Royal Ahold Delhaize (ADRNY) , the Dutch owner of Food Lion, said Wednesday that its margins had improved in the U.S. but cautioned that its does not expect improvement in the second half of the year.
The Dutch grocery store operator said margins across the group had improved 30 basis points to 3.9% in the three months ending in June as merger synergy savings continued to beat expectations. Margins in the company's U.S. stores, which include Stop & Shop and Hannaford, also expanded on the back of synergies. But CEO Dick Boer said that it is expected that operating margin for the full year will be broadly in line with the first half of the year, with €220 million net synergies for 2017.
The grocer, which was formed last July through the tie-up of Ahold and Delhaize Group, reported net sales for the quarter increased 67.3% to €16.1 billion, in line with analysts' expectations. Net profit for the quarter rose to €355 million, below analysts' expectations of €369 million.
Shares in the group were down 1.61% at 10:30 in Amsterdam, changing hands at €17.42 and extending a loss of 10.43% over the past three months.
Ahold Delhaize is experiencing pressure on multiple fronts in the U.S. The emergence of German low-cost retailers Aldi and Lidl, both of which are privately held, is driving prices down, while Amazon's (AMZN) - Get Report proposed purchase of Whole Foods Market (WFM) has sent waves through the industry.
"Our U.S. brands are well-placed in a fast-changing competitive landscape. We continue to improve the price positioning of our Ahold USA brands and have developed effective competitive plans for Food Lion, facing new competition," Boer said in a statement.
Jefferies analysts including James Grzinic in a Wednesday note wrote that M&A looks like a possibility for the company in the U.S.
"We would back AD's management ability to prioritize M&A action ahead of any emotional attachment to the current portfolio structure, if this proves the highest returning avenue for shareholders," the analysts wrote.
The Zaandam, Netherlands-based group generates more than two-thirds of its annual revenues in the U.S. and its stores are highly concentrated in the highly populated and generally affluent northeast U.S., which could make it a good takeover partner for Kroger, according to Sanford C. Bernstein analyst Bruno Monteyn.
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