EUR 850.00 For Business Accounts Only

Morningstar | Ahold Delhaize's Free Cash Flow Surprises on Upside for 2018, but Margins Excluding Synergies Flat

Ahold Delhaize reported full-year sales that were down 0.2% at current exchange rates, in line with our expectation of down 0.4%. Management confirmed 2019 guidance of high-single-digit EPS growth, EUR 2 billion in free cash flow (versus EUR 2.3 billion in 2018), EUR 1 billion in share buybacks, and EUR 2 billion in capital expenditures. Operating margin was up 20 basis points to 4.2%, supported by synergies. We expect to increase our EUR 19.50 fair value estimate by a mid-single-digit percentage to account for the time value of money and better-than-expected working capital improvement as we roll our model forward. The shares look fairly valued.

In the U.S, the largest segment of the group (61% of sales), store remodeling across main brands Food Lion and Stop & Shop is bearing fruit. With price inflation around 1% and a favorable weather impact, the 2.7% like-for-like (excluding gas) sales growth in the fourth quarter implies more than 1% volume growth for the division (although a part of this is from online), reflecting a noticeable improvement from past trends in regions with fierce competitive markets (Southeast) and stagnant market growth (Northeast). U.S. online sales were up 12.1% at constant exchange rates.

In the Netherlands, the group reported lower market share and margin (excluding bol.com). Like-for-like sales growth was 3.7%, with bol.com up 32.3%. Excluding bol.com but including online grocery (ah.nl), sales were up 1%, which implies flat volume and negative in-store volume (management said inflation was 1%).

In Belgium, sales grew 2.9%, with more than 2% attributed to inflation. Operating margin was up 190 basis points to 2.9%, driven by synergies and lower labor costs. The group announced its intentions to further develop its omnichannel offer in the region, with fourth-quarter online sales growth of 28.8% driven mainly by the home delivery service. Central and Southeastern Europe sales increased 3.1% with margin down 30 basis points to 3.9%.