Ahold Profit Misses Estimates on One-Time Costs From Ukrops
Ahold Profit Misses Estimates
Daniel Acker/Bloomberg
A Stop & Shop rewards card sign hangs inside a Royal Ahold NV Stop & Shop supermarket in New Rochelle, New York.
A Stop & Shop rewards card sign hangs inside a Royal Ahold NV Stop & Shop supermarket in New Rochelle, New York. Photographer: Daniel Acker/Bloomberg
Royal Ahold CEO John Rishton
Paul O'Driscoll/Bloomberg
Royal Ahold NV Chief Executive Officer John Rishton.
Royal Ahold NV Chief Executive Officer John Rishton. Photographer:Paul O'Driscoll/Bloomberg
Royal Ahold NV, the Dutch owner of U.S. Stop & Shop supermarkets, reported third-quarter profit that missed estimates as it paid one-time costs related to the acquisition of the Ukrop’s Super Markets Inc. chain.
Net income fell to 223 million euros ($303 million) from 244 million euros a year earlier, the Amsterdam-based company said in a statement today. That trailed the 228 million-euro average estimate of 11 analysts compiled by Bloomberg. Shares fell the most in three months in Amsterdam trading.
The purchase of 25 family-owned Ukrop’s stores in Virginia was Chief Executive Officer John Rishton’s first in the U.S., a region that accounts for about 60 percent of Ahold’s revenue. Even as third-quarter sales at U.S. stores open at least a year rose 0.6 percent, excluding gasoline, the one-time items helped push down the retail operating margin in the country to 3.7 percent from 4.6 percent in the year-earlier period.
“Ukrop’s is a turnaround story,” Rishton told journalists on a conference call today. “We’re in line with the expectations when we acquired it and we anticipate it will return to profitability by the end next year.”
The company’s shares slid as much as 3.6 percent to 9.56 euros in Amsterdam, and traded at 9.58 euros at 9:46 a.m. local time. The drop was the biggest intraday decline since May. Ahold, which also operates the biggest grocery store chain in the Netherlands, has a market valuation of 11.4 billion euros.
Promotions
“If we strip out Ukrop’s sales and mentioned operating loss of $11 million, we would get a 4.3 percent margin,” ING Groep NV analyst John David Roeg wrote in a note today. Margins were lower “as we believe that Ahold was not able to fully pass on the 1 to 2 percent higher input costs in its selling prices.”
Ongoing savings will counter higher costs and lower prices, according to Rishton. He’ll continue to look for targets in the U.S., where Ahold and rival supermarkets face inflation and promotional activity was “high,” Rishton said.
Ahold reported a loss of $11 million for the Ukrop’s stores it bought for $140 million last year as well as one-time restructuring charges of $10 million and technology integration costs of $9 million at its U.S. operations. Third-quarter revenue increased 11 percent to 6.7 billion euros.
Lots of Cash
Rishton takes the helm at Rolls-Royce Group Plc in March and will be succeeded by Dick Boer, currently Ahold’s chief operating officer for Europe. Boer will finish a cost-saving program as Ahold cuts prices to combat slowing consumer spending. Boer will likely speed up Ahold’s acquisition pace, analysts have said.
Rishton said he’s still looking forward to his new assignment, even as Rolls-Royce grapples with the fallout from an engine blowout on an A380 superjumbo flown by Qantas Airways Ltd. on Nov. 4.
Sales at stores open at least a year increased 4.5 percent in the quarter in the Netherlands, as operating profit amounted to 7 percent of revenue. Ahold’s Rishton said Ahold is “still committed” to a mid-term target for an underlying operating margin of 5 percent.
“We have lots of cash and that’s a good place to be in, in this environment,” said Rishton. “The environment remains challenging.”
To contact the reporter on this story: Jeroen Molenaar in Amsterdam jmolenaar1@bloomberg.net
To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net
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