Last week Dividend Aristocrat Supervalu (SVU) cut the company's dividend by 50%. SVU becomes the first consumer staples stock to reduce its dividend.

• The new quarterly dividend is reduced to 8.75% from 17.5%.

• The company's second quarter earnings came in at 35 cents per share versus 61 cents per share in the same quarter last year.

• Full year earnings for February 2010 are estimated to come in at $1.94 and February 2011 earnings are projected at $2.01.

F2Q10 Earnings Call

October 20, 2009 10:00 am ET

Supervalu Inc. (SVU) reported results for the second quarter of fiscal 2010. Earnings of 35 cents per share were in line with the Zacks Consensus Estimate, but were down 41.7% year-over-year.

Net sales for the quarter declined 6.9% year-over-year due to a 6.9% decline in retail food net sales and a 9.5% decline in supply chain services sales.

Third-quarter earnings season hits full stride this week with 439 companies confirmed to report. More than of a quarter of these are from the S&P 500 (135 companies). Dow components include 3M (MMM), American Express (AXP), AT&T (T), Boeing (BA), Caterpillar (CAT), Coca-Cola (KO), E.I. DuPont (DD), McDonald's (MCD), Merck & Co. (MRK), Microsoft (MSFT), Pfizer (PFE), Travelers (TRV) and United Technologies (UTX).

Housing data will be the highlight on the economic calendar. The existing home sales data will be influenced by the first-time home buyers' credit. The starts and permits data could be more interesting, especially if they show fear on the part of builders about the subsidy potentially not being renewed.

The Consumer Price Index, or CPI rose 0.2% in September, down from a 0.4% increase in August and down 1.3% from a year ago. If food and energy prices are stripped out to get to core inflation, prices also rose 0.2%, up from 0.1% in August. Core inflation is up 1.5% from a year ago. On a year-over-year basis, those numbers are likely to flip in the coming months.

Food prices actually declined slightly for the month, with a 0.1% decline in September reversing a 0.1% increase in August, and unchanged from a year ago. In particular, the price for food at home fell 0.3% in September after being unchanged in August. On a year-over-year basis, prices at the grocery stores are down 2.5%. This is not good news for firms like Kroger's (KR) and Supervalu (SVU).

CSUH.OB: Shares of Celsius Holding returned to the fifty cent mark on Tuesday, trading on double the average volume after two significant items of news hit the wires during the pre-market hours of the morning.

The first announcement informed investors - and consumers - that the Celsius calorie burning beverage would now be available at the Supervalu (SVVU) family of stores, which includes Acme, Albertsons, Cub Foods, Jewel-Osco, Shaw's/Star Market, Shoppers Food & Pharmacy, and Farm Fresh.

Most companies use debt for a variety of reasons in their operations. It could be either short term or long-term obligations. If there’s anything the 2007-2009 financial crisis has taught us, it is that excessively leveraged companies could easily blow up after a chain of negative events. Thus it pays to know what the debt situation for a particular company you are investing in actually is.

Some investors typically focus on debt to total assets to gain a perspective on the amount of the leverage the company has. While this method is widely accepted by some investors, I believe that it has some shortcomings, which might prevent investors from seeing the bigger picture. Most importantly comparing debt to total assets does not tell whether a company could service its debt obligations or not.

Bloomberg quantifies the consensus analyst rating for a stock on a scale of 1 (worst) to 5 (best). Stocks with a 5 rating have 100% buy ratings. We recently calculated the historical consensus ratings for all S&P 500 stocks and found the average daily consensus rating for the entire index going back a year. As shown below, the consensus analyst rating for all S&P 500 stocks drifted lower with the overall market during the bear, but it bottomed about a month after the market bottomed back in March. Interestingly, it picked up along with the market throughout the spring and early summer, but when the market stumbled in July, analysts got really bearish and then stayed bearish even as the market turned around and went higher. Finally in mid-August, analysts began to believe in the rally again, and since then they've been upping their stock ratings. Currently the consensus analyst rating for stocks in the S&P 500 is 3.74 (out of 5).

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The way Wall Street has turned on SVU, you’d think the company had one foot on a banana peel and the other on a “slip and slide”. The Street has literally written it off as damaged goods because of its heavy debt load. It is evident that most don’t want to touch it with a ten foot pole. The good news is this kind of disdain usually presents opportunity for those investors with a “glass half full” mentality. The overall aversion to this equity makes it an attractive play to value seekers searching for a compelling contrarian position to open.

1. Lockheed Martin (LMT) - nation’s largest defense contractor trading below $80 per share.

Grocery giant Kroger (KR) recently reported a second quarter earnings report that fell handily below expectations (see conference call transcript here). Sales were half a billion dollars below consensus and earnings fell shy by $0.05 per share, sending shares down more than 8% the same day.

For the average investor in the market these are tough numbers to swallow and indeed they were a disappointment. For most, it could easily be seen as another victim of our defunct economy, but Kroger’s story is not that straightforward. At first glance of those numbers, one might expect to walk into a Kroger store to see shopping carts rusting in the corners overtaken with cobwebs.

Food stocks have been on a tear lately. Attributes such as more predictable earnings, juicy dividends, lower volatility and more reasonable price multiples are at the forefront of the sector’s recent success. They aren’t highflyers, glamorous or exciting like the tech sector, but they will help you sleep better at night.

The Basic Food Fund (BFF) certainly lagged the overall market the past five weeks rising a mere 9% from $167.73 to $182.93 compared to a more robust rally in the DJIA's 14% hike from 8332 to 9506, but it also won’t fall like a rock when the major averages correct through profit taking in the near future.

For those who follow my writings here at Seeking Alpha and my investment analysis at Motley Fool, you might know that I tend to veer towards stocks that offer the highest reward potential, which means I end up buying a lot of “medium risk” and “high risk” securities. However, there’s nothing I love more when the market offers stocks in what might-be-traditionally considered “lower risk” sectors at prices with “high reward” potential.

When I first started buying into REITs that was part of my rationale; there were many REITs with reasonable leverage and excellent hard assets on their balance sheets that were selling at ridiculous discounts to Net Asset Values [NAV] and historical cash flows. Even if I assumed worst-case scenarios, I’d still end up with values higher than the market in many cases. We’ve seen companies like Colonial Properties Trust (CLP), Brandywine Realty Trust (BDN), and DCT Industrial Trust (DCT) make significant gains since I originally wrote about them. At Motley Fool’s CAPS, I also mentioned another company with a lower beta that offered sizable reward potential recently that has started moving upwards: Callaway Golf (ELY).

SUPERVALU INC. (SVU) operates as a grocery retailer in the United States. The company is member of the S&P 500 and the S&P Dividend Aristocrats indexes.

SUPERVALU INC. has paid dividends for more than 70 years and consistently increased payments to common shareholders every year for 35 years. The company announced a 1.5% dividend raise in May 2009, plus a $70 million stock buyback initiative.

Sometimes good companies aren’t good buys, and this is not always a bad thing. Often it is a result of the market overreacting in a positive direction. The stocks simply become overvalued, but their underlying fundamentals remain excellent. Below are a couple of companies that fall into this group:

F1Q10 Earnings Call

July 28, 2009 10:00 am ET

• AOL goes solo. Time Warner (TWX) filed with the SEC to officially turn AOL into a stand-alone, publicly traded company called AOL Inc. According to the filing, Time Warner repurchased Google's (GOOG) 5% stake in AOL for $283M earlier this month, valuing AOL at less than $5.66B vs. the $20B implied valuation the business carried in 2005.
• Speculators drove oil price spike. The Commodity Futures Trading Commission will release a report next month suggesting speculators played a major role in causing oil prices to spike, reversing an earlier finding by the CFTC that attributed oil price swings primarily to supply and demand. One of the CFTC commissioners said the original analysis was based on 'deeply flawed data.' The agency, which is shifting away from its former hands-off approach, is expected to institute rules limiting the investments of large institutions in commodities.
• AIG keeps asset sale proceeds. AIG (AIG) used $2.4B from recent asset sales to improve the capital position of its property-casualty unit rather than using the funds to pay down some of its government debt. AIG's need to use some of the sale proceeds to bolster its own businesses will undoubtedly raise questions about the insurer's ability to repay its government bailout.
• U.S. pledges to rein in deficit. At the beginning of a strategic round of talks with China, Geithner pledged to ensure a 'sustainable' U.S. budget deficit by 2013 as Chinese officials expressed concern over the security of their U.S. financial holdings. There were few signs of tensions over the value of the yuan. Both countries agreed not to prematurely withdraw economic stimulus measures.
• SEC updates short-selling rules. The SEC will no longer require institutional investors to report their short-sale positions on a weekly and confidential basis, part of an effort to curb abuse by making more information about short positions available to the public. The weekly reporting was instituted in October as an emergency measure and will expire August 1. A temporary ban on naked short selling was made permanent.
• Amgen, Glaxo reach drug agreement. Amgen (AMGN) and GlaxoSmithKline (GSK) reached an agreement to jointly market denosumab, an osteoperosis treatment that could see annual sales of $2B within a decade if approved by regulators. Glaxo will pay $120M for near-term milestones to share profits in Europe and to sell the drug in countries where Amgen doesn't have any exposure. Amgen will market the drug in the U.S. and Canada, and retain the rights to sell it for cancer in Europe once it's approved.
• Third time's the charm for Delphi. Delphi looks set to emerge from nearly four years of bankruptcy protection with its third attempt at an exit plan. Delphi's board approved an offer to split the company between former parent General Motors and lenders, replacing an agreement announced two months ago between GM and Platinum Equity. Under the new deal terms, lenders will forgive $3.4B in debt in exchange for most of the supplier's assets, and the lenders will pay cash to keep Delphi operating. GM will pay a little over $3B for four North American factories and Delphi's steering business.
• BoA to shutter branches. Bank of America (BAC) is planning to slash the company's 6,100-branch network by 10%, reversing two decades of coast-to-coast expansion. Bank officials reportedly attribute the closings to changes in customer preferences, citing the shift away from traditional branches in favor of online and mobile banking. A timeline for the closures wasn't specified.
• Reining in derivatives. Lawmakers are considering steps to curb speculation in the $39T credit default swaps [CDS] market, which could include preventing investors from speculating on a borrower's credit quality. Among the options under consideration to curb speculation are a ban on naked CDS and a requirement that derivative dealers and investment advisers managing more than $100M report their short interests in CDS contracts to the appropriate regulator.
• Magna improves bid. Magna International (MGA) reportedly improved its bid for General Motors' Opel unit, offering to inject €350M upfront vs. an earlier offer of €100M. The improved offer comes after the German government criticized all three bidders for the amount of their own capital they were willing to inject into Opel.
• CVC brews up AB InBev bid. According to media reports, private equity group CVC Capital Partners is prepared to pay up to €1.5B ($2.1B) for the Central and Eastern European assets of Anheuser-Busch InBev. AB InBev was accepting bids until yesterday, by which point CVC and TPG Capital were still in the running but KKR had dropped out.
• New homes sales (.pdf). New home sales came in at 384K in June, up 11% from May, vs. consensus of 350K. Sales were down 21.3% vs. the previous year. The median home price of $206,200 was down from May's $221,600. Inventory of 281K homes represents an 8.8 month supply, down from 10.2 months in May.

Earnings: Tuesday Before Open

• AMB Property (AMB): Q2 EPS of $0.37 beats by $0.01. Revenue of $147M (-27%) vs. $144M.
• BE Aerospace (BEAV): Q2 EPS of $0.39 beats by $0.05. Revenue of $475M (-9%) vs. $488M. (PR)
• BP (BP): Q2 EPS of $1.01 beats by $0.09. Revenue of $54.8B (-50%) vs. $64B. Shares -1.2% premarket (6:50 ET). (BP press release (.pdf))
• Celanese (CE): Q2 EPS of $0.53 beats by $0.07. Revenue of $1.2B (-33%) vs. $1.3B. (PR)
• Check Point Software (CHKP): Q2 EPS of $0.48 beats by $0.02. Revenue of $224M (+12%) vs. $220M. (PR)
• Coach (COH): FQ4 EPS of $0.43 in-line. Revenue of $778M (-0.5%) vs. $780M. (PR)
• Coventry Health Care (CVH): Q2 EPS of $0.50 beats by $0.10. Revenue of $3.5B (+19%) in-line. (PR)
• Diamondrock Hospitality Company (DRH): Q2 EPS of $0.24 beats by $0.03. Revenue of $144M (-21%) vs. $145M. (PR)
• EarthLink (ELNK): Q2 EPS of $0.29 beats by $0.03. Revenue of $186M (-24%) in-line. (PR)
• Energizer (ENR): Q2 EPS of $1.12 beats by $0.09. Revenue of $997.5M (-6.5%) vs. $1B. (PR)
• FPL Group (FPL): Q2 EPS of $0.99 beats by $0.01. Revenue of $3.8B (+6%) vs. $3.9B. (PR)
• Interpublic Group of Companies (IPG): Q2 EPS of $0.04 misses by $0.06. Revenue of $1.5B (-20%) vs. $1.6B. (PR)
• Jacobs Engineering Group (JEC): FQ3 EPS of $0.76 beats by $0.01. Revenue of $2.7B (-7%) vs. $2.8B. (PR)
• McGraw-Hill Companies (MHP): Q2 EPS of $0.58 beats by $0.03. Revenue of $1.46B (-12%) vs. $1.54B. (PR)
• National Oilwell Varco (NOV): Q2 EPS of $0.90 beats by $0.03. Revenue of $3B (-9.5%) vs. $3.1B. Shares -2.7% premarket (8:10 ET). (PR)
• Office Depot (ODP): Q2 EPS of -$0.22 misses by $0.10. Revenue of $2.8B (-22%) vs. $2.9B. (PR)
• PACCAR (PCAR): Q2 EPS of $0.07 vs. consensus of $0.04 (may not be comparable). Revenue of $1.6B (-58%) vs. $1.7B. Shares +0.9% premarket (8:30 ET). (PR)
• Patriot Coal Corporation (PCX): Q2 EPS of $0.39 vs. consensus of -$0.47 (may not be comparable). Revenue of $507M (+49.3%) vs. $518M. (PR)
• PepsiAmericas(PAS): Q2 EPS of $0.74 beats by $0.06. Revenue of $1.3B (-6%) in-line. (PR)
• Rockwell Automation (ROK): FQ3 EPS of $0.23 beats by $0.03. Revenue of $1B (-31.5%) in-line. (PR)
• Smith International (SII): Q2 EPS of $0.15 misses by $0.06. Revenue of $1.9B (-22%) vs. $2B. (PR)
• SUPERVALU (SVU): Q2 EPS of $0.55 beats by $0.02. Revenue of $12.7B (-5%) vs. $12.8B. (PR)
• Teva Pharmaceutical Industries (TEVA): Q2 EPS of $0.83 beats by $0.03. Revenue of $3.4B (+20%) vs. $3.5B. (PR)
• Textron (TXT): Q2 EPS of $0.08 beats by $0.11. Revenue of $2.6B (-29%) in-line. Lowers guidance for FY '09, sees EPS of $0.33-0.63 vs. prior $0.45-0.75, sees FY '09 revenue of ~$10.6B vs. prior $11B. (PR)
• United States Steel Corporation (X): Q2 EPS of -$3.28 beats by $0.17. Revenue of $2.1B (-68.5%) vs. $2.4B. Shares -3.7% premarket (8:30 ET). (PR)
• Valero Energy (VLO): Q2 EPS of -$0.48 beats by $0.02. Revenue of $17.9B vs. $16.3B. Shares -2% premarket (8:15 ET). (PR)
• Viacom (VIA.B): Q2 EPS of $0.49 beats by $0.01. Revenue of $3.3B (-14.5%) vs. $3.5B. (PR)
• Vishay Intertechnology (VSH): Q2 EPS of -$0.10 misses by $0.02. Revenue of $460M (-41%) vs. $459M. Issues upside guidance for Q3, sees revenue of $480-520M vs. $477M consensus. (PR)
• Waddell & Reed Financial (WDR): Q2 EPS of $0.28 beats by $0.03. Revenue of $200M (-21%) vs. $195M. (PR)
• Waters (WAT): Q2 EPS of $0.78 misses by $0.01. Revenue of $363M (-9%) vs. $366M. (PR)

Earnings: Monday After Close

• ACE Limited (ACE): Q2 EPS of $2.09 beats by $0.15. Net premiums written of $3.4B (-5%). (PR)
• Amgen (AMGN): Q2 EPS of $1.29 beats by $0.13. Revenue of $3.7B (-1%) vs. $3.6B. Raises full-year EPS guidance to $4.80-4.95 vs. $4.57. (PR)
• CF Industries (CF): Q2 EPS of $4.33 beats by $1.72. Revenue of $991M (-15%) vs. $764M. (PR)
• Crane Company (CR): Q2 EPS of $0.47 misses by $0.02. Revenue of $545M (-21%) vs. $588M. (PR)
• Desarrolladora Homex (HXM): Q2 EPS of $0.91 beats by $0.24. Revenue of $359M (+8%) vs. $329M. (PR)
• Fidelity National Financial (FNF): Q2 EPS of $0.40 beats by $0.01. Revenue of $1.6B (+34%) in-line. (PR)
• Health Management Associates (HMA): Q2 EPS of $0.13 beats by $0.03. Revenue of $1.2B (+5%) vs. $1.1B. (PR)
• Hexcel (HXL): Q2 EPS of $0.18 misses by $0.01. Revenue of $277M (-23%) vs. $302M. (PR)

• Kilroy Realty (KRC): Q2 FFO of $0.79 beats by $0.09. Revenue of $71M (+2%) vs. $66M. (PR)

Standard & Poor's Dividend Aristocrats are the elite dividend payers in the S&P 500. To be included, each company is required to have a minimum track record of 25 consecutive years of higher dividends. But this group has been shaken after the market meltdown. Seven banks in the group have been or will be dropped from the group after their dividend cuts. The most embarrassing was Bank of America (BAC), a Dow stock, which 2 years ago bragged about its track record of growth (including dividends) especially over the previous 30 years. At the beginning of the credit crisis, thecompany raised the dividend to a $2.56 annual rate. Just a few months later, it must have regretted that decision. Now it only pays a token dividend, and rejoining this group is a minimum of 25 years away. Early this year, 3 prominent members of the group, Pfizer (PFE), General Electric (GE) and Masco (MAS), cut their dividends which will take them off the list by December.

The S&P group has been reduced from about 60, to 51. By my calculations, at least 3 will be removed by year end. The number of new members must be small since these companies already need streaks of 23 or 24 years to be added to the group in the next year or two.

We have all heard it: food stocks are defensive in nature so that when things are dreadful, they shouldn’t get beat up as bad, and when things are good, they don’t participate with the same rigor on the upside as other stocks. But in this market, it just hasn’t worked out that way. In fact, when the market dived earlier in the year, food stocks actually had poorer relative strength than other sectors, but then when the market bounced back, the food sector’s relative strength was superior. The moral of the story: Sometimes you just have to throw out all the rules and trade by the “seat of your pants” utilizing your own gut instincts as your guide.

Disclosure: Long all equites included in the BFF Index.

I first wrote about SuperValue (SVU) at the end of 2008, here, after picking up some shares at $12.46. Fifteen days later I sold those shares at a profit of 43.5%. By the end of the day this Thursday, SVU shares were once again trading within pennies of the price I paid for them in December. Attractive? Perhaps. Certainly cheap. Much less expensive (valuation wise) than any of the competitors - Kroger (KR), Safeway (SWY), Costco (COST) and Walmart (WMT).

But, and this is a big but, SVU's management team just hasn't been able to get it right. They screwed up on their acquisition of Albertson's and they have had trouble positioning themselves to compete effectively in today's troubled economic environment. Yes, they can cut costs, lower margins and feature generics, but keeping loyal and satisfied customers coming back week after week takes much more than that. For that you need to create an attractive, lasting and consistent presence and I am not so sure that SVU, as a corporation, can do that any time soon. Without such a corporate-wide sustainable competitive advantage, Supervalu may simply be forced to compete with Walmart on price and location.