Ahold Q4 Earnings Dip, Mum on Harris Teeter

AMSTERDAM — Ahold here Thursday said write-downs for pension funds and technology investments contributed to a decline in net income for the fourth quarter, but the company highlighted sales and market-share gains in what it described as a tough operating environment.

The retailer added it would it keep “eyes and ears open” on potential acquisitions but did not tip its hand as to its reported interest in U.S. rival Harris Teeter Supermarkets. It instead emphasized plans to use its balance sheet to increase returns to shareholders through a $654 million (U.S.) share-buyback program and a proposed 10% increase in its dividend.

Dick Boer

In response to a question from a financial analyst, Dick Boer, Ahold’s chief executive officer, said the company would monitor the market for acquisitions but said decisions to invest would be driven by what the company determines to be best for shareholders. He did not directly address reports that Ahold had contacted investment bankers representing Harris Teeter, which recently announced it was reviewing options including a sale.

“We continue to look outside,” Boer said, saying that expanding geographical reach is a part of Ahold’s overarching strategy, realized with acquisitions in 2012 including former Genuardi’s stores in Philadelphia and an expansion to Belgium in Europe. “We know [mergers and acquisitions] is a continuing question from [analysts] and also from shareholders on the other side. We keep our eyes and ears open and follow what is happening around us in the market.”

Analysts have suggested that Ahold is a strong candidate to acquire Harris Teeter, which earlier this year said it had been contacted by private-equity firms seeking to buy it.

Patrick Roquas, an analyst with Rabobank, Amsterdam, pointed out that Harris Teeter is “a well run company with a supermarket format that compares to Ahold’s existing chains,” although he also noted that there would be limited upside given Harris Teeter’s historically strong financial performance.

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As previously reported, Ahold said sales for the fourth quarter totaled $10.2 billion (U.S.), in increase of 5.1%. Net income decreased 41.5% to $206.6 million (U.S.). for the quarter and 18.7% to $1.1 billion for the year.

U.S. sales improved by 4.3% in the quarter to $6.1 billion. Identical store sales, excluding gasoline, improved by 1.4%.

Quarterly earnings were effected by a $158 million charge to settle a frozen pension plan and $115 million to write down costs of a software investment. The latter expense stemmed from a canceled project to replace retail merchandising systems in the U.S. and concentrate solely on a similar effort in Europe, Ahold officials said. “We’re comfortable that the U.S. legacy systems are capable of supporting the business needs,” Jeff Carr, Ahold’s chief financial officer said.

In the U.S., Carr said Ahold would focus on technologies likely to provide the greatest benefits including loyalty, point-of-sale and e-commerce.

Boer said Ahold’s U.S. stores gained market share during the fourth quarter as a result of strong promotions and a good performance during the Christmas holidays. Underlying operating margin increased slightly but included a benefit resulting from a $26 million lawsuit settlement with Visa and MasterCard.