SUPERVALU INC. (SVU): Will A Much Smaller Company Boost Profits?

SUPERVALU INC. (NYSE:SVU)On Wednesday, SUPERVALU INC. (NYSE:SVU) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you’ll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

SUPERVALU INC. (NYSE:SVU) has gone through some tough times in recent years, struggling to survive in the low-margin grocery business. But recent moves have given it a path forward, and the stock has reflected increased enthusiasm about the company’s future. Let’s take an early look at what’s been happening with SUPERVALU INC. (NYSE:SVU) over the past quarter and what we’re likely to see in its quarterly report.

Stats on SUPERVALU

Analyst EPS Estimate $0.18
Change From Year-Ago EPS (53%)
Revenue Estimate $7.86 billion
Change From Year-Ago Revenue (4.5%)
Earnings Beats in Past 4 Quarters 1

Source: Yahoo! Finance.

Will SUPERVALU hold its own this quarter?
In recent months, analysts have held stable on SUPERVALU’s short-term earnings prospects, although they’ve cut their full-year fiscal 2014 estimates by $0.03 per share. Investors appear much more optimistic, however, with the stock having risen almost 50% since mid-January.

The big news for SUPERVALU came at the beginning of the year, when private equity firm Cerberus Capital agreed to buy the company’s Albertsons, Jewel-Osco, Acme, Shaw’s, and Star Market chains for $3.3 billion. Given SUPERVALU INC. (NYSE:SVU)’s immense debt levels, it didn’t have the capital to renovate its stores to keep up with competing chains, and the deal provides SUPERVALU INC. (NYSE:SVU) with cash to help bolster the prospects for its continuing operations, which include Cub, Farm Fresh, and other chains, as well as its Save-A-Lot discount stores and wholesale grocery distribution unit. The deal was finalized a month ago, sending shares rising again as the sale went without a hitch.

Obviously, the move will lead to much smaller sales figures for SUPERVALU going forward. But the company will still face threats from both ends of the grocery spectrum. On one hand, Whole Foods Market, Inc. (NASDAQ:WFM) has captured substantial business from SUPERVALU INC. (NYSE:SVU) and its traditional grocery peers, with its reputation for high-quality healthy fare. On the other, deep-discount chain Dollar Tree, Inc. (NASDAQ:DLTR) and its peers have increasingly turned to grocery offerings to lure customers. Save-A-Lot is designed to help counter that trend, but thus far, its year-to-date sales have been flat, compared to double-digit growth for Dollar Tree, Inc. (NASDAQ:DLTR).

In response, SUPERVALU has started paring workers, announcing 1,100 job cuts in late March. The move should help cut costs and slim the company down in light of its reduced business scope.

In SUPERVALU INC. (NYSE:SVU)’s quarterly report, watch closely to see how the company plots its strategy going forward. Beyond simply letting the Cerberus deal speak for itself, SUPERVALU should proactively explain where it sees its best prospects and how it plans to make the most of them. Without strong leadership, the gains that SUPERVALU’s stock has seen could prove short-lived.

The article Will a Much Smaller SUPERVALU Boost Profits? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends and owns Whole Foods Market. It owns shares of SUPERVALU.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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