The Kroger Co. (NYSE:KR) raised its full year outlook for 2012 after reporting strong financial performance during the third quarter that ended November 3. The company increased its previous earnings per share (EPS) forecast from $2.35- $2.42 to $2.44- $2.46

During the third quarter, The Kroger Co. (NYSE:KR)’s net income increased to $316.5 million or $0.60 per share, higher than its previous net income of $195 million or $0.33 cents during the same period last year.

According to the company, its earnings for the third quarter excluding benefits from settlement with Visa (NYSE:V) and Mastercard (NYSE:MA), as well as a reduction in its obligation to fund the UFCW consolidated pension fund, were $0.46 per share.

The Kroger Co. (NYSE:KR)’s total revenue, including fuel sales, was $21.8 billion, a 5.9 percent increase from its previous total sales of $20.6 billion during the same quarter a year ago. The result exceeded the $21.65 billion consensus estimates by analysts based on data from Thomson Reuters I/B/E/S.

In a statement, David B. Dillon, chairman and chief executive officer of Kroger said, “Kroger achieved our growth objectives for the quarter, including positive identical supermarket sales, operating profit growth, and outstanding tonnage growth. This quarter illustrates that the strength of our core business positions Kroger to accelerate our earnings per share growth.”

During the third quarter, Kroger was able to return $1.7 billion to its shareholders through dividend payments and share buybacks. The company repurchased 14.million shares with an estimated value of $333 million.

According to Kroger, its capital expenditures during the period were $473.5 million excluding acquisitions and purchases of leased facilities. The company also reported that its return on invested capital (ROIC) on a quarterly basis was 13.3 percent. The company has $8.7 billion net total debt. Its debts increased by $1 billion from last year.

Kroger is one of the largest retailers with 2,422 supermarkets and multi-department stores and 339,000 employees in the United States.

Morgan Stanley analysts  view Kroger as the ‘best house in a bad neighborhood.’ With Wal-Mart Stores, Inc. (NYSE:WMT) reducing prices in groceries and running price comparison TV ads, Wal-Mart Stores, Inc. (NYSE:WMT) capacity expansion marching on, price cutting from SUPERVALU INC. (NYSE:SVU) and prospects for a return of inflation in 2013, there are still plenty of industry risks in the air.

While they are encouraged by Kroger’s new tone (more robust EPS growth goals of 8-11% and commitment to improve margins and returns over time), the debate is whether Kroger can improve returns and stage a valuation recovery against the difficult industry backdrop. Morgan Stanley remains equal weight on Kroger shares.

Shares of Kroger are up by almost 4 percent to $26.01 per share during the midday trading on Thursday at the New York Stock Exchange.