Ahold said its fourth-quarter profit plunged 86% due to stronger than expected competition and weak performances in its U.S. supermarket chains. Financial observers summarized Ahold's predicament by saying that its U.S. holdings underperformed while European ones outperformed expectations.
The company, ranked fourth among the world's food retailers and foodservice companies, added that next week it will name a new chief executive of the Stop & Shop and Giant-Landover operations.
Ahold reported earnings of 108 million euros ($130.5 million) in the fourth quarter, down from 749 million euros in the same period a year ago mainly due to a one-time gain of 449 million euros ($543 million) in its fourth quarter results in 2004. Sales rose to 10.83 billion euros ($13.1 billion) from 10.79 billion euros a year ago.
Ahold ceo Anders Moberg indicated the targets for this year of 5% sales growth and a 5% operating margin have become great expectations gone with the wind.
"Competitive and operating cost pressures have been greater than expected, and the turnaround at certain businesses has been slower than planned," Moberg said.
Moberg expects sales growth this year of 2.5-3%, with operating margins of 4-4.5%, while hoping to achieve the original targets next year.
Ahold's new cfo John Rishton described the results as "disappointing" and added that the company needs to cut costs, simplify its businesses and resolve the issue of underperforming assets.
As for U.S. Foodservice, Columbia, MD, the second largest distributorship according to the 2006 ID Top 50, Ahold said it still expects to save 650 million euros ($779.8 million) this year. Savings are currently at 540 million euros ($647.9 million).
U.S. Foodservice sales dropped 5.7%, Ahold said. In its 2006 ID Top 50 questionnaire, U.S. Foodservice said 2005 sales were $18.5 billion, down $300 million from the previous year.
Moberg decided last year to split the unit in two and ended unprofitable accounts there to bolster profitability. Ahold's target for an operating margin of at least 1.7% at this business this year is unchanged.
Corne van Zeijl, who helps manage about $1 billion at SNS Asset Management in Den Bosch, Netherlands, including Ahold shares, observed in media reports that the multinational corporation is not on track as it should be.
"The targets Moberg had set for the company just couldn't be reached, with fierce price competition in the U.S. and a price war they started themselves in the Netherlands," van Zeijl said.
Defending his targets, Moberg told journalists, "I don't think it's wrong to have high ambitions. I admit we should have tried to be speedier."