Ahold Delhaize's Stock Offers American Portions at European Prices -- Heard on the Street
August 05 2020 - 10:07AM
Dow Jones News
By Carol Ryan
Europe's best-performing supermarket stock this year has its big
American business to thank.
Ahold Delhaize, which owns the Food Lion and Stop & Shop
grocery chains, upped its full-year guidance Wednesday as it
reported strong second-quarter results. Unlike European peers such
as British grocer Tesco, Ahold Delhaize expects to grow its
operating margin this year. That is despite spending heavily on
higher pay for workers and safety measures such as plexiglass
screens at checkouts. The company's stock was up 7% in early
trading.
Ahold Delhaize's U.S. division, which generated 62% of group
revenue, was notably stronger than its European business. Strip out
gasoline and U.S. sales grew 21% -- double the rate of Ahold
Delhaize's home region. And its online business is booming in the
U.S., where e-commerce increased by 127% in the second quarter,
compared with 46% in Europe.
Covid-19 has lingered for longer in many states, perhaps keeping
more Americans indoors. They also tend to eat out more than
Europeans, so grocery stores are picking up a disproportionate
amount of spending that normally goes to restaurants, fast-food
chains and school canteens.
The question is how much demand will stick long-term. The
company said on an investor call that the quarter was probably a
peak and demand would moderate from here on. But with the global
economy entering a recession, consumers may continue to prepare
their meals at home to save money. The U.S. grocery market has
grown by an annual average of 1.2% since 2018, according to
Euromonitor, but is forecast to expand by an average of 2.7% a year
between now and 2024.
Ahold Delhaize's shares have gained around a fifth since the
start of the year, but don't look expensive. The stock trades for
14 times projected earnings -- slightly cheaper than Tesco and well
behind Walmart's 25 times multiple. Given the size of its U.S.
business, Ahold Delhaize still offers good value in the supermarket
aisle.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
August 05, 2020 09:52 ET (13:52 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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