Ahold Delhaize's Fourth Quarter Ahead, With Guidance Below Consensus but in Line With Our Estimates

Koninklijke Ahold Delhaize released fourth-quarter results with sales up 2.8% at EUR 20.1 billion, broadly in line with company-compiled consensus. Comp sales growth was up 4.8% and down 1% for U.S. and Europe respectively, better than up 3.2% and down 0.4% growth estimates for company-compiled consensus. Online sales growth across regions remained strong (up 30.5% in the U.S., 14.7% for the group), reflecting its resilience and solid presence in the channel. The firm's underlying operating margin was 4.2% or EUR 838 million (versus EUR 820 million for consensus), down 20 basis points, mainly a function of Europe's lower-than-expected EBIT at EUR 334 million versus EUR 361 million for consensus. Adjusted EPS for the year was ahead of our and consensus estimates (EUR 2.19 versus EUR 2.15) with underlying operating income at 4.3%, in line with our estimates and below guidance of 4.4%. Free cash flow of about EUR 1.6 billion was lower than our estimates of EUR 1.8 million but was mainly driven by an unforeseen EUR 380 million tax payment (disputed tax claim). In terms of guidance, which we believe was the main driver behind the Feb. 16 share price underperformance (shares about 6% down at the time of writing), the group now expects an EPS decline in "low- to midsingle digits" versus down 4% in our model and down 1% for consensus. The firm also expects EUR 1.7 billion in free cash flow versus EUR 1.65 billion in our model and EUR 1.5 billion for consensus. Finally, the firm reiterated increased capital expenditure guidance at 3.5% of sales at the group level with 0.5% earmarked for investments in bol.com, while it now projects grocery (excluding bol.com) free cash flow generation of at least EUR 7 billion for the period 2022-25 versus EUR 7.2 billion in our model including bol.com. Given our EPS estimates for fiscal 2022 are in line with the guided range, we don't expect to materially change our EUR 24.5 fair value estimate. Post-correction, shares are fairly valued.