Royal Ahold NV (AH), the owner of Stop & Shop grocery stores, dropped the most in more than nine months as first-quarter earnings missed estimates because U.S. and European consumers held back on spending.
“In total, people are buying less food than before,” Chief Executive Officer Dick Boer said on a conference call today.
Net income declined to 282 million euros ($352 million) from 291 million euros a year earlier, the Amsterdam-based company said in a statement today. Analysts expected profit of 304 million euros, according to the average of nine estimates compiled by Bloomberg. Sales rose 5 percent to 9.72 billion euros.
The shares fell as much as 5.4 percent in Amsterdam trading, the most since Aug. 25. The stock was down 4.6 percent at 9.15 euros at 3:22 p.m., reducing the market value to 10.1 billion euros. The AEX Dutch benchmark stock index was up 1.4 percent.
“Most of the shortfall seems to be in the U.S., where margins declined,” James Grzinic, an analyst at Jefferies, said in a note to clients. He has a hold rating on Ahold.
Profitability in the U.S. fell as the company invested in price cuts to win market share, Boer said. Consumption is waning as the European debt crisis worsens, and the grocer is responding with promotions and cheaper private-label items.
In the U.S., where Ahold makes the bulk of its sales, underlying operating income as a percentage of revenue dropped to 4.1 percent from 4.6 percent. Revenue increased 2.8 percent to $7.8 billion.
“We have to play a very aggressive game on promotion in the U.S.,” Boer said on the call, adding that Ahold has increased its market share. With U.S. unemployment still at high levels, Boer said he is cautious for the rest of the year.
“We don’t see any scope for margin improvement in the U.S. in the rest of the year,” Chief Financial Officer Jeff Carr said. For the Netherlands, where the company runs Albert Heijn stores, Carr does expect some improvement of its operating margin, which was 6 percent in the first quarter.
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