Kroger maximizes returns
The upward swing in commodity prices has certainly pushed prices up all around. As mentioned last article, oil prices have affected everything that requires delivery.
Kroger has profited heavily from the rise in commodities, as they secure foods on contract long before actual delivery. Unlike giants like WalMart that buy goods at market price hoping to flip them before the price changes, Kroger takes an added step which has added to the bottomline. As egg and sugar prices towered upward, Kroger had a locked in price much lower than the market price. Kroger could either pocket the difference, or use lower prices as a competitive advantage. Its safe to say that it did both, subsidizing prices to near sale-like values and pocketing a little extra on the side.
For Kroger, dabbling in the market is just as profitable as investing is for firms. Kroger obviously hires people familiar with trading commodities to pick the best times to load up on contracts. This has certainly paid off, as prices for commodities soared, Kroger had been paying what the pre-run up prices. This allows them an advantage in pricing, if they are willing to cut their profits and also allows them to profit heavily in good trades.
Kroger is definitely a stock for the long haul. Regardless of recession, people will still need their staple goods. The economy won’t get bad enough that people pass on their dinner, so I’m thinking that the food industry is a fine industry, especially since its inflation hedged. Kroger trades at just 14 times next years earnings. Although it trades near its highs, this stock has plenty of profit and growth potential. A great buy for the long term.