Ahold's fiscal Q1 earnings rise to €1.95B from €285M a year ago, driven by sale of stake in Swedish retailer ICA, as sales rise 4.4% to €10.1B; company quadruples share buyback to €2B to redistribute excess cash

June 4, 2013 () – Royal Ahold NV, the Dutch owner of the Stop & Shop supermarket chain, quadrupled a share buyback to 2 billion euros ($2.6 billion) to redistribute excess cash following the sale of a stake in Swedish retailer ICA. Ahold will complete the repurchase program by the end of 2014, the Amsterdam-based retailer said in a statement today. First-quarter net income rose almost sevenfold on the capital gain from the divestment, the company also said.

The buyback’s size is the equivalent of about 15 percent of Ahold’s stock. The owner of the Albert Heijn chain sold its 60 percent stake in ICA, Sweden’s largest food retailer, to investment company Hakon Invest AB for $3.1 billion during the quarter to focus on businesses that it controls. It will continue to look at acquisitions to expand in neighboring markets, Chief Executive Officer Dick Boer said today.

“I was actually expecting less” in terms of the buyback, said Richard Withagen, an analyst at SNS Securities NV. “The company continues to have enough funds to make a major acquisition if it wants to and it definitely has the ambition.”

First-quarter net income rose to 1.95 billion euros from 285 million euros a year earlier, Ahold said. The retailer got 1.75 billion euros of the profit from ICA.

JPMorgan Downgrade

Ahold shares dropped 1.6 percent to 12.36 euros as of 10:38 a.m. in Amsterdam. The stock reversed an earlier gain of as much as 1.8 percent after JPMorgan Cazenove cut its recommendation to neutral from overweight.

JPMorgan analysts Jaime Vazquez and Borja Olcese said they were expecting “a 2 billion-euro additional buyback program executed through a stock consolidation.” The brokerage reduced its earnings-per-share estimate for 2013 and 2014 because of a “mismatch” between the immediate deconsolidation of ICA and the gradual reduction in the number of shares.

The retailer will continue to focus both on returning cash to shareholders and growth, CEO Boer said on a conference call. “It’s certainly not one or the other,” he said. The economic climate will remain “quite tough” in Europe this year.

Ahold will still have scope to make acquisitions after the return of capital, according to analysts. The Dutch grocer is interested in Harris Teeter, the Matthews, North Carolina-based retailer that disclosed in February that it hired JPMorgan Chase & Co. after receiving advances from two private-equity firms, people familiar with the matter said in February. CEO Boer today declined to say whether Ahold is looking at Harris Teeter.

‘Never Dismiss’

“One can never entirely dismiss the possibility that Ahold might submit an offer,” James Anstead, an analyst at Barclays Plc, wrote in a report on May 22. “Good quality assets do not come up for sale on a frequent basis,” he said, while adding he is “highly skeptical” that Ahold would buy the U.S. chain.

SNS’s Withagen said it would be “ridiculous to think that the company is not looking at Harris Teeter.”

Cash and cash equivalents increased to 4.17 billion euros at the end of the quarter from 1.89 billion euros the same date last year, Ahold said.

Ahold is pushing sales growth online, adding pick-up points for commuters to grab ordered groceries in Europe and the U.S. and expanding Internet retailer Bol.com. The company seeks to triple online sales to 1.5 billion euros by 2016. In addition, Ahold added stores in the Netherlands via the purchase of shops from C1000 and Jumbo and acquiring Genuardi outlets in the U.S.

First-quarter sales rose 4.4 percent to 10.1 billion euros at constant exchange rates. U.S. revenue rose 3.4 percent amid promotions, while sales in the Netherlands gained 7.5 percent as the retailer included Bol.com, Ahold said today.

Underlying operating income was unchanged at 416 million euros. The underlying operating margin narrowed to 4.1 percent of sales from 4.3 percent in the year-earlier period.

--Editors: Thomas Mulier, Paul Jarvis, Tom Lavell

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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