Ahold NV, the Dutch grocery giant that owns Tops Markets in Western New York, plans to sell some of its businesses in an attempt to bolster its sliding earnings, but one analyst thinks the company's U.S. supermarket business will survive intact.
"I think Tops is very solid, as is the U.S. retailing portfolio and the U.S. Foodservice portfolio," said Burt Flickinger III, a supermarket industry analyst with Reach Marketing in Westport, Conn.
Instead, Flickinger thinks Ahold's focus on selling "non-core" businesses and some underperforming operations in its remaining business is likely to center on the company's Asian operations, which reported wider losses during the third quarter. At the same time, he expects Ahold to try to build up its sagging U.S. business, which saw same-stores sales slide by 0.2 percent during the third quarter. "If I were them, I'd almost regret not doing enough in the U.S. and doing too much in some of the emerging markets," he said.
Ahold officials did not identify what part of their business they are looking to sell. But Cees van der Hoeven, Ahold's president and chief executive officers, told analysts in the Netherlands Tuesday that Tops showed "considerable earnings improvement" during the third quarter, along with its sister chains Stop & Shop, Giant Landover and Giant Carlisle. He said that improvement was offset by the performance of its Bi-Lo chain in the U.S.
"We continue to be a strong contributor to Ahold USA, with sales and profits that are the highest in (Tops') history," said Frank Curci, Tops' president and chief executive officer.
Ahold's U.S. supermarket business has come under pressure because of the soft economy, combined with the growth of discount grocery chains, such as Wal-Mart Stores.
Ahold, the world's largest food distributor, now expects its earnings per share, excluding currency effects, goodwill and one-time costs, to fall by 6 percent to 8 percent, down from its July forecast for a 5 percent to 8 percent gain.
Ahold's profits for the 12 weeks ended Oct. 6 fell 15 percent to $260 million, or 26 cents per share.
Ahold affirmed its outlook for next year, projecting growth of 4 percent to 5 percent excluding the impact of acquisitions, as well as earnings growth after accounting for the effect of currencies.
The company said it plans to improve its profitability over the next three years by reducing costs, paying down some of its $12 billion in debt and improving its internal growth rate. But Ahold officials did not spell out the details of its plans.
"There is a plan, but there is very little flesh on the bone," Tim Attenborough, an analyst at BNP Paribas told Bloomberg News. "The message is wait and see. We're expected to take on board quite a lot on trust."