Royal Ahold's profit rises less than expected

Giant has favorable impact on its parent's results


June 11, 1999|By BLOOMBERG NEWS

ZAANDAM, Netherlands -- Royal Ahold NV, the world's sixth-largest supermarket owner, said its first-quarter profit rose 32 percent, less than expected, as Brazil's currency crisis and a weaker dollar bled some of the inflow from Giant Food in the United States.

Net income rose to 175.1 million euros ($183 million) in the first three months of this year from 133.1 million euros, missing estimates because Royal Ahold wrote off exchange-rate costs at its Brazilian unit, Bompreco. Earnings rose 12 percent to 0.27 euro a share.

"The results disappointed because of the financing charge at Bompreco," said Jurgen Veenker, an analyst at MeesPierson in Amsterdam, who has a "buy" rating on the stock.

While the earnings fell short of expectations, the addition of Landover-based Giant helped Ahold maintain a 15-quarter streak of double-digit growth. With the back-to-back purchases of Giant and New Jersey's Pathmark Stores, Ahold is taking advantage of sustained growth in the world's largest economy, where it generates more than half its sales.

Shares of the Zaandam-based company fell 0.65 euro, or 1.85 percent, to 34.55 euros after the company failed to meet analysts' profit expectations, which ranged from 177 million euros to 190 million euros.

`Ahead of schedule'

Cees van der Hoeven, the chief executive, defended the results, saying the weakness is primarily the result of the devaluation of the Brazilian real.

"If you eliminate that one-time hit, you find that the numbers are very strong, particularly the underlying operations in all of our larger companies," he said in an interview. "All of the U.S. has been going extremely well; strong sales, strong earnings numbers. The integration of Giant Food is well ahead of schedule."

Earnings per share rose 19.3 percent after adjusting for the decline in the real, which fell to 0.53 euro in the first quarter from 0.82 a year earlier, and a weaker dollar, which dropped to 0.90 euro from 0.93. That meets van der Hoeven's previous forecast of 15 percent to 20 percent earnings-per-share growth, excluding exchange-rate fluctuations, which he also expects for the full year.

"The impact of the dollar was substantial," said Arie Gravendeel, an analyst at Rabo Securities who has a "buy" rating on the shares. "I also had somewhat higher expectations for America."

Financial costs rose 64 percent to 117.6 million euros as interest expenses were included from Giant and two new Latin American units, Disco in Argentina and Santa Isabel in Chile. A charge of 25 million euros, a result of the devaluation of the real, was included in financial expenses.

Operating profit from Latin America doubled to 19.4 million euros.

U.S. profit increases

In the United States, operating profit rose 46 percent to $266.7 million, bolstered by the addition of Giant. Without Giant, U.S. profit would have grown 15 percent, the company said. Van der Hoeven said Stop & Shop, the hub of its U.S. operations, also had a "terrific performance."

Portugal bailed out Europe, with profit growth at Pingo Doce supermarkets and Feira Nova markets offsetting losses in Poland and the Czech Republic from the cost of opening stores. Spain broke even. For Europe, excluding the Netherlands, operating profit rose almost 19 percent to 21.1 million euros.

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