Albertsons Companies Inc : Morgan Stanley Raises Target Price To $20 From $19

Albertsons faces a mixed outlook with a positive $1.5 billion savings plan in the next three years countered by fiscal Q4 softness, RBC Capital Markets said in a review of the company's Q3 results.

"Productivity savings will be used to offset margin pressure from mix shift headwind in the short term," RBC said Wednesday in a report. Albertsons decreased its 2024 comp guidance to 1.8% to 2% from 1.8% to 2.2% "due to industry-wide softness in F&B throughout December," the report said.

"Intra-quarter trends will be important, but the next real catalyst" is 2025 guidance, the report said. RBC expects a "ramping margin contribution from retail media, productivity and owned brands expansion, but one-time costs could delay an EBITDA recovery."

RBC increased its Q4 adjusted EPS estimate to $0.41 from $0.39 and the Q4 adjusted EBITDA estimate to $845 million from $834 million.

RBC rates Albertsons outperform with a $22 price target.

Albertsons Companies, Inc. ACI reported third-quarter fiscal 2024 results, with the top line increasing year over year but missing the Zacks Consensus Estimate. The bottom line declined year over year but beat the consensus mark.

Despite a cautious consumer environment, ACI remains focused on its "Customers for Life" strategy, which has driven growth in digital sales, pharmacy operations and loyalty program memberships. The company is also committed to accelerating growth by enhancing digital engagement, expanding omnichannel capabilities and increasing customer value.

Albertsons’ Quarterly Performance: Key Insights

Albertsons posted adjusted quarterly earnings of 71 cents per share, which surpassed the Zacks Consensus Estimate of 66 cents. However, the bottom line declined 10.1% from 79 cents per share reported in the prior-year period.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Albertsons Companies, Inc. Price, Consensus and EPS Surprise

Albertsons Companies, Inc. price-consensus-eps-surprise-chart | Albertsons Companies, Inc. Quote

Net sales and other revenues of $18,774.5 million were below the Zacks Consensus Estimate of $18,796 million but rose 1.2% year over year. The year-over-year increase in the top line stemmed from a 2% increase in identical sales, with strong pharmacy sales serving as the main contributor. Digital sales grew 23%. However, the overall increase in net sales and other revenues was partially offset by a decline in fuel sales.

Loyalty membership grew 15% to reach 44.3 million in the third quarter of fiscal 2024 compared with the same period in fiscal 2023.

The gross profit of $5.2 billion increased 0.9% year over year. However, the gross margin contracted 10 basis points (bps) year over year to 27.9% compared with 28% in the third quarter of fiscal 2023.

Excluding the impacts of fuel and LIFO expenses, the gross margin rate decreased 27 bps year over year. This decline was primarily caused by robust growth in pharmacy operations, which generally have a lower gross margin rate. Gross margin was also affected by higher picking and delivery costs related to continued growth in digital sales. However, the decline was partially offset by benefits from the company’s productivity initiatives.

In the quarter, selling and administrative expenses jumped 2.4% to $4.7 billion and increased 30 bps to 25.1% as a percentage of net sales and other revenues. Excluding the impact of fuel, selling and administrative expense rate rose 6 bps year over year. This was caused by merger-related costs and higher occupancy expenses, including third-party store security services. These increases were partially offset by employee-cost efficiencies and benefits from productivity initiatives.

Adjusted EBITDA declined 3.7% year over year to $1.1 billion while adjusted EBITDA margin was 5.7%, contracted 30 bps.

ACI’s Financial Snapshot

Albertsons ended the quarter with cash and cash equivalents of $202.3 million. The company’s long-term debt and finance-lease obligations totaled $7.8 billion as of Nov. 30, 2024, while total stockholders' equity amounted to $3.4 billion.

In the first 40 weeks of fiscal 2024 ended Nov. 30, 2024, capital expenditures were $1.4 billion, caused by investments in the modernization of the store fleet and the digital and technology platforms. For fiscal 2024, capital expenditures are expected in the range of $1.8 billion to $1.9 billion.

For the third quarter of fiscal 2024, the company paid a 12 cents per share dividend on Nov. 8, 2024, to its stockholders of record as of Oct. 28, 2024.

Recently, the company raised the quarterly dividend by 25% from 12 cents to 15 cents per share. The next dividend payment is scheduled for Feb. 7, 2025, for its shareholders on record as of Jan. 24, 2025. The board also authorized a share repurchase program of up to $2 billion, including the existing authorization.

Sneak Peek Into Albertsons’ Outlook

For 2024, management now expects identical sales growth in the range of 1.8% to 2%, revised from the previous guidance of 1.8% to 2.2%.

Adjusted EBITDA is likely to be in the range of $3.95-$3.99 billion compared with $3.9-$3.98 billion projected earlier. This includes continued gains from enhanced productivity initiatives.

For fiscal 2024, adjusted EPS is envisioned in the range of $2.25-$2.31 compared with the earlier view of $2.2-$2.3 and $2.88 delivered in fiscal 2023.

Shares of this Zacks Rank #2 (Buy) company have risen 8.6% in the past three months against the industry's decline of 4.8%.

Albertsons has an average rating of overweight and mean price target of $22.92, according to analysts polled by FactSet.