Tuesday, October 6th13.7°C

Metro denies being left behind as rivals pursue blockbuster acquisitions

MONTREAL - Metro denied Tuesday that it's being left behind as supermarket rivals successfully pursue blockbuster acquisitions to fend off competitive pressure from U.S. retailers.

The Quebec-based company said it faced a similar challenge before, prompting many observers to write it off when it didn't participate in a wave of industry consolidations in 1998. Yet seven years later the company made its own large move by purchasing A&P for $1.7 billion, making it the second-largest player in Ontario.

"We have our own plan," CEO Eric La Fleche said Tuesday following the company's annual meeting. "We've never been the biggest, but that hasn't precluded us from having very good results and very good performance over a very long period of time. We're patient, we're disciplined."

He acknowledged that some investors and analysts are eager for the company to make a move after deals by Loblaw's (TSX:L) to purchase Shoppers Drug Mart (TSX:SC) and Sobeys (TSX:EMP) to buy Safeway Canada in Western Canada. Metro's Food Basics discount banner is also fending off expansion by Walmart (NYSE:WMT) and Target (NYSE:TGT).

The company announced plans Tuesday to step up efforts to reward shareholders while still maintaining the flexibility to invest in its network and pounce on acquisition opportunities that may arise, likely over the medium and longer-term.

Metro (TSX:MRU) raised its quarterly dividend 20 per cent and increased the number of shares it can purchase over the next year through a normal course issuer bid by nearly 17 per cent to seven million.

The company said it will now pay a quarterly dividend of 30 cents per share, up from 25 cents. The payout ratio is 24 per cent, implying a yield of two per cent at the current share price. It also raised its dividend target by five percentage points to 25 per cent of net income from the previous year, excluding non-recurring items.

Some analysts had expected Metro to borrow up to $1 billion to launch a special stock repurchase plan. But the company said it prefers to increase its leverage gradually and avoid the heavy premium that comes with a separate share repurchase program.

"To us it's the smart way to leverage up the company a bit, reward our shareholders...and keep the powder dry for investments in the business," La Fleche told reporters.

He wouldn't identify potential takeover targets or if the pharmacy sector poses a greater opportunity for growth, but said large transactions are unlikely in the short term.

In the meantime, Metro plans to invest $275 million along with its franchisees this year, primarily to improve its Ontario operations. La Fleche said initial changes announced last November at Food Basics are beginning to generate results.

Metro said its profits slipped in the first quarter compared with a year ago amid a what it called a challenging marketplace.

It earned $99.2 million or $1.06 per share for the quarter, down from $117.3 million or $1.19 per share a year earlier, when discontinued operations contributing seven cents per share.

Metro's adjusted earnings from continuing operations dropped to $103.9 million or $1.11 per share, from $110.9 million or $1.12 per share a year ago.

The company's overall revenue was slightly lower at $2.7 billion as same-store sales fell 0.5 per cent.

Analysts had expected Metro would earn $1.13 per share of adjusted earnings on $2.66 billion of revenue.

Irene Nattel of RBC Capital Markets said the company delivered "solid" results, while pursuing a "gradual optimization of the capital structure."

"Although we are admittedly disappointed that Metro did not take a more aggressive stance with regard to balance sheet optimization, we understand the company's approach," she wrote in a report.

Nattel said revenues were stronger than expected, reflecting an improvement in same-store sales from the declines of 1.8 per cent and 0.9 per cent in the previous two quarters.

Meanwhile, La Fleche said the falling Canadian dollar will likely cause prices of imported fruits and vegetables to rise as costs are passed on to consumers.

Up to a quarter of its purchases come from the United States in the winter.

On the Toronto Stock Exchange, Metro's shares gained $1.31 or 2.1 per cent at $63.80 in Tuesday afternoon trading.

The Canadian Press

Read more Business News

Recent Trending

Today's Market
S&P TSX13632.44+80.24
S&P CDNX536.88+6.97
S&P 5001982.87-4.18
CDN Dollar0.7668+0.0024
Natural Gas2.455+0.005

Okanagan Companies
Pacific Safety0.21-0.01
QHR Technologies Inc1.24+0.02
Metalex Ventures0.055-0.005
Russel Metals23.35+0.84
Copper Mountain Mining0.55+0.05
Colorado Resources0.07-0.01
ReliaBrand Inc0.0031-0.0009
Sunrise Resources Ltd0.02+0.00
Mission Ready Services0.09-0.00
Decisive Dividend Corp3.10-0.39
Diamcor Mining0.90+0.00



24030955-1429 West Kelowna Road
4 bedrooms 4 baths
more details
Click here to feature your property
Please wait... loading

Perfect (reno'd) home

Photo: Thinkstock.comHow many times have you found a home in the perfect location, but it needs too much work as per the home inspection? There is a great program available through most lenders that w...

Living beyond 100

Photo: ContributedThere was a time most careers involved an apprenticeship of one sort another. Some official, others involving years of servitude, and others time simply spent watching and emulating ...

5 Claim misconceptions

Photo: Thinkstock.comIf you have been hurt in an accident or as a result of medical negligence you will likely look to your friends and family for some advice on how to deal with the situation. These ...



Member of BC Press Council