Supervalu Now at Underperform - Analyst Blog

We currently downgrade the shares of Supervalu Inc. (SVU) to Underperform.

The rating downgrade is based on weaker profits during the third quarter of 2010, which were below the Zacks Consensus Estimate due to decrease in revenues,because of declines in the retail food segment and supply chain services segment. Therefore, the company lowered its guidance for fiscal 2011.

We are also concerned about the fierce competition in the retail food segment. Further, significant number of employees at Supervaluare unionized. This has inherent risks and potential labor related issues remain a concern. Labor disputes have the potential to disrupt work and affect the company adversely.

Third Quarter Results Below Estimates

Supervalu Inc. reported its third-quarter adjusted income from continuing operations of $50 million or 24 cents per share, which was below the Zacks Consensus Estimate of 31 cents. Both net income and earnings declined 54.1% and 52.9% respectively compared to the year-ago quarter.

In addition, the top line also contracted 5.9% to $8,673 million in the reported quarter. The reported revenue fell short of the Zacks Consensus Estimate of $8,726 million.

Outlook for 2011

Supervalu has lowered its earnings per share guidance to $1.25 to $1.35 per share, which is below the Zacks Consensus Estimate of $1.46.Previous guidance was in the range of $1.40 to $1.60 per share. Supervalu now expects fourth quarter 2011 earnings between $0.30 and $0.40, which remain below the Zacks Consensus estimate of $0.45.

Zacks Consensus Estimate Lowered

Based on weak third quarter results, the analysts lowered their estimates. The Zacks Consensus Estimates for earnings, in the last 60 days for fiscal 2011 lowered to 46 cents per share, from 35 cents a share, reflecting a 23.9% decrease.

Further, with respect to earnings surprises, Supervalu has reported twice below the Zacks Consensus Estimate over the last four quarters. However, with positive earnings surprises in the other two quarters, the average remains at negative 5.50%. This suggests that Supervalu has underperformed the Zacks Consensus Estimate by an average of 5.50% in the last four quarters.

Zacks Rank

The company primarily competes with Safeway Inc. (SWY) and currently has Zacks #5 Rank, which translates into short-term Strong Sell recommendation.

 
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