On Tuesday, both Kroger Co. (NYSE: KR), the nation's largest traditional grocer, and casual dining chain operator Darden Restaurants Inc. (NYSE: DRI) reported better-than-expected profit increases.
Cincinnati-based Kroger Co. said first-quarter profits rose 15% from the year-ago quarter to $386 million, or 58 cents per share, due in part to discounts on food, gas, and drugs that drew in budget-strapped consumers. For the quarter ended May 24, revenue climbed 12% to $23.11 billion.
Analysts polled by Thomson Financial had expected a earnings of 55 cents a share on revenue of $22.32 billion.
Kroger also reported that same-store sales rose 5.8%, excluding fuel, and 9.2% including fuel sales.
The company offered fiscal-year earnings guidance of $1.85 to $1.90 per share, compared to the analysts' forecast of $1.90 per share.
Kroger shares rose $1.82 Tuesday to $27.82, then fell in after-hours trading. The shares have risen 10.2% in the past three months.
Four well known CEOs weighed in on CNBC's Squawk Box, giving their particular insight on economic conditions one day after the Federal Reserve made yet another basis rate cut. Each of the four Chief Executives acknowledged the tough going in the economy, yet each also sought to inject a thread of optimistic patience into their commentary.
Mike Jackson, CEO, Auto Nation Inc. (NYSE: AN), came to the defense of Reserve Board Chair Ben Bernanke. While admitting that the chairman may have crawled blindly into what is now mostly economic turmoil, Jackson stated: "...I think he absolutely has it right now. He's got to be on full flight recession mode, and we'll worry about the dollar, and commodities and inflation later." Personally, I think Benanke should be making moves to protect the consumers and their dollars first, and let inflation take care of itself until the consumer sector is back up to speed.
Wilbur Ross, CEO, W L Ross & Co. Played the most obtuse card stating: "My own opinion is that it's just more of the same volatility." More of the same volatility? Yeah the economy is volatile ... DUH!
MOST NOTEWORTHY: The Restaurant Sector, Blockbuster and Plexus were today's noteworthy upgrades:
Bear Stearns upgraded the Restaurant Sector to Market Weight from Underweight citing better investor sentiment following Fed rate cuts and the economic stimulus plan; upgraded shares include Brinker International (NYSE: EAT), Cheesecake Factory (NASDAQ: CAKE) and Darden Restaurants (NYSE: DRI).
JP Morgan upgraded shares of Blockbuster (NYSE: BBI) to Overweight from Neutral ahead of the company's Q4 results on March 6, as they believe the quarter will be at least in-line and 2008 guidance will be above Street expectations.
Plexus (NASDAQ: PLXS) was raised to Outperform from Neutral at Credit Suisse as they believe current quarter sales and bookings are tracking ahead.
OTHER UPGRADES:
Maxwell Technologies (NASDAQ: MXWL) was upgraded to Market Perform from Market Underperform at JMP Securities.
The firm also raised Sotheby's (NYSE: BID) to Market Outperform from Market Perform.
Goldman Sachs added Allianz AG (NYSE: AZ) to its Conviction Buy List.
MOST NOTEWORTHY: Obagi Medical, Medical, Microsemi, Marathon Oil and Encore Energy were today's noteworthy initiations:
Obagi Medical Products (NASDAQ: OMPI) was initiated with a Positive rating at Susquehanna, as they like Obagi's growth opportunity in the aesthetics-dermatology market and views the company as an interesting take-out target for a larger specialty pharmaceutical company.
Montgomery believes Microsemi Corporation's (NASDAQ: MSCC) core business is on track and gaining momentum based on leverage in both high-reliability and high-performance analog. The firm started shares with a Buy rating and $34 target.
Goldman initiated Marathon Oil Corporation (NYSE: MRO) with a Buy rating and $72 target, as they view Marathon as most favorably leveraged refining company and would use seasonal weakness in refining margins as a buying opportunity.
RBC Capital sees a large opportunity for Encore Energy Parners (NYSE: ENP) to grow its reserves from internal negotiated transactions from its parent, Encore Acquisition Companies (NYSE: EAC), starting shares off with an Outperform rating and $26 target.
MOST NOTEWORTHY: McDonald's (MCD), Micron Tech (MU), ManPower (MAN), ASML Holding (ASML) and Wm. Wrigley Jr Co (WWY) were today's notable upgrades:
McDonald's (NYSE: MCD) is creating shareholder value by selling 1600 under-performing restaurants and using the money for share buyback programs and dividends and was upgraded to Buy from Hold at Matrix.
AG Edwards upgraded Micron (NYSE: MU) to Buy from Hold on the belief notebook unit growth could stay in the 25-30% YoY range over the next two quarters, while desktop growth could pick up from the 4% attained in the June quarter. Up from a low of close to $5 in February, NAND spot prices are in the $8-$9 range for an 8Gb chip over the last few weeks.
ManPower (NYSE: MAN) was upgraded to Strong Buy from Hold at Matrix based on the growing demand for search services in Europe, Africa and North America.
Friedman Billings upgraded shares of ASML Holding (NASDAQ: ASML) to Outperform from Market Perform and added them to their Top Picks list based on recent checks that indicate a sustainable recovery in lithography tool bookings beyond Q3.
Bear upgraded shares of Wrigley (NYSE: WWY) to Peer Perform from Underperform citing the better-then-expected response to competitor Cadbury (CSG), UK momentum in developing markets, and likely strong performance by new gum, "5."
MOST NOTEWORTHY: J.B. Hunt Transport (JBHT), Gold Fields (GFI), Anheuser-Busch (BUD), CBS Corp (CBS) and Amerigroup (AGP) were today's noteworthy upgrades:
Wachovia upgraded shares of J.B. Hunt Transport (NASDAQ: JBHT) to Outperform from Market Perform citing strength in the company's Intermodal franchise.
Matrix USA upgraded Gold Fields (NYSE: GFI) to Buy from Sell, citing the strong demand for gold jewelry from affluent customers in developing markets and investors.
AG Edwards upgraded Anheuser-Busch (NYSE: BUD) to Buy from Hold based on valuation and improving fundamentals.
CBS Corp (NYSE: CBS) was upgraded to Buy from Neutral at SMH Capital based on expectations for CBS to continue to increase its annual dividend 10% a year.
Jefferies is more confident in Amerigroup's (NYSE: AGP) ability to see further medical cost improvements in its GA market and it its TN expansion, upgrading shares to Buy from Hold...
OTHER UPGRADES:
Goldman upgraded Micron Tech (NYSE: MU) and Novellus Systems (NVLS) to Neutral from Sell.
CIBC raised Darden Restaurants (NYSE: DRI) to Sector Outperformer from Sector Performer.
BMO Capital upgraded National City (NYSE: NCC) to Market Perform from Underperform.
MOST NOTEWORTHY: AutoNation (AN), Darden Restaurants (DRI), Rare Hospitality (RARE) and ChoicePoint (CPS) were today's noteworthy downgrades:
Goldman cut AutoNation (NYSE: AN) to Sell from Neutral based on potential for additional earnings shortfalls. The firm does not expect a sharp rebound in shares.
Bear Stearns downgraded Darden Restaurants (NYSE: DRI) to Peer Perform from Outperform following its acquisition of Rare Hospitality.
Rare Hospitality (NASDAQ: RARE) was cut to Hold from Buy at Keybanc following the acquisition offer from Darden.
ChoicePoint (NYSE: CPS) was cut to Reduce from Neutral at Suntrust, citing the difficult macro environment, which will impact revenue growth in its low-barrier commoditized non-insurance operations...
Darden (NYSE: DRI) has been actively seeking an acquisition candidate for months, and now it has one. The parent company of Olive Garden and Red Lobster has agreed to pay $1.4 billion for Rare Hospitality (NASDAQ: RARE). The acquisition will bring Longhorn Steakhouse and The Capital Grille into the Darden fold. It will give RARE shareholders a lovely 39% premium.
The deal finally gives Darden a steakhouse, something it has always lacked. Rare only has 317 owned or franchised restaurants, indicating that this is the proven concept not yet built-out that Darden had been hoping for.
Darden will pay for Rare Hospitality with cash, a new $1.2 billion senior interim credit facility and a $700 million senior revolving credit facility.
Time will tell whether Longhorn and Capital are the brands that will drive growth for Darden. The company had unsuccessfully tried to launch its own new concept, Smokey Bones, but the chain fizzled and stores were closed and the brand was sold. So Darden gave up on developing a new brand, and coughed up the cash to buy an established one.
Sellers took control at the open and sent the market lower. The Dow Jones Industrial Average got with striking distance of the August 1st low -- down 200 points -- before rebounding to close down only 31 points.
The NYSE had volume of 4.3 billion shares with 1,279 shares advancing while 2,058 declined for a loss of 14.27 points to close at 9,435.04. On the NASDAQ, 3.2 billion shares traded, 1,309 advanced and 1,792 declined for a loss of 11.6 to 2,544.89.
With the market plunging on the open, the options were active. There were 8.8 million puts and 8.3 million calls traded for a put/call open interest ratio of 1.07. Garmin Ltd. (NASDAQ: GRMN) saw heavy volume on the August 45 calls (GQRHI) with over 259,000 options trading. The August 75.0 Garmin calls (GQRHO) moved 121,000 options. Most of this option volume is dividend arbitration in anticipation of the 0.75 cent dividend Monday.
Apple Computer, Inc. (NASDAQ: AAPL) saw heavy volume on the August 130 calls (APVHF) with over 55,000 options trading. Financial Sector SPDR ETF (NYSE: XLF) saw heavy volume on the September 34 puts (XLFUH) with over 234,000 options trading. The other strikes were active as well and they investors were likely trying to protect investments capital. PowerShares QQQ Trust ETF (NASDAQ: QQQQ) saw heavy volume on the September 45 puts (QQQUS) moving 171,000. Put index options can work as an insurance policy against market falls.
Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.
QLogic was cut to Neutral from Outperform and removed from JP Morgan's Focus List due to the lack of catalysts to drive shares higher.
Caris cut shares to Average from Above Average and Pacific
Crest downgraded QLogic to Sector Perform from Outperform as the company's profits decline.
Citigtroup downgraded CNet Networks (NASDAQ: CNET) to Hold from Buy as they no longer expect material revenue growth acceleration and operating leverage in 2H07; First Albany cut shares to Neutral from Buy.
HSBC downgraded shares of Taiwan Semiconductor (NYSE: TSM) to Neutral from Overweight to reflect worse than expected pricing pressures.
Matrix downgraded shares of Darden Restaurants (NYSE: DRI) to Hold from Buy on increasing competition and rising costs.
Piper cut Anadys Pharma (NASDAQ: ANDS) to Underperform from Outperform following the company's announcement that it has discontinued development of ANA975...
MOST NOTEWORTHY: Cheesecake Factory (CAKE), Jabil Circuit (JBL), MGM Mirage (MGM), Darden Restaurants (DRI) and Crocs (CROX) were today's more noteworthy upgrades:
Robinson Humphries upgraded Cheesecake Factory (NASDAQ: CAKE) to Neutral from Reduce citing limited downside risk.
Jabil Circuit (NYSE: JBL) was raised to Outperform from Neutral at Credit Suisse and to Outperform from Sector Perform at RBC Capital based on its better-than-expected Q3 report.
CIBC upgraded MGM Mirage (NYSE: MGM) to Sector Outperform from Sector Perform and gives the odds of a takeout at 50/50 but said business remains healthy and that the value of Las Vegas Strip assets should continue to rise for the next several years. Susquehanna said Kerkorian's decision not to pursue the Bellagio and CityCenter assets is a strong vote of confidence in MGM's management to create shareholder value and upgraded shares to Positive from Neutral.
Darden Restaurants (NYSE: DRI) was upgraded to Buy from Hold at Matrix based on management's positive steps to improve economic profit by selling off its under-performing units.
ThinkEquity upgraded Crocs (NASDAQ: CROX) to Buy from Accumulate on expectations that sales will continue to be strong driven by new product introductions, as well as retail doors and square footage growth...
OTHER UPGRADES:
Goldman upgraded Kraft Foods (NYSE: KFT) to Neutral from Sell.
Baird upgraded Pentair (NYSE: PNR) to Neutral from Underperform.
Citigroup upgraded AES Corp (NYSE: AES) to Buy from Hold.
Credit Suisse upgraded Sohu.com (NASDAQ: SOHU) to Outperform from Neutral.
Raymond James upgraded Pier 1 Imports (NYSE: PIR) to Outperform from Market Perform.
Cincinnati-based Kroger Co. said 
Four well known CEOs weighed in on 
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