Ahold Earnings Fall on Product Promotions; Buyback Planned

Royal Ahold NV, the owner of the Stop & Shop and Albert Heijn grocery chains, said fourth-quarter earnings fell 5.6 percent because of spending on sales promotions in the pre-Christmas shopping period.

Ahold stock dropped the most in six weeks after the Zaandam, Netherlands-based retailer said underlying operating income declined to 302 million euros ($343 million) from 320 million euros a year earlier. The company said it plans its second share buyback in three years, to total as much as 500 million euros in the coming 12 months. Ahold also raised its dividend by 2.1 percent to 48 cents a share.

“We continue to balance growth of the business and returns to shareholders,” Chief Financial Officer Jeff Carr said on a conference call with reporters. “Depending on what opportunities come along, we either invest in that growth or return the cash to shareholders.”

Earnings were held back by spending in the U.S. and the Netherlands on product discounts and by the cost of integrating the Spar chain in the Czech Republic, Ahold said. The company is also investing in Internet-based businesses as consumers increasingly seek convenience, and has a goal for online units to generate 2.5 billion euros in revenue by the end of 2017.

Fourth-quarter group sales rose 7.9 percent to 8.06 billion euros. Underlying operating profit narrowed to 3.7 percent of revenue from 4.3 percent a year earlier.

“Revenue development was positive in the fourth quarter, but it comes at the cost of margins,” Joost van Beek, an analyst at Theodoor Gilissen Bankiers, said by phone, adding that operational results on the whole were in line with his expectations.

Ahold fell as much as 2.4 percent, the steepest intraday drop since Jan. 15, and was trading down 2.1 percent at 16.67 euros as of 9:49 a.m. in Amsterdam. That pared the stock’s gain this year to 13 percent.

The company completed a 2 billion-euro share buyback in December that began in 2013. Full-year free cash flow in 2014 totaled 1.06 billion euros.

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