Delhaize Earnings Miss Estimates Amid Belgian Price Competition

Delhaize Group, the owner of the U.S. Food Lion supermarkets, reported third-quarter earnings that missed some estimates as lower prices in stores weren’t matched by supplier allowances or cost cuts and sales fell in Serbia.

Earnings before interest, taxes and goodwill impairment fell 22 percent to 176 million euros ($238 million), the Brussels-based company said today in a statement. That missed the 179.9 million-euro average of 10 analyst estimates compiled by Bloomberg. Excluding currency swings, sales rose 2.9 percent to 5.34 billion euros, surpassing analyst projections.

Delhaize’s price cut and promotions, which led its U.S. business to report the fastest same-store sales gain in almost five years, outpaced an improvement in supplier contract terms in the quarter as higher payrolls costs and increased advertising spending reduced profitability in its Belgian home market. A declining retail market in Serbia led Delhaize to write down an additional 195 million euros on its 932.5 million-euro purchase of Delta Maxi in July 2011, the grocer’s largest acquisition in a decade.

“The numbers are somewhat reassuring, particularly in the U.S., and the guidance appears reachable,” Fabienne Caron, an analyst at Kepler Cheuvreux in Frankfurt, wrote in an investor note. “It still implies a tough fourth quarter with a margin lower than the first three quarters.”

Goodwill Impairment

The impairments in Serbia and Bulgaria still leave 288 million euros of goodwill related to the acquisition in Delhaize’s books as Chief Executive Officer Pierre-Olivier Beckers hands over his position to successor Frans Muller tomorrow.

Delhaize rose as much as 2.9 percent on Euronext Brussels, the biggest intraday gain in six weeks, and traded 1.14 euros higher, or 2.4 percent, at 48.53 euros by 10:04 a.m. local time.

The grocer reiterated its Aug. 8 forecast for a drop in full-year operating profit of less than 3.5 percent before currency swings. That signals another decrease in the current quarter as operating profit before currency swings fell 1.2 percent in the first nine months.

Cash generation not required for reinvestment will be about 500 million euros this year, Delhaize said. That’s equivalent to slightly more than 10 percent of its current market value.

Delhaize said it maintained market share in Belgium following a gain of 35 basis points in the preceding three-month period, which was a reversal from losses of 43 basis points in the first quarter and of 50 basis points last year.

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