Richfood shares dive after loss of largest account

Grocery industry

April 24, 1999|By BLOOMBERG NEWS

RICHMOND, Va. -- Shares of Richfood Holdings Inc., the largest wholesale food distributor in the U.S. mid-Atlantic region, fell 26 percent yesterday after the company said Royal Ahold NV's Giant Food Stores Inc. unit, its largest customer, won't renew a supply contract.

Richfood fell $4.125 to $11.875 in trading of 2.8 million shares, more than 13 times the three-month daily average.

The Richmond, Va.-based company, with sales of $3.2 billion for the year that ended May 2, 1998, said Giant Food won't renew a supply contract that expires Dec. 31. Giant buys about $600 million of dry grocery products from Richfood annually. (Giant Food Stores Inc. of Carlisle, Pa., is different from Giant Food Inc., the Landover, Md., company that Royal Ahold also owns.)

Nonrenewal will hurt Richfood's fiscal 2000 earnings by about 15 cents to 20 cents a share, and earnings in future years by about 28 cents to 33 cents a share, though earnings for the year ending May 1, 1999, won't be affected, the company said. Richfood also said its effective tax rate will go up by about 1 percent after it loses the Giant contract.

"They just became the odd man out" after Giant's parent company bought Pathmark Stores Inc. in March, said John Kasprzak, an analyst at Scott & Stringfellow Inc. "This brought into play another wholesaler [and competitor to Richfood]," he said, referring to Pathmark's supplier, closely held C&S Wholesalers.

Since Ahold also owns the Edwards supermarket chain in the United States, it had an opportunity to consolidate distribution for its three retailers, Kasprzak said. Nonrenewal "really didn't have anything to do with Richfood's service levels or whether it had competitive costs," Kasprzak said.

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