Albertson’s Links Earnings Dip to Merger

Albertson’s Inc. said Tuesday that the high cost of converting California’s Lucky supermarket chain to Albertsons stores depressed its third-quarter earnings and will cause profits next year to miss forecasts.

Albertson’s, the No. 2 food retailer, has struggled with a more-costly-than-expected integration of the stores and operations of Lucky’s parent, American Stores Corp., since its acquisition in June. The Boise, Idaho-based Albertson’s also was forced to sell 145 stores--about 50 more than originally anticipated--to satisfy state and federal regulators, making the $12.5-billion merger more expensive.

In total, these expenses cost the company an additional $90 million, Albertson’s officials said.

“While we are disappointed with our earnings and with the short-term cost of the merger and integration, we are confident that the long-term picture is positive,” said Gary Michael, Albertson’s chairman and chief executive.

Albertson’s share price dropped $3.81 to close at $32 on the New York Stock Exchange. The company’s stock has lost more than half its value this year on concern over merger-related woes, and is poised to snap a 24-year string of increases--the longest streak in the Standard & Poor’s 500 Index.

Analysts in recent weeks have downgraded the stock to “hold” and even “reduce.” However, many believe the profits plunge is temporary.

“We think this was just a blip,” said Asma Usmani, a supermarket analyst with Edward D. Jones & Co. in St. Louis. “This is a fundamentally strong company. Given the size of the acquisition, it was hard for them to estimate what the costs would be.”

In the third quarter ending Oct. 28, net earnings fell 15% to $185 million, or 44 cents a share, from $218 million, or 52 cents a share, a year earlier. Sales rose 1.6% to $8.98 billion from $8.84 billion. Analysts polled by First Call Corp. had expected the company to earn an average of 59 cents in the quarter.

Albertson’s said it expects to earn 70 cents a share in the fourth quarter and $2.70 next year, significantly less than the 87 cents and $2.99 that analysts had expected.

The company’s weakened financial performance in the third quarter included a $37-million one-time charge to settle eight multi-state class-action lawsuits financed by the United Food & Commercial Workers International Union (UFCW), alleging “off-the-clock” work violations and workers’ compensation abuses at Albertson’s.

Albertson’s operates 2,500 stores in 38 states.