Bloomberg News

Chocolate Boycott Spurs Blue Square Plunge: Israel Overnight

March 01, 2012

Alon Holdings Blue Square-Israel Ltd. (BSI), the country’s second-largest food retailer, tumbled to a record low on bets consumer protests against increases in food costs will hinder supermarkets’ ability to raise prices.

Rosh Ha’Ayin, Israel-based Blue Square fell 1.4 percent to $3.51 in New York yesterday, extending its drop over the past six months to 49 percent, the biggest decline among companies on the Bloomberg Israel-US 25 Index of the largest Israeli New York-listed companies. The measure dropped 0.5 percent to 85.30, led by SodaStream International Ltd. (SODA) Blue Square declined 1.7 percent to 13.29 shekels, or the equivalent of $3.51, at the 4:30 p.m. close in Tel Aviv today.

Israeli activists have written to foodmaker Strauss Group Ltd. (STRS), threatening to boycott its chocolate bars unless it lowers prices, daily newspaper Calcalist reported last month. Demonstrations in June and July, which started as prices for cottage cheese climbed, prodded closely-held Tnuva Industries Agricultural Co-Op In Israel Ltd. to cut its recommended selling prices by as much as 15 percent. Strauss followed with reductions of 12 percent on some of its milk products.

“The awakening of the chocolate protest proves that the consumer demonstrations are still with us,” Meir Slater, an analyst at DS Securities & Investments, said by telephone from Tel Aviv. The supermarkets “will have trouble raising prices in the long term, as the public is watching their every move.”

Shitrit Media Group, the external public-relations company for Blue Square, had no immediate comment when contacted by telephone today.

Operating Margin

Same-store sales during the third quarter dropped 6.6 percent from the same period last year after public protests led to a decline in product prices and consumer demand, Blue Square said in a PRNewswire statement on Nov. 28.

Blue Square dropped 11 percent last month in New York, after the Tel Aviv shares retreated 9.6 percent to 13.52 shekels, or the equivalent of $3.58.

Shufersal Ltd. (SAE), Israel’s largest supermarket chain, dropped 5.6 percent last month. The company will probably say today that fourth-quarter operating profit almost halved to 76 million shekels ($20.1 million), according to a forecast by Bank Leumi Le-Israel Ltd.

Blue Square posted an operating margin in the third quarter of 2.2 percent, below Shufersal’s 2.4 percent and 3.8 percent for smaller rival Rami Levi Chain Stores Hashikma Marketing 2006 Ltd. (RMLI)

“The retail sector is very challenging and both Blue Square and Shufersal have to invest millions of shekels per year to preserve market share,” Slater said.

Protests

Hundreds of thousands of protesters demonstrated in Israel last year, calling for more affordable housing and lower prices for food and other consumer products. In response to the protests, Prime Minister Benjamin Netanyahu appointed a committee led by economist Manuel Trajtenberg, which recommended a series of measures to boost competition.

“The feeling in Israel is that food retailers have been trying to maximize profits on the backs of consumers,” said Zach Herzog, equity sales trader at the Tel Aviv-based Psagot Investment House Ltd. “International investors have expressed concern about the potential impact on future earnings for some of these companies.”

Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.

Tel Aviv’s benchmark TA-25 Index (TA-25) climbed 1.5 percent yesterday, paring its drop last month to 3.4 percent, the biggest since November. The Bloomberg Israel-US Index fell 0.2 percent in February. The TA-25 index rose 1 percent to 1,091.98 today.

Soda Machines

SodaStream declined 14 percent to $40.75 yesterday, the most since Aug. 16. The Airport City, Israel-based company said that unit sales of its homemade soda machines grew at a slower pace than in the previous period.

“Until we have further clarity on the deceleration in soda maker unit sales we see reason for pause,” Jim Duffy, an analyst at Stifel Nicolaus & Co. in San Francisco, wrote in an e-mailed report yesterday.

Retalix Ltd. (RTLX), the maker of software used by supermarkets, advanced 2.9 percent to $17.85 in the U.S. yesterday. The shares gained 1.5 percent to 67.05 shekels, or the equivalent of $17.70, in Tel Aviv today.

The Ra’anana, Israel-based company reported fourth-quarter sales of $62.5 million, beating the $59.9 million mean estimate of three analysts surveyed by Bloomberg.

FDA Rules

Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, fell 0.4 percent to $44.81 in the U.S. yesterday. The shares gained 0.9 percent to 170.90 shekels or the equivalent of $45.11 today in Tel Aviv.

Perrigo Co. (PRGO), the largest U.S. maker of generic over-the- counter drugs, climbed 2.7 percent to $103.06, the highest on record. The shares in Tel Aviv advanced 2.9 percent to 390.20 shekels, or the equivalent of $102.99, today.

The U.S. Food & Drug Administration is considering rule changes that would allow more prescription drugs to be sold over the counter, it said on its website earlier this week.

Teva and Perrigo stand to benefit from such a move, Randall Stanicky, an analyst at Canaccord Genuity Corp. in New York, wrote in an e-mailed report yesterday.

“Teva has most aggressively targeted the global over-the- counter market as an opportunity,” Stanicky wrote. Perrigo “should continue to benefit from any growth acceleration as chains will look to participate.”

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net


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