Kroger CEO: Food deflation is 'not fun'

Sagging food prices continued to weigh on the nation's largest supermarket chain Kroger, which said 2016 profits will fall toward the lower end of expectations.

Kroger reported a $391 million profit for the third quarter – an 8.6 percent drop from the same period last year.

Total sales rose 5.9 percent to $26.6 billion during the quarter ended Nov. 5, reflecting the acquisition of Milwaukee-based Roundy's in December 2015. Identical store sales excluding fuel barely rose 0.1 percent.

In the comparable 2015 period, the Cincinnati-based supermarket chain posted a $428 million on sales of $25.1 billion.

Kroger's 41 cents of earnings per diluted share met Wall Street expectations, while sales outperformed slightly. Analysts expected Kroger to report a $390 million profit before one-time items on sales of $26.3 billion, according to Bloomberg.

The grocer said falling food prices continued to impact financial results. Kroger CEO Rodney McMullen told analysts on a Thursday conference call this was the third deflationary cycle in the past 30 years. He said previous cycles have hit Kroger's results for three to five financial quarters.

"We're in the middle of this cycle and it's not fun," McMullen told analysts, adding the company was "firmly focused" on our long-term strategy of courting customers and processing changes to lower costs. "We don’t change our strategy based on quarterly swings in results."

Some food staples that have slipped nationwide from a year ago: iceberg lettuce has dropped 23.8 percent to 95 cents per pound; peanut butter, down 9.3 percent to $2.50 per 16-ounce jar; bacon is down 8.9 percent to $5.38 per pound; frozen concentrate orange juice, down 7.4 percent to $2.55 per 12-ounce can; ground beef is down 6.6 percent to $5.69 per pound; pork chops are down 6.3 percent to $3.63 per pound; white bread is down 5.3 percent to $1.34 per loaf; and a gallon of milk has slipped 1.4 percent to $3.29, according to the U.S. Bureau of Labor Statistics.

Looking ahead, the company expects slightly positive identical supermarket sales growth excluding fuel.

Kroger narrowed its net earnings guidance range to $2.03 to $2.08 per diluted share for 2016 from the previous range of $2.03 to $2.13. The numbers suggest the company expects to earn a $1.9 billion to $2 billion annual profit.

Kroger's stock dropped as much as 3.7 percent in early trading, but shares recovered within the first hour of the market open and were even up as much as 1.7 percent. Shares were trading at $32.40, up 10 cents or 0.3 percent.


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