UPDATE 2-Kroger posts higher 3rd-qtr profit, raises forecast
* Third-quarter net income up more than 60 percent
* Total sales top analysts' estimate
* Food inflation flattened more than expected
Nov 29 (Reuters) - No. 1 U.S. supermarket operator Kroger Co reported higher quarterly profit on Thursday as easing food prices prompted more shopper purchases and raised its full-year earnings forecast.
Shares of Kroger rose 3.8 percent to $26 in mid-day trading on the New York Stock Exchange.
Muted food price increases, due in part to more promotions by food companies, prompted a rise in traffic and sparked the biggest quarterly increase in Kroger's unit movement - a measure of total items sold by grocery stores - since the second quarter of 2010.
"Customers continued to visit our stores more frequently and buy more on a monthly basis. Customers also purchased more items on each trip, a welcome change from what we've seen for the last several quarters," Rodney McMullen, Kroger's president and chief operating officer, told analysts on a conference call.
Executives at Kroger - which is known for trying to hold down prices - said the trend in the latest quarter suggested shoppers have a bit more money to spend or are a little less tentative about spending.
Janney Capital Markets analyst Jonathan Feeney called it "a solid quarter overall."
Kroger's various growth strategies, including a loyalty program and efforts to keep food affordable, have helped the company fend off rivals across the retail spectrum, Feeney said in a client note.
PROFIT RISES, SOME FOOD PRICES FALL
The Cincinnati-based grocer, which operates the Kroger, Ralphs, Smith's and Food 4 Less chains, said net income jumped almost 62 percent to $316.5 million, or 60 cents per share, for the third quarter that ended Nov. 3.
Excluding benefits from a settlement with credit card companies and a reduction in its obligation to fund a union pension fund, Kroger earned 46 cents a share in the latest quarter.
Total sales, including fuel, increased about 6 percent to $21.81 billion, topping the average analyst estimate of $21.65 billion, according to Thomson Reuters I/B/E/S.
Charges also were down in the latest quarter.
Operating, general and administrative costs plus rent and depreciation, excluding retail fuel operations and the two adjustment items, declined 21 basis points as a percent of sales.
Kroger's LIFO (last-in, first-out) inventory accounting charge was $15.5 million in the latest quarter, versus $61.6 million a year earlier, due to easing inflation.
Executives estimated the rate of inflation declined to 1.4 percent, excluding fuel. They reported inflation in every store department, except produce and seafood. Both of those were deflationary.
The impact of the worst U.S. drought in more than half a century appears to have been muted this year but is expected to send food costs higher in 2013.
The company - whose rivals include discounter Wal-Mart Stores Inc and supermarket operator Safeway Inc - raised its full-year earnings outlook, excluding the two special items, to a range of $2.44 to $2.46 per share. It had forecast $2.35 to $2.42.
In 2013, Kroger plans to build, expand or relocate 50 supermarkets, compared with 40 expected this year, McMullen said.