Albertsons Q3 Hurt by Hurricanes; Outlook Lowered

CHICAGO – Albertsons Inc. (ABS), the No. 2 U.S. grocer, on Tuesday said quarterly profit fell 30 percent, missing Wall Street's expectations, as higher costs from hurricanes and pressure from discount retailers such as Wal-Mart (WMT) weighed on results.

The company, which put itself up for sale in September, also cut the top end of its earnings forecast for the year.

Albertsons said it does not expect to make any statements about the exploration of strategic alternatives unless or until a deal is executed and did not take questions during a conference call.

"We believe the company's clock is ticking to complete its strategic alternatives before bidders begin to shave valuation expectations or leave the table altogether," FTN Midwest analyst Jason Whitmer said in a research note.

Albertsons's stock lost steam this month after rising sharply in late October amid speculation of growing takeover interest and generous preliminary bids. The shares steadily dipped since, falling as much as 1 percent on Monday before settling down 22 cents at $24.66.

The shares were up 2 cents at $24.68 in early trading on Tuesday.

Whitmer said today's lack of news on potential deals "puts investors in an awkward position as the core business continues to deteriorate amid uncertain asset sales." He has a "neutral" rating on the shares based on the pending plans, but said fundamentals warrant a "sell."

Earnings in the third quarter that ended on November 3 fell to $77 million, or 21 cents per share, from $110 million, or 29 cents a share, a year earlier. Earnings from continuing operations fell to $81 million, or 22 cents per share, from $107 million, or 29 cents a share, a year earlier.

Excluding the impact of the storms that hit Louisiana, Texas and Florida, profit was 24 cents per share, compared with 32 cents in last year's third quarter, when four hurricanes hit Florida, the company said.

Analysts on average expected the Boise, Idaho-based company, which operates its namesake supermarkets as well as stores under such banners as Acme, Jewel-Osco and Sav-on Drugs, to earn 27 cents per share, according to Reuters Estimates.

Sales fell slightly to $9.95 billion from $9.974 billion, with identical-store sales, or sales at stores in operation for both full fiscal periods, down 0.5 percent.

Albertsons went up for sale after struggling to keep up with competition in the grocery business, particularly from Wal-Mart Stores Inc.

Grocery stores, which have suffered from Wal-Mart's rapid supercenter expansion, have responded by cutting prices and bringing in more upscale merchandise such as organic food.

Albertsons, which has nearly 2,500 stores, is also trying to differentiate itself with a marketing program that gives shoppers targeted offers when they use a loyalty card. The program, called avenu, was tested in Jewel-Osco and will be rolled out to all Albertsons chains starting in 2006.

Albertsons said it now expects to earn $1.37 to $1.40 per share this year. It had previously said earnings could be as high as $1.47.

Analysts, on average, expect Albertsons to earn $1.30 per share in its current fiscal year, which ends in January.

The company still expects comparable and identical store sales to rise this year.

Albertsons also said it would record a pretax gain of about $51 million in the fourth quarter related to work done on consolidating its Northern California distribution operations, a plan originally announced in 2004. Albertsons sold its San Leandro, Calif. distribution center and entered into a leaseback arrangement, and applied $94 million in net cash proceeds to reduce outstanding commercial paper borrowings.

The company said it cut $71 million in costs during the quarter and is still on track to meet its goal of cutting costs by $1.25 billion by the end of the next fiscal year.