Kroger Co., the largest U.S. grocery chain, posted a weaker-than-expected rise in quarterly profit on Tuesday due to labor unrest at a distribution center, sending its shares down in early electronic trade.

Profit was $336.6 million, or 47 cents per share, in the fiscal first quarter ended May 26, up from $306.4 million, or 42 cents per share, a year earlier.

Analysts, on average, had expected Cincinnati-based Kroger to earn 48 cents per share, according to Reuters Estimates.

The company, which runs grocery stores under such names as Kroger, Fred Meyer and Ralphs, as well as the Littman and Barclay jewelry chains, said charges related to a labor issue at one of its distribution centers reduced earnings by about 2 cents per share.

Despite that issue, Kroger said it still expects to earn $1.60 to $1.65 per share in the current fiscal year. That equates to 9 percent to 12 percent growth from the prior year, adjusted for an extra week in that year.

Analysts, on average, expect it to earn $1.65 per share this year.

First-quarter sales rose 6.7 percent to $20.73 billion, topping analysts' average forecast of $20.32 billion.

The company also announced a $1 billion stock repurchase program, which replaces a $500 million buyback announced in May 2006.

Shares of Kroger fell 2.6 percent to $28.90 in early electronic trading.

Kroger has been able to withstand strong pressure from competitors such as Wal-Mart Stores Inc., dollar stores, drugstores and natural-food chains such as Whole Foods Market Inc. by remodeling its stores, improving customer service, cutting some prices and promoting items such as fresher produce.

Kroger shares trade at about 16.1 times next year's expected earnings, compared with a multiple of 14 for Supervalu Inc., the company's next-largest competitor, according to Reuters data.

(Reporting by Jessica Wohl)

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