Last update on 2024-06-05

Kroger (KR) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Discover Kroger's financial stability in 2023 using the Piotroski F-Score. With a score of 7/9, Kroger showcases strong profitability and efficient asset utilization.

Short Analysis - Piotroski Score: 7

We're running Kroger (KR) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score assesses a company's financial health based on nine criteria involving profitability, liquidity, and operational efficiency. For the year 2023, Kroger (KR) achieved a Piotroski score of 7 out of 9, indicating a strong financial position. Key positives include a significant net income of $2.244 billion, consistent positive cash flow from operations at $4.498 billion, and an increase in Return on Assets. Additionally, Kroger's leverage has decreased, and the number of shares outstanding has diminished, suggesting responsible financial management and shareholder value. A minor drawdown was noted in criteria related to the current ratio and gross margin, but overall, the company demonstrates financial resilience and growing efficiency.

Insights for Value Investors Seeking Stable Income

Based on the analysis, Kroger (KR) appears to be a strong and potentially undervalued investment. With a Piotroski score of 7, the company shows excellent financial health, strong profitability, improving asset use, and prudent debt management. Despite minor liquidity and margin concerns, Kroger’s robust operational cash flows and strategic share repurchases enhance its long-term investor appeal. Therefore, it is worth considering Kroger (KR) as a promising addition to an investment portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Kroger (KR)

Company has a positive net income?

Net income indicates a company's profitability over a given period and is crucial for evaluating financial health and operational efficiency.

Kroger (KR) reported a net income of $2,244,000,000 in 2023, signifying a positive value. Over the last 20 years, the company has shown a pattern of positive net income, with negative net income only in 2005, at -$104,000,000. Having consistently positive net income, particularly a significant rise from $1,655,000,000 in 2021 to $2,244,000,000 in 2023, reflects robust profitability. This strong upward trend suggests effective cost management, revenue growth, and operational resilience. Adding 1 point for this criterion aligns with the firm's consistent historical performance.

Company has a positive cash flow?

One of the key indicators to assess a company's financial health is the Cash Flow from Operations (CFO). This metric represents the cash that the company generates from its regular business activities. Positive cash flow indicates that the company is generating enough money to maintain and grow its operations.

For Kroger (KR), the CFO in 2023 is $4.498 billion, which is indeed positive. Therefore, Kroger gets 1 point for this criterion. However, to put this into perspective, it's insightful to examine the historical trend as well. Over the last 20 years, Kroger's operating cash flow has shown remarkable consistency in generating positive cash inflows. For instance, in 2013, the CFO was $2.833 billion, and it peaked at $6.815 billion in 2021. Although the 2023 figure of $4.498 billion is a decline from the 2021 peak of $6.815 billion, it is still considerably solid compared to the historical values. This trend reflects Kroger's strong operational efficiency and financial resilience, making it a good indicator of a healthy business.

Return on Assets (ROA) are growing?

The Change in Return on Assets (ROA) measures a company's efficiency at using its assets to generate earnings. It is important as it reflects profitability and asset utilization.

Kroger's ROA improved from 0.0339 in 2022 to 0.0455 in 2023, an increase of approximately 1.16 percentage points. This indicates that Kroger has become more efficient at utilizing its assets to generate profit, marking a positive trend. Considering the last 20 years' data, Kroger's historical ROA has generally been lower than the industry median, which was about 0.2676 in 2023. An upward trend in Kroger's ROA, although still below the industry median, suggests improving company performance. Over two decades, industry medians showed consistent high performance, reaffirming that Kroger's improvement is noteworthy even in a highly efficient industry.

Operating Cashflow are higher than Netincome?

Operating Cash Flow should be higher than Net Income because it indicates strong earnings quality, implying that the company's earnings are backed by sufficient cash flows.

In 2023, Kroger's Operating Cash Flow stood at $4,498 million, significantly higher than its Net Income of $2,244 million. This is a positive trend because it indicates that the company's recorded earnings are well-supported by the actual cash-flow generation. Over the past 20 years, Kroger has generally seen an increase in its Operating Cash Flow, even peaking at $6,815 million in 2021, indicating robust earnings quality. Hence, for this criterion, Kroger earns 1 point.

Liquidity of Kroger (KR)

Leverage is declining?

This criterion evaluates whether the leverage (Total Debt to Total Assets ratio) of Kroger has increased or decreased compared to the previous year. Lower leverage is generally preferred as it indicates financial stability and reduces bankruptcy risk.

In 2023, Kroger's leverage is 0.3716 compared to 0.3919 in 2022. Therefore, the leverage has decreased. This is a positive trend as it suggests better financial health and reduced financial risk for Kroger. Historically, leverage has fluctuated over the past 20 years but the trend in 2023 is particularly strong, falling to a 20-year low. Lower leverage points to improved debt management and potentially a more sustainable business model. Thus, for this criterion, Kroger earns 1 point.

Current Ratio is growing?

The Piotroski F-Score analyzes a company's financial strength with nine criteria, one of which includes delivering an increasing current ratio. The current ratio is the proportion of current assets to current liabilities, reflecting the liquidity and short-term financial health of a company.

For 2023, Kroger's current ratio is 0.735, compared to 0.7458 in 2022. This shift indicates a decrease in the current ratio. Over the past 20 years, Kroger’s current ratio has typically hovered below the industry's median, highlighting a consistent challenge for liquidity. Although below the industry average, this parameter signals a negative trend. Thus, no point is added for this criterion.

Number of shares not diluted?

Change in shares outstanding indicates how a company might be managing shareholder value.

Comparing Kroger's outstanding shares of 744 million in 2022 with 718 million in 2023, it's apparent that outstanding shares have decreased. This reduction in outstanding shares suggests that Kroger may have executed stock buybacks, thereby returning value to shareholders. Such a decrease typically earns 1 point in the Piotroski score, signalling a shareholder-friendly management. The historical data over the last 20 years show Kroger’s consistent efforts in reducing its outstanding shares from 1.58 billion in 2003 to 718 million in 2023, further bolstering this positive trend.

Operating of Kroger (KR)

Cross Margin is growing?

The change in gross margin assesses a company's efficiency in managing its production costs relative to its revenues. A higher gross margin indicates better profitability and cost management.

Kroger's gross margin decreased from 0.2201 in 2022 to 0.2143 in 2023, representing a reduction of 0.0058. This decline is concerning as it suggests a deterioration in the company's ability to manage its cost of goods sold. Additionally, when compared to the industry median gross margin of 0.2676 in 2023, Kroger's performance is notably weaker. Over the last 20 years, this is among the lowest gross margins that Kroger has posted, signalling potential issues with their pricing strategy, cost control, or both. As a result, this criterion scores 0 points.

Asset Turnover Ratio is growing?

Asset Turnover is a financial ratio that measures the efficiency of a company in using its assets to generate sales, with a higher ratio indicating better performance.

The Asset Turnover of The Kroger Co. (KR) has increased from 2.8213 in 2022 to 3.0039 in 2023. This change is positive and indicates improved efficiency in utilizing its assets to generate sales. In evaluating the trend over the last 20 years, the ratio has generally demonstrated robustness, peaking at 4.0206 in 2013 and hitting lows of 2.6416 in 2003. This uptick by 0.1826 points in 2023 adds a positive sign, contributing 1 point to the Piotroski analysis score, affirming improved operational efficiency.