By Randy Tucker
The Cincinnati Enquirer

Shares of Kroger Co. fell 85 cents to $17.80 Tuesday after the Cincinnati-based grocery giant missed its second-quarter profit forecast and lowered projections for the remainder of the year.

Kroger CEO David Dillon cited fierce competition from discounters such as Wal-Mart, costs to settle litigation over power contracts and the impact of last month's blackout in the Northeast as reasons for the 28 percent decline in second-quarter earnings.

And, he said, the outlook for the rest of the year is uncertain.

"The current environment remains very challenging,'' said Dillon, who replaced Joseph Pichler as CEO June 26.

For the quarter that ended Aug. 16, Kroger reported net income of $190.4 million, or 25 cents a share, compared with $264 million, or 33 cents a share, in the comparable period a year ago.

Wall Street had been expecting second-quarter earnings of 32 cents a share, based on the average estimate of analysts polled by Thomson First Call.

Total sales for the quarter rose 3.6 percent to $12.35 billion from $11.93 billion last year.

Sales at food stores open at least a year - otherwise known as same-store sales - fell 0.1 percent at stores that also sell fuel and dropped 0.9 percent at stores that don't.

The latest results for the nation's No. 1 grocery chain were weighed down by a previously announced charge of 5 cents a share to resolve disputes over energy-supply arrangements with Dynegy Inc. and product losses resulting from the blackout that cut power to Kroger stores in Ohio and Michigan.

The blackout cost the company a penny a share, or about $9.4 million in profits.

Even without the extraordinary costs, Kroger said earnings for the second quarter would have been 31 cents a share - still a penny below analysts' expectations.

For the full year, Kroger said it now expects earnings to range from $1.50 to $1.58 a share, compared with previous estimates of $1.55 to $1.63 a share.

Dillon acknowledged that the company might struggle to meet even its revised forecast.

He said year-end results are "more likely to be near the low end of the (adjusted) range, and could be as low as 5 cents per share below the range.''

Analysts had been expecting earnings of $1.56 a share for the full year.

Kroger said it will continue to cut costs and prices, and pursue acquisitions to increase market share in a competitive environment dominated by Wal-Mart, which recently became the biggest food seller in the United States. Many warehouses, gasoline stations and even drugstores that carry food items also compete with Kroger.

Dillon said Kroger's cuts have saved about $458 million through the second quarter and are on track to exceed its goal of $500 million in cost savings by the end of this year.

E-mail rtucker@enquirer.com