EUR 850.00 For Business Accounts Only

Morningstar | Ahold Reports In-Line 1Q Results, Confirms Lowered Guidance After U.S. Strikes; Shares Fairly Valued

No-moat Ahold Delhaize reported first-quarter results largely in line with our expectations and consensus, with sales up 1.5% at constant exchange rates and underlying EBIT margin flat (versus the same period last year) at 4.4%, while free cash flow was down at negative EUR 136 million, affected by Easter timing, capital expenditures, and higher taxes paid. Management confirmed the lowered fiscal 2019 guidance, provided April 23 (including U.S. strikes, which will negatively affect U.S. operating margins in fiscal 2019 by $90 million-$100 million, in line with our estimates), of low-single-digit EPS growth, slightly lower underlying operating margins, EUR 1.8 billion in free cash flow (accounting for IFRS 16), cost savings of EUR 540 million, and EUR 2 billion in capital expenditures. Given this mostly in-line print, we maintain our EUR 21 fair value estimate. The shares look fairly valued.

In the United States, the largest segment of the group (61% of sales), like-for-like sales grew 1.2% (2.2% adjusted for the timing of Easter) with online sales up 13% at constant currencies. Underlying margin was up 30 basis points, driven by synergies and savings realized ahead of investments. In the Netherlands, like-for-like sales growth was 2.9% (3.2% adjusted for the timing of the New Year and Easter holidays), with online sales up 20% (net consumer online sales up 29.5%). Margins were down 0.3% (excluding bol.com) mainly driven by higher transportation costs and ramp-up costs of Albert Heijn's fully mechanised warehouse in Zaandam. In Belgium, like-for-like sales were down 2.3% and down 0.3% when adjusted for the difference in opening days and shift of the Easter holiday. Central and Southeastern Europe comparable sales increased 0.8% (up 1.3% adjusted for the timing of Easter) with margin down 50 basis points due to higher labor costs in Greece and the Czech Republic.