business

A few months ago a few skeptics were clucking over Supervalu Inccorporated's purchase of Albertson's: too much debt, too much risk, just too much.

Now it's Supervalu CEO Jeff Noddle's turn to crow. The grocery giant released its first full quarterly earnings since the acquisition, and the company beat estimates by a wide margin.

The company reported net sales of $10.7 billion for the second quarter, which ended Sept. 9 for the old Supervalu, and 13 weeks ended Aug. 31 for the Albertson's properties, compared with $4.6 billion a year ago. That translated to earnings of $132.0 million for the quarter, a quadrupling of the $33.8 million a year earlier.

The company reported earnings of 61 cents per share, smashing the 53 cents per share expected by analysts surveyed by Thomson First Call.

The numbers spurred the company to revise its outlook on Tuesday, up from between $2.11 and $2.36 a share to between $2.62 and $2.80 a share.

"I think what this quarter does is validate why this is the right thing for us to do," said Noddle, who called Tuesday's announcement a "very good start" for the new Supervalu. "We almost doubled the profitability of the company. That is very unique and unusual during what can be a very disruptive time."

The company's retail division reported $8.5 billion in sales, up from $2.4 billion a year earlier. The supply-chain services segment, the company's wholesaling business, reported sales of $2.1 billion, up 1.6 percent from a year earlier.

Supervalu has 2,504 stores in 48 states.

Here's how the company views its new retail size: Its total retail square footage, the combined size of all of those Cub Foods, Hornbacher's, Albertsons, Sunflower Markets, Biggs and other banners, now equals 86 million square feet, or about 185 percent more than last year.

Of course, the company's debt has shot up as well, from last year's $2 billion to $9 billion. The debt figures don't alarm Mark Husson, an HSBC retail analyst.

"[The] debt isn't a problem as long as you can service the debt, and there's no question about that," Husson said. "The initial combination is a success. The challenge will be developing synergies over the next 18 months while growing sales."

That may take more capital investment, said Ajay Jain of UBS Investment research.

"We still believe that [Supervalu] may need to commit significantly more capital to generate meaningful sales improvement through FY08 and beyond," he wrote in a report issued Tuesday.

Noddle said the company's size and scale -- it now ranks as the third-largest grocery store chain in the nation behind Kroger and Safeway -- allows room to maneuver.

"We felt that long term we had to have a bigger stake in retail, we need to have a certain size and scale," he said.

The company's stock closed Tuesday at $32.39, up 4.45 percent.

Matt McKinney • 612-673-7329 • mckinney@startribune.com

2nd quarter FY2007, 9/9