Ahold Delhaize's Stock Offers American Portions at European Prices -- Heard on the Street

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 [e-mail]

(END) Dow Jones Newswires

August 05, 2020 09:52 ET (13:52 GMT)

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