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Kroger gains on earnings beat, proposed M&A

 

Monday, September 11, 2023

Today’s headlines

What’s happening: Shares of The Kroger Company rose on Friday, following the release of the company’s quarterly results.

What happened: The grocery store giant reported upbeat earnings for the second quarter, lending support to the stock.

Kroger also announced a comprehensive divestiture plan in connection to its proposed merger with Albertsons Companies.

How were the results: The Cincinnati-based supermarket chain reported a decline in sales for the second quarter, which also missed market estimates.

  • Sales fell 2.3% year-over-year to $33.85 billion, missing the consensus estimates of $34.13 billion.
  • Adjusted earnings came in at 96 cents per share, which exceeded Wall Street expectations of 91 cents per share.

Why it matters: Kroger, which has continued to lose market share to Walmart, is looking to merge with Albertsons Companies in a $24.6 billion deal, that would result in the combination of the nation’s two biggest grocery store chains.

Kroger and Albertsons also confirmed plans of selling 413 stores to C&S Wholesale Grocers for around $2 billion as part of their proposed merger. The divestiture agreement ensures that there will be no store closures as a result of the merger and that all associates remain employed.

Kroger’s identical sales, without fuel, rose by 1% during the second quarter. Its gross margin came in at 21.8%, while the FIFO gross margin rate, excluding fuel, expanded by 35 basis points year-over-year.

The company’s operating, general and administrative expenses grew by 28% year-over-year to $6.9 billion.

“By investing in price and providing more personalized offers, we are helping customers stretch their budgets and manage the ongoing effects of reduced government benefits, inflation and higher interest rates,” CEO Rodney McMullen said during the earnings call.

Management guided to identical sales, without fuel, of 1.0% to 2.0% for the full year. They also projected adjusted earnings of $4.45-$4.60 per share, versus market expectations of $4.51 per share.

How shares responded: Kroger’s shares gained 3.1% to close at $46.94 on Friday, following the release of quarterly results. The stock has lost around 5% over the past month.

What to watch: Investors will continue monitoring the merger between Kroger and Albertsons. The companies expect the merger to close in early 2024, subject to regulatory approval.

The markets today

Crude oil will be in focus today after closing higher on Friday

Context: Oil prices settled higher on Friday and recorded strong weekly gains.

Details: Both grades of crude oil, WTI and Brent, had settled at their highest levels since 2023 on Wednesday. Profit taking on Thursday put an end to the long winning streak. WTI ended a nine-session winning streak, while Brent snapped a seven-day rally on Thursday, as investors booked profits following the sharp rise in oil prices.

Gains last week came after Saudi Arabia announced plans to extend its output cut of 1 million barrels per day through the end of December, while Russia also lowered its oil exports by 300,000 barrels per day until the yearend.

The EIA data released last week showed US crude inventories declining by 6.3 million barrels last week, compared to market estimates of a decline of 2.1 million barrels.

Markets remain concerned, however, due to the slowdown in China’s economic growth and the US Federal Reserve seemingly ready for further rate hikes.

WTI crude oil for October delivery gained 64 cents to close at $87.51 per barrel on Friday, while Brent crude for November delivery added 73 cents to $90.65 per barrel.

In other energy trading, wholesale gasoline for October delivery gained 3 cents to $2.65 a gallon, while October heating oil rose 9 cents to $3.30 a gallon and October natural gas added 3 cents to reach $2.61 per 1,000 cubic feet.

What to watch: Markets will watch monthly data from the IEA (International Energy Agency), OPEC (Organization of the Petroleum Exporting Countries) and the US EIA (Energy Information Administration) this week. The OPEC is scheduled to release its monthly oil report on Tuesday, while the EIA is all set to release its report on Wednesday.

Traders also await the release of API’s (American Petroleum Institute) data on crude oil stockpiles on Tuesday and US EIA’s (Energy Information Administration) crude oil report on Wednesday.

Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.22%, 0.14% and 0.14%, respectively.

The news shaping the markets

South Korean President Yoon Suk Yeol announced plans to provide further aid worth $2 billion to Ukraine starting from 2025. The news sent the safe-haven US dollar index lower this morning.


Indonesia’s motorbike sales rose 1.8% year-over-year to 434,400 units in August, lending support to the IDR/USD forex pair.


China’s consumer prices rose by 0.1% year-over-year in August. The figure coming in better than market estimates of a 0.2% rise sent the CNY/USD pair higher in forex trading this morning.


Russia’s annual inflation rate accelerated to 5.2% in August, from 4.3% in the prior month, which exerted pressure on the RUB/USD forex pair.


US total consumer credit rose by $10.4 billion in July, versus a $14 billion increase in the prior month, which sent the Dow Jones index higher by around 75 points on Friday.

What else to watch today

Japan’s machine tool orders, Saudi Arabia’s industrial production, Turkey’s unemployment rate, industrial production, labour force participation rate and current account, Italy’s industrial production, South Africa’s manufacturing production, Mexico’s industrial production, Russia’s balance of trade, US consumer inflation expectations, India’s total passenger vehicles sales, China’s total vehicle sales, new yuan loans, outstanding loan growth, total social financing and money supply M2, as well as Central Bank of Brazil’s focus market readout.


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