Ahold Hints at More Capital Return as Profit Exceeds Estimates

Royal Ahold NV, the Dutch owner of U.S. grocery chain Stop & Shop, posted second-quarter earnings that beat estimates and hinted at the possibility of more buybacks or acquisitions.

The shares advanced as much as 5.2 percent, the steepest intraday gain since Feb. 11, after Zaandam, Netherlands-based Ahold said underlying operating income gained 5.4 percent to 338 million euros ($451 million) at constant exchange rates. That beat the 323.8 million-euro average estimate of 10 analysts as growth at home helped offset sluggish demand in the U.S.

Ahold said it remains committed to an efficient capital structure and will make a further announcement about the matter this year. The grocer is conducting a 2 billion-euro buyback that’s due to be completed by the end of next year, after selling a stake in Swedish retailer ICA to focus on businesses that it controls. It has also said it will continue to look at acquisitions to expand in neighboring markets.

“We continue to view Ahold as a well-managed company with relatively high earnings visibility,” Jaime Vazquez, an analyst at JPMorgan Cazenove, wrote in a report today as he raised his recommendation on the stock to overweight from neutral.

Ahold may return as much as 1.5 billion euros to investors on top of the 2 billion-euro buyback already announced, according to Antoine Parison, an analyst at Natixis in Paris. JPMorgan’s Vazquez said the retailer has the capability to spend 1 billion euros repurchasing stock before the end of 2014.

Cash Reserves

Ahold held cash and cash equivalents of about 3.8 billion euros at the end of the quarter, down about 8.3 percent from a year earlier because of spending on dividends and buybacks.

The shares were up 5 percent at 12.83 euros at 4:01 p.m., leading gains in the Dutch benchmark AEX Index.

Chief Executive Officer Dick Boer is “very pleased” with the development of Internet retailer Bol.com, he said today.

Ahold is adding pick-up points for shoppers to collect ordered groceries and items ordered from Bol.com. The pick-up points are “very successful,” Boer told reporters.

So-called identical sales in the Netherlands increased 1.6 percent, matching the median estimate of 11 analysts. Underlying operating margin in the country widened to 5.5 percent of sales from 5.1 percent a year earlier amid cost-saving measures.

Identical sales in the U.S. trailed estimates, gaining 0.3 percent, excluding gasoline, compared with the median prediction of 1 percent. That was slower than gains of 2.2 percent in last year’s second quarter and 1.9 percent in the first quarter.

‘Under Pressure’

The northeast of the U.S. “has been less hit by the economic downturn,” Boer said. The CEO said he doesn’t see any change to the low level of inflation and pressure on volume for the rest of the year. The company is “comfortable” with its position in the U.S., Boer also said.

“We remain cautious in our outlook for the balance of the year, as we expect customers to be focused on value and volumes to remain under pressure,” Boer said in the statement.

Net income slid 17 percent to 206 million euros, Ahold said. That missed the 209 million-euro average estimate of 10 analysts compiled by Bloomberg.

The underlying operating margin widened to 4.4 percent of sales from 4.2 percent in the year-earlier period.

Ahold is among potential bidders for Great Atlantic and Pacific Tea Co., the supermarket known as A&P that is seeking to sell itself for as much as $1 billion after emerging from bankruptcy, the Wall Street Journal reported July 25, citing a person familiar with the matter. Other potential bidders include Kroger Co. and Cerberus Capital Management LP, it said.

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