Royal Ahold sales growth stalled in 4th quarter

But Giant Food's parent says U.S. retail profitable

January 08, 2003|By William Patalon III | William Patalon III,SUN STAFF

Dutch food giant Royal Ahold NV reported yesterday that sales growth essentially stalled in last year's final quarter, but Maryland-based subsidiaries Giant Food Inc. and U.S. Foodservice Inc. will almost certainly be spared from promised divestitures, an analyst said yesterday.

"Giant [in] Landover is good, since things were very, very good in terms of U.S. retail," said Mia Kirchgaessner, a global retail food analyst for Sanford C. Bernstein & Co. LLC in New York. "U.S. Foodservice wasn't as good as it could have been. But a lot of that was due to integration activities [from an acquisition]; it was a tough year. There's hope that 2003 will be better for them. And they are certainly committed to the business."

Ahold, the world's largest food distributor, said global sales grew 0.3 percent, to about $17.61 billion, for the three months that ended Dec. 29. And while stating that overall sales last year grew 9.2 percent from 2001, Ahold also repeated yesterday its Nov. 19 pronouncement that per-share earnings for last year would decline by 6 percent to 8 percent.

Revenue for this year -- excluding takeovers and the effects of shifting exchange rates -- will climb by 4 percent to 5 percent, the company reiterated yesterday.

Investors welcomed those statements as a confirmation that Ahold finally has a handle on the issues it faces.

"They're sticking to forecasts," said Gert-Jan Geels, an investor at Eureffect in Amsterdam, which owns Ahold shares. "Ahold didn't disappoint this time."

In November, when Ahold cut its annual earnings forecast for the second time in 2002, the company chronicled the challenges with which it was dealing, and also announced a three-year plan to sell noncore businesses and use the proceeds to reduce its $12.815 billion of debt. The company released no further details yesterday, saying it would reveal elements of its restructuring plan as it evolved throughout this year.

Analysts say the businesses targeted for sale are in the production and financial-services venues -- with most outside the United States. Ahold has previously said it wants to focus on food retailing and distribution, and will focus on existing businesses. The firm has made 50 acquisitions since 1993.

Giant and Columbia-based U.S. Foodservice, the nation's No. 2 food distributor, are core companies that won't be sold, said Kirchgaessner, the Sanford Bernstein analyst. Ahold bought Giant in 1998 and U.S. Foodservice in 2000.

While U.S. retail sales for all of last year grew more slowly than 2001, the pace of growth for the fourth quarter improved to 4.1 percent last year from 3.7 percent in 2001, Ahold said.

Sixty percent to 70 percent of Ahold's overall profit comes from its U.S. supermarket business, said Jeff Metzger, publisher of Food World, an industry trade journal based in Columbia. That includes the Landover-based Giant, Giant of Carlisle, Pa., and Tops Friendly Markets of New York.

"The U.S. retail business, as a whole, is safe," Metzger said.

Ahold's chief U.S. problem has been U.S. Foodservice, which saw sales skid 5.2 percent in the fourth quarter after a drop of 7 percent in the third quarter. Sales had risen 8.5 percent in the final three months of 2001. And arch-rival Sysco Corp. saw its sales grow at a rate of 5 percent to 7 percent for every quarter in 2002, said Kirchgaessner.

But Kirchgaessner believes the main problem was that Ahold was folding another distributor, Alliant Exchange Inc., into U.S. Foodservice, causing major disruptions.

U.S. Foodservice bought Alliant in late 2001.

But those disruptions were temporary, and the future is brighter, she said.

"A recent visit with that management convinces us that things are stabilizing within that business and that 2003 will be a better year," Kirchgaessner wrote in a research report yesterday.

Bloomberg News contributed to this article.

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