipated, obscuring some otherwise strong fundamentals in our performance such as exceptional tonnage growth, market share gains, increases in loyal household count, and good cost control. These fundamentals are important to our long-term success."

Kroger, for the second straight quarter, downwardly revised its full-year earnings outlook and is now expecting an annual profit between $1.60 and $1.70 per share. That is down from a previously stated range of $1.90 to $2.00 per share. Analysts are looking for a yearly profit of $1.94 per share.

Following the announcement, shares of Kroger plunged nearly 12% by the close, falling $2.72 to close out the day at $20.13 per share. Throughout the past year, the company’s stock has been able to reach a high of $27.59 per share, while dipping as low $19.39 per share.

Also reporting before the market’s opening was Sanderson Farms Inc. (SAFM), a fully integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products. Reporting for the 4Q, Sanderson posted a profit during the period, following a reduction in overall expenses and a dip in grain prices.

During the quarter, Sanderson posted a profit of $19.8M, or $0.96 per share, compared to a net loss of $51.9M, or $2.56 per share from a year ago. Sales for the period advanced year-over-year, increasing from $460.23M to $469.02M, a 2% jump.

The company's Chairman and CEO Joe Sanderson, commented on the results, “While the overall chicken market improved during our fourth fiscal quarter compared with the same period a year ago, market conditions were less favorable than the third quarter of this fiscal year. However, we continued to benefit from lower grain prices, with improved profitability over the prior year."

The bottom-line was bolstered by a reduction in total costs and expenses, which fell from $544.56M to $438.08M, a decrease of nearly 20%. On average, analysts within the industry were looking for the chicken processing company to post a 4Q profit of $0.93 per share based on $451.05M in total sales.

For the full year, Sanderson recorded net earnings of $82.32M, or $3.99 per share, versus a net loss of $43.13M, or $2.13 per share from a year ago. Total sales for the past 12 months came in at $1.79B, up 4% from the previous year’s tally of $1.72B. Analysts had anticipated a yearly profit of $3.98 per share on $1.77B in total revenues.

By the sound of the closing bell, shares of SAFM were up more than 3%, gaining $1.44 to conclude the day at $43.86 per share. Within the past year, Sanderson has witnessed its stock price rise as high as $49.39 per share, while slipping to an annual low of $26.62 per share.

The price of crude retreated for the fifth consecutive day, as a stronger Dollar pushed commodity prices lower. Analysts believe that supplies will increase in Wednesday’s crude report, which would mark the seventh increase in the past ten weeks. By the close of trading, the price for a barrel of light, sweet crude for January delivery slipped $1.31 to settle at $72.62.

In additional NYMEX, heating oil slipped $0.0188 to $1.9909 a gallon, while gasoline receded by $0.016 to $1.9246 a gallon. Meanwhile, natural gas added $0.143 to $5.114 per 1,000 cubic feet.

At the pump, gas prices increased marginally overnight to a new national average of $2.634 a gallon. A gallon of regular unleaded sits $0.035 below last month’s prices, yet is $0.918 higher than prices a year ago.

The U.S. Dollar advanced in value against many of the world’s currencies heading into the early evening hours, as the markets posted losses on concerns over credit ratings and weakened demand in commodities. By late afternoon, the 16-nation Euro slipped against the greenback, buying $1.4699, down from last night’s price of $1.4823. The British pound also lost ground versus the Dollar, buying $1.6287, down from the previous session’s price of $1.6439.

In additional Forex trading, the Dollar retreated against the Japanese yen, buying 88.40, down from the price on Monday of 89.48. The Dollar advanced to 1.0635 Canadian dollars from 1.0531 and increased to 1.0273 Swiss francs from 1.0192 francs

As the markets pushed lower, the value of government-backed securities increased. At the close of trading, the benchmark 10-year note jumped 7/32 to 99 24/32, while its yield slipped to 3.40%, down from the previous session of 3.43%.

The longer maturing 30-year moved in the opposite direction from the 10-year note, falling 1/32 to 99 25/32 while its yield remained unchanged at 4.38%. Lastly, the shorter 2-year note inched higher, adding 2/32 to 100 1/32, as its yield slipped 0.03% to 0.73%.

As the December 8 session concludes, the Dow Jones Industrial average slipped 104.14 points, or 1.0%, to end the day at 10,285.97, while the broader market indicators finished in negative ground as well.

The S&P 500 index slipped 11.32 points, or 1.0%, to end the session at 1,091.93, while the tech-heavy NASDAQ composite index retreated by 16.62 points, or 0.8%, at 2,172.99.

2009 Better Trades Article

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BRIAN MULLIN