The Kroger Co (NYSE:KR) shares reversed earlier losses and rose after the supermarket chain reported second-quarter adjusted earnings that beat expectations and agreed on a nationwide opioid settlement that resulted in a $1.4 billion charge.
The company said the settlement, with payments scheduled over the next 11 years, won’t affect its ability to complete its proposed merger with US grocery rival Albertsons Companies Inc and it still expects to meet debt targets that were set out as part of the merger agreement.
Kroger said it agreed to pay up to $1.2 billion to states and subdivisions and $36 million to Native American tribes in funding for abatement efforts, and approximately $177 million to cover attorneys' fees and costs.
“This is an important milestone in the company's efforts to resolve the pending opioid litigation and support abatement efforts. Kroger has long served as a leader in combatting opioid abuse and remains committed to patient safety,” the company said.
“This settlement is not an admission of wrongdoing or liability by Kroger and Kroger will continue to vigorously defend against any other claims and lawsuits relating to opioids that the final agreement does not resolve.”
Earnings impact
In a separate results statement, the retailer said total sales for the quarter declined by 2.3% to $33.9 billion. Excluding fuel sales, they rose 1.1% from a year earlier.
It swung to an operating loss of $479 million from an operating profit of $954 million a year earlier. The opioid charge, which equates to $1.54 per share, resulted in a diluted loss per share of $0.25 from earnings of $1.01.
Adjusted earnings per share, which exclude the charge, rose 6.7% to $0.96, beating analysts’ consensus forecasts of $0.91.
"Kroger's second quarter results demonstrate the resiliency of our value creation model,” commented Kroger chief financial officer Garry Millerchip.
“While industry-wide disinflation continues to impact food-at-home sales, our team is doing an excellent job managing the effect on our business.
The company has reaffirmed its guidance for full-year of underlying growth in identical sales of 2.5% to 3.5% and adjusted net earnings per diluted share of $4.45 to $4.60, including an estimated benefit of $0.15 due to the addition of a 53rd week.
Separately, Kroger announced that along with Albertsons, it has entered a definitive agreement with C&S Wholesale Grocers, LLC for the sale of select stores, banners, distribution centers, offices and private label brands in connection with their proposed merger.
After opening lower, Kroger’s shares were up 3.9% at $47.06 shortly before midday in New York.
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Contact the author at stephen.gunnion@proactiveinvestors.com