Ahold Says It Inflated Earnings

Europe was confronted with its own corporate accounting scandal Monday when the world’s third-biggest food retailer, Ahold, admitted it vastly overstating earnings over the last two years.

Ahold’s top two executives resigned and several senior U.S. managers were suspended while investigations focused on whether income was booked prematurely at the company’s U.S. Foodservice arm. Ahold also owns Stop & Shop and other U.S. supermarket chains.

Its shares plunged 63% in Amsterdam trading after the company said it had inflated earnings in the last two years by at least $500 million. It will restate earnings for 2001 and delay its 2002 earnings report, pending results of investigations at its operations in the United States, South America and Europe.

Merrill Lynch estimated the restatement could wipe 10% to 30% off 2002 per-share earnings.

The news dragged down shares in the European retail food sector, but analysts said there didn’t seem to be an industrywide problem. However, analysts said the disclosure hurt investor confidence in the Netherlands as it called into question the accounting practices used by a well-known and widely held company.

Ahold, which uses U.S. and Dutch accounting standards, generates more than half its sales in the United States, where it owns the regional chains Giant-Landover, Giant-Carlisle, Tops, BI-LO and Bruno’s as well as Stop & Shop.

Ahold has 40 million customers in 27 countries and generated sales of $79 billion in 2002. It owns about 9,000 supermarkets and employs 450,000 people.

Its shares came under pressure just over a year ago when it became known that the company’s profits were smaller when stated under U.S. rather than Dutch accounting rules, primarily because of its treatment of goodwill amortization.

The problems at Ahold, which trails only Wal-Mart Stores Inc. and France’s Carrefour in size, appeared to be isolated, but analysts were reluctant to rule out that they could spread.