Belgium-based retailer Delhaize Group this morning (7 March) reported a drop in profits in 2012 as costs from store closures and impairment charges hit its bottom line. The retailer also cut its full-year gross dividend. Analysts gave a relatively upbeat view of the results but pointed to concerns over the group’s US operations.
Citigroup analyst Alastair Johnston
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“Having pre-announced in January that underlying operating profit was down 17.5% ex-FX, the incremental income statement information is probably somewhat limited. The cut to the dividend (€1.40 versus €1.76 the year before) and a positive comment on current trading (“encouraged by the continuation of several positive trends… particuarly in the US”) are probably the most important points to note and they somewhat balance themselves out.
“Delhaize faces the following industry and company-specific risks. The biggest downside risk is that the US grocery sector turns down, perhaps in a post-election period of austerity. Dollar risk is always a factor when looking at Delhaize. In Belgium, pressure from discounters (which represent 40% of the market) is an everpresent downside risk: the entry of Ahold into the Belgian market is also a potential risk as it seeks to occupy the same small but full-range supermarket space in the market.”
Petercam analyst Fernand de Boer
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“US margins were below expectations with the price investments likely to have peaked. The guidance for US indicates some more pressure in 2013, where we were aiming for flat margins. However, this will be partly compensated by the somewhat higher estimates for Belgium and south-eastern Europe/Asia. Consequently, we expect to reduce our estimates by around 2% to 3%.
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By GlobalData“Cash flow is stronger than anticipated, partly thanks to non-recurring factors. Guidance for the free cash flow generation for the coming years is in line with earlier comments. We are pleased by the dividend cut, which we consider as positive and the confirmation of the alignment within the group. However, it was also necessary given the small deterioration in the net debt/EBITDAR ratio.”
Rabobank analyst Patrick Roquas
“Underlying Q412 EBIT of EUR204m was 2% below consensus, with a US margin of 3.3% (vs consensus of 3.6% due to bigger price investments), compensated by better than expected margins in Belgium (4%) and ZOE & Asia (5.2%). The dividend is lowered by around 20% to EUR1.40 per share, which we believe is roughly in line with expectations.
“Importantly, we perceive that the group is comfortable with current consensus expectations of an underlying EBIT for FY13 of around EUR765m (-6% year-on-year), reflected by a sound start of the year, an expected moderation of the decline in margins and all the initiatives in the pipeline. Delhaize confirms most of previously provided indications for FY13, like free cash flow generation of around EUR500 per annum, and which now also includes guidance for net interest (of EUR200-220m).
