01—Abstract
Summary
Summary of the 10-Q filed December 8, 2023. Cited figures are marked; the original filing is the authoritative source.
The Kroger Co. reported third-quarter 2023 results (quarter ended November 4, 2023) in this Form 10-Q, with sales of $33.96 billiona, down 0.7% from $34.20 billion a year earlier, and net earnings attributable to The Kroger Co. of $646 million, or $0.88 per diluted share, versus $0.55 in the third quarter of 2022.
For the first three quarters, sales were $112.98 billionb, net earnings were $1.43 billion ($1.95 per diluted share, down 20.1%), and adjusted net earnings per diluted share rose 5.6% to $3.42. The first three quarters included $1.5 billion of opioid settlement charges, which the company says cut diluted EPS by $1.60, and operating profit fell to $1.90 billion from $3.30 billion. Cash generation improved meaningfully.
Net cash provided by operating activities was $4.87 billionc for the first three quarters, compared with $3.34 billion a year earlier, and cash and temporary cash investments rose to $1.73 billion. Total debt including finance leases declined by $615 million to $12.8 billion from fiscal year-end 2022, and the company paid $586 million in dividends. Share repurchases were paused after the third quarter of 2022 to prioritize de-leveraging, with only $54 million repurchased in the first three quarters of 2023.
The filing also details the proposed merger with Albertsons Companies, Inc., at $34.10d per share before a $6.85 special dividend adjustment, with an expected adjusted cash price of $27.25. Following a September 2023 agreement, C&S Wholesale Grocers will acquire 413 stores and related assets for about $1.9 billion in cash, and the transaction is expected to close in early 2024 subject to regulatory clearance. The company also notes that the outside date is January 13, 2024, with extensions possible, and a $600 million termination fee may apply in certain circumstances.
02—Key points
Key Highlights
- Third-quarter net earnings attributable to The Kroger Co. were $646 million, or $0.88 per diluted share, compared with $398 million, or $0.55 per diluted share, in the third quarter of 2022.
- Adjusted net earnings per diluted share were $0.95 for the third quarter, up 8.0% from $0.88, and $3.42 for the first three quarters, up 5.6% from $3.24.
- Operating profit for the first three quarters fell to $1.90 billion from $3.30 billion, mainly reflecting $1.5 billion of opioid settlement charges recorded in the period.
- Net cash provided by operating activities for the first three quarters was $4.87 billion, compared with $3.34 billion a year earlier.
- Total debt including finance leases decreased $615 million to $12.8 billion as of November 4, 2023, from fiscal year-end 2022.
- A nationwide opioid settlement framework led to a $1.41 billion charge in the second quarter, with approximately $1.2 billion payable over 11 years and $177 million over 6 years.
- The proposed Albertsons merger remains pending, with a divestiture of 413 stores to C&S Wholesale Grocers for about $1.9 billion in cash and expected closing in early 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed December 8, 2023Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $33.96B$34.20B | −0.7% |
| Operating Income | $912.00M$841.00M | +8.4% |
| Interest Expense | $94.00M$119.00M | −21.0% |
| Net Income | $647.00M$400.00M | +61.8% |
| EPS (Basic) | $0.89$0.55 | +61.8% |
| EPS (Diluted) | $0.88$0.55 | +60.0% |
| Shares Outstanding (Basic) | 719.00M716.00M | +0.4% |
| Shares Outstanding (Diluted) | 725.00M724.00M | +0.1% |
05—Questions
Frequently Asked Questions
How did Kroger perform in the third quarter of 2023?
Sales were $33.96 billion, down 0.7% from the prior-year quarter. Net earnings attributable to The Kroger Co. were $646 million, or $0.88 per diluted share, compared with $0.55 a year earlier. Adjusted net earnings per diluted share were $0.95, up 8.0%.
What drove the decline in year-to-date earnings?
Results for the first three quarters of 2023 include opioid settlement charges of $1.5 billion, which the filing says amounted to a loss of $1.60 per diluted share. Operating, general and administrative expenses rose to 17.68% of sales from 15.87%, and operating profit fell to $1.90 billion from $3.30 billion.
What is the status of the Albertsons merger?
The merger agreement from October 13, 2022 provides for $34.10 per share, reduced by a $6.85 special dividend paid to Albertsons shareholders, for an adjusted expected price of $27.25. Kroger expects the transaction to close in early 2024, subject to regulatory clearance and other customary conditions. The agreement's outside date is January 13, 2024, which may be extended by up to 270 days in aggregate.
How is Kroger managing its balance sheet and capital returns?
Cash and temporary cash investments rose to $1.73 billion from $1.02 billion at fiscal year-end 2022, and total debt including finance leases fell by $615 million. The company paid $586 million in dividends in the first three quarters and repurchased only $54 million of stock, as share repurchases were paused in the third quarter of 2022.
What is the company's outlook?
Management expects the operating environment to remain challenged in the near term. It continues to target a net total debt to adjusted EBITDA ratio of 2.30 to 2.50 and a total shareholder return of 8% to 11% over time, excluding the effect of the proposed Albertsons merger.
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