Metro profit beats estimates as cost controls offset lower food prices

The chief executive of Metro Inc. says prices for produce, meat and dairy were lower in its most recent quarter, but the grocer still increased its profits and beat analyst estimates.

Food prices were about two per cent lower than a year ago during the 12-week period ended March 11, CEO Eric La Fleche told a conference call with financial analysts Tuesday.

La Fleche said the company is still experiencing deflation, but expects it to ease into flat or positive territory by the fourth quarter.

"The worst appears to be behind us," he said.

Jim Durran, head of research at Barclays Capital, wrote in a report that Metro fared better than the 3.4 per cent overall drop in prices for food from stores in Ontario and Quebec during the same time frame.

Metro likely achieved that in part by internally generated offsets, he wrote, such as consumers switching what they buy, like choosing meat as it becomes more affordable.

La Fleche told analysts stores did see some consumers trading up and purchasing more expensive items as prices came down.

The company said its results were also helped by strong expense control as it was able to lower operating expenses as a percentage of sales.

The Montreal-based company's stock rose nearly 6.5 per cent, gaining $2.72 to $45.00.

Metro earned $132.4-million or 56 cents per share in what was its second quarter, up from $124.9-million or 51 cents per share in the comparable period last year.

The average analyst estimate had been for a profit of 53 cents per share, according to Thomson Reuters data.

Revenue was $2.9-billion, up less than a percentage point from a year earlier, but in line with analyst estimates.