Bloomberg News

Ahold Shares Decline as Dutch Margins Miss Estimates

August 23, 2012

Royal Ahold NV (AH), the Dutch owner of Stop & Shop grocery stores, fell the most in 11 weeks in Amsterdam as a crunch in its domestic market offset improved profitability in the U.S. in the second quarter.

Net income climbed 25 percent to 248 million euros ($311 million), Ahold said today. Analysts expected profit of 240 million euros, the average of 11 estimates compiled by Bloomberg. The underlying operating margin in the Netherlands dropped to 5.4 percent, falling short of the 6.1 percent estimate.

“The Dutch margin was clearly disappointing,” James Anstead, an analyst at Barclays Plc, wrote in note to clients. “We think the Dutch market is clearly tougher, but the U.S. market is not better or worse than before.”

Ahold has a program to cut costs by 350 million euros in the three years through 2014 by standardizing systems and contracting out some services. Chief Executive Officer Dick Boer reiterated that 2012 will be a challenging year for the food industry and said he is cautious on the impact of rising food commodity costs especially in the U.S., where Amsterdam-based Ahold’s Giant-Carlisle chain competes with Wal-Mart Stores Inc. (WMT:US)

The stock declined as much as 4.2 percent, the biggest drop since June 6, and traded down 2.4 percent as of 9:34 in Amsterdam.

In the U.S., where Ahold makes almost 60 percent of sales, the underlying operating margin rose to 4.3 percent from 4.1 percent. The Dutch retailer said total sales rose 12 percent to 7.69 billion euros in the second quarter, in line with analysts’ estimates.

Unsuccessful Campaign

Boer told journalists in a conference call today that he expects some margin improvement in the Netherlands in the second half of the year. He said the “unsuccessful’ campaign for the Euro 2012 football championship was a ‘‘one-off’’ factor that contributed to a drop in margins in the second quarter.

Ahold’s stock has fallen 2.6 percent this year. That compares with a 23 percent slump for Delhaize Group SA (DELB), the owner of the Food Lion stores in the U.S., and a 13 percent decline for Metro AG (MEO), Germany’s biggest retailer.

‘‘We see continued intense competitive activity in all our markets” for the rest of the year, Boer said, adding that Ahold will continue to look at what further price reductions it can achieve.

U.S. Focus

Boer said the company continues to monitor acquisition opportunities, though focus on the company’s “current store base” in the U.S. is “more important.” Supervalu Inc. (SVU:US), the third-largest U.S. grocery chain, said in July that it will review strategic alternatives as the company hasn’t turned an annual profit in three years amid competition from Wal-Mart and Kroger Co. (KR:US)

The CEO said the company is still on track to open pick-up points for online orders in the second half of the year in Europe. Boer, who took the helm in March 2011, is planning to boost Ahold’s online business, expand in Belgium and add convenience stores to reverse slowing sales growth.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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