Albertsons (ACI) Q3 Earnings Beat, Pharmacy Sales Surge
Albertsons Companies, Inc. ACI reported third-quarter fiscal 2023 results, wherein both the top and bottom lines beat their respective Zacks Consensus Estimate. While the top line increased, the bottom line decreased year over year.
ACI has demonstrated a strong commitment to enhancing operational excellence in stores, expanding its digital and pharmacy operations, and deepening customer relationships. This approach has been its pivotal strategy.
In the fiscal third quarter, the company continued to focus on its ambition to create "Customers for Life." Despite facing challenging economic conditions, ACI maintained its dedication to this strategy, achieving solid results through its concerted efforts in various operational areas.
Q3 Performance in Detail
Albertsons, which entered into an “Agreement and Plan of Merger” with Kroger on Oct 13, 2022, posted adjusted quarterly earnings of 79 cents per share, surpassing the Zacks Consensus Estimate of 66 cents. However, the bottom line declined from 87 cents reported in the prior-year period.
Net sales and other revenues were $18,557.3 million, up 2.2% year over year. The top line outpaced the Zacks Consensus Estimate of $18,271 million. The upside was driven by a 2.9% rise in identical sales with growth in pharmacy sales.
With respect to product type, the company experienced a minor dip of 0.1% in non-perishable sales of $9,242.8 million. Fresh and Fuel sales declined 0.9% and 5.8%, respectively, to $5,709 million and $1,046.7 million. In contrast, there was a significant boost in pharmacy net sales, soaring 32.4% year over year to $2,282.8 million. Additionally, digital sales, primarily driven by home delivery and Drive Up & Go curbside pickup services, climbed 21%.
Albertsons Companies, Inc. Price, Consensus and EPS Surprise
Albertsons Companies, Inc. price-consensus-eps-surprise-chart | Albertsons Companies, Inc. Quote
The gross profit amounted to $5,197.3 million, up 1.4% year over year. The gross margin experienced a contraction, settling at 28.0% compared with 28.2% in third-quarter fiscal 2022.
Excluding the impacts of fuel and LIFO expenses, the gross margin rate decreased 64 basis points from the third quarter of fiscal 2022 levels. This decline was primarily caused by robust growth in pharmacy operations, which generally have a lower gross margin rate, and an increase in shrink. These factors were partially mitigated by ACI's effective procurement and sourcing productivity initiatives.
During the quarter, selling and administrative expenses increased 1.7% to $4,607.3 million and leveraged 20 basis points to 24.8%, as percentage of net sales and other revenues. Excluding the impact of fuel, selling and administrative expenses, as a percentage of net sales and other revenues, decreased 28 basis points. This decrease can be attributed to lower employee costs, which include the benefit of ongoing productivity initiatives, and lower depreciation and amortization. It was partly offset by higher operating expenses related to the expansion of digital and omnichannel capabilities, ongoing merger-related costs, increased store occupancy costs and additional third-party store security services.
Adjusted EBITDA declined 4.4% to $1,106.5 million, while adjusted EBITDA margin contracted 40 basis points. Looking into the fourth quarter, the company expects outsized growth and margin impact in pharmacy and digital operations.
Other Financial Details
Albertsons ended the quarter with cash and cash equivalents of $222.7 million as of Dec 2, 2023. The company’s long-term debt and finance lease obligations totaled $7,797 million, while total stockholders' equity amounted to $2527.3 million.
Shares of this Zacks Rank #3 (Hold) company have gained 7.9% in the past year against the industry's decline of 26.1%.
Stocks to Consider
Here we have highlighted three better-ranked stocks, namely Dutch Bros BROS, Dole DOLE, and Coca-Cola KO.
Dutch Bros, one of the fastest-growing brands in the quick service beverage industry in the United States by location count, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dutch Bros' current financial-year revenues and EPS indicates growth of 30.6% and 81.3%, respectively, from the year-ago figures. BROS has a trailing four-quarter earnings surprise of 57.1%, on average.
Dole, which produces, markets, and distributes an extensive variety of fresh fruits and vegetables sourced locally and around the world, flaunts a Zacks Rank #1 at present.
The Zacks Consensus Estimate for Dole's current fiscal-year earnings implies growth of 19.6% from the year-ago level. DOLE’s bottom line has outperformed the Zacks Consensus Estimate in the last three quarters.
Coca-Cola, a beverage company manufacturing, marketing, and selling various nonalcoholic beverages worldwide, currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Coca-Cola's current fiscal-year sales and EPS indicates growth of 5.7% and 8.1%, respectively, from the year-ago actuals. KO has a trailing four-quarter earnings surprise of 51%, on average.
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