ZAANDAM, Netherlands -- Ahold here said last week strong organic sales and earnings in the United States were "the main engine" behind the company's financial performance for the second quarter and first half ended July 15.
Cees van der Hoeven, president and chief executive officer, said all five retail operating companies contributed to organic growth of 8.5% in retail food sales during the quarter; in addition, food-service sales experienced organic growth of 11.1% during the 12-week period -- particularly notable, he said, in a market that's growing at only about 2% a year. Organic earnings growth rose 18.3%, he pointed out.
Michael Meurs, chief financial officer, said the retail sales increases in the United States resulted from "good market-share improvements and good customer service."
Van der Hoeven said Ahold will continue to pursue accelerated organic growth. "So far this year we are ahead of our target, and we will continue to keep this a high priority in our strategy. All our companies are working on cost-reduction programs, and we are confident we will be able to reduce our operating costs as a percentage of sales going forward."
Overall sales rose 29.3% to $13.8 billion (U.S.) for the quarter and 46.4% to $30.5 billion for the half, while net earnings increased 26.4% to $278.5 million for the quarter and 31.5% to $569.4 million for the half.
Sales in the United States rose 21.2% to $8.2 billion for the quarter, including a jump of 8% to $5.4 billion in retail food sales and 59.1% to $2.8 billion in U.S. Foodservice sales. For the half, U.S. sales were up 40.1% to $18.4 billion, with food retail sales increasing 7% to $12.2 billion and food-service sales jumping 257% to $6.2 billion.
Comparable store sales climbed 5.5% for the quarter -- reflecting a loyalty card program at Giant of Carlisle, and the conversion of Edwards stores and 56 former Grand Unions to the Shop & Shop banner, Meurs pointed out.
He also said identical-store sales increases of 5.1% reflected improvements at Tops, "which is growing market share and experiencing a good turnaround," he noted. "And Bi-Lo, which operates in a very competitive market, has been able to improve earnings, though it experienced lower identical-store sales."
Van der Hoeven said the increase in U.S. Foodservice sales primarily reflected the consolidation of PYA/Monarch at the end of 2000, plus the acquisition earlier this year of Mutual and Parkway.
Operating earnings in the United States increased 18.9% to $419.6 million for the quarter, including a rise of 7.4% to $297 million in retail food and 60.3% to $122.6 million in food service. For the half, operating earnings rose 31.1% to $874.0 million, including an increase of 6.6% to $629.4 million in retail food and 219.7% to $244.6 million in food service.
Peapod, Ahold's Internet grocery subsidiary, sustained an operating loss of $11.4 million for the quarter.
The increase in operating earnings reflects the consolidation of the three food-service acquisitions, plus significant synergy benefits and costs savings, Van der Hoeven added.
The company said remodeling costs on the 56 Grand Unions that were acquired earlier this year totaled $13.8 million, which were charged to operating results; however, results at those remodeled stores were positive at the end of the quarter, the company pointed out.
Van der Hoeven said the performance of U.S. Foodservice "clearly exceeds the [company's] expectations. We are excited about this part of our business, which was nonexistent two years ago but is now one of our main growth engines."
He also said Ahold has seen "some very successful introductions of U.S. Foodservice concepts" in its retail stores, "and we will continue to pursue this path vigorously."
Asked to elaborate, van der Hoeven mentioned a variety of delicatessen-bakery concepts at selected units of three of its U.S. retailers -- Giant Food, Landover, Md.; Giant Food, Carlisle, Pa.; and Tops Friendly Markets, Buffalo, N.Y. He said Ahold plans to do more experimentation, "and obviously, after awhile, we will reject some and roll out others nationwide."
However, he declined to set target dates for a rollout or for the number of installations. "We will take it in stride as we remodel. It won't be a slow process, but it won't happen overnight," he explained.
Other highlights of the company's conference call with analysts included the following:
Van der Hoeven said Ahold is continuing to look at growing through both organic growth and acquisitions.
There was some industry speculation last week that Ahold might be looking at Bruno's, Birmingham, Ala., as a potential acquisition. Van der Hoeven was not asked about that possibility during the conference call, and Bruno's officials could not be reached for comment last week.
Van der Hoeven said Ahold is always talking with companies, "though a lot of things lead nowhere, while others move forward."
He said Ahold looks at acquisitions in three categories: add-on acquisitions within existing markets, "where there's always something going on"; thoroughbred acquisitions of medium-sized companies with sales of $1.5 billion to $9 billion, "where we work from a list and talk to companies as opportunities present themselves"; and major acquisitions, "particularly in Europe, though that market is quite silent right now."
Van der Hoeven said Ahold will continue to look at acquisition opportunities in food service "because obviously we like that business and we're increasingly realizing synergies between retail and food service. So we will pursue further acquisitions, though all companies are instructed to put a high priority on organic growth."
He said Ahold is "heavily involved" in introducing an economic value-added program to its companies by early 2002. "Although in the past we have measured EVA performance internally, we have not yet drilled it down into target setting, bonuses and decision making. But this will all change as we adopt the principles, practices and procedures related to EVA. " ... it will make our company more capital-efficient and we will be able to deliver even better shareholder value," he said.
In the United States, bonuses are already tied to achieving specific working capital targets, Meurs said; that approach will be expanded during the first quarter of 2002, he said.
Van der Hoeven said the strong first-half results were due in part to Ahold Networking, the company's internal exchange initiative for sharing knowledge and best practices.