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Report on Business Metro reports positive performance, raises dividend despite pressure from suppliers

A Metro grocery store in Montreal.

Paul Chiasson/The Canadian Press

Metro Inc.’s performance in its most recent financial year fell in line with company expectations, even as the grocer grappled with supplier pressure to raise prices.

“We have accepted certain increases from our suppliers because of those tariffs,” said Eric La Fleche, the grocer’s chief executive officer, during a press briefing following the company’s annual general meeting in Montreal on Tuesday.

He had said in August that suppliers are pressuring the company to accept higher prices amid an unfolding tariff war with the United States. At the time, Metro was reviewing those demands and negotiating prices.

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Since then, it’s accepted cost increases in some categories, such as soft drinks, he said, that are made of aluminum cans hit by the new tariffs.

The U.S. government imposed tariffs on Canadian steel and aluminum products starting June 1. A month later, Canada retaliated with tariffs on a number of American-made products.

“The cost to produce did go up for manufacturers,” he said, adding the whole market including Metro had to accept cost increases.

Those higher prices have “not necessarily” been passed on to the consumer, La Fleche said, adding the soft drink category is very competitive.

“In some categories maybe, in others not necessarily.”

Despite this and other challenges, such as low inflation, increasing minimum wage and higher transportation costs, executives said the company performed in line with their expectations during its 2018 financial year.

Meanwhile, the industry was hit with a large-scale E. coli outbreak as the grocer started its 2019 financial year.

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Metro experienced “significant losses in the warehouses [and] in the stores” after a public warning that consumers should avoid eating romaine lettuce because of an E. coli outbreak, La Fleche said.

The company pulled the product from store shelves following the news. The outbreak, which consisted of 29 confirmed E. coli cases, was declared over on Dec. 24 – more than a month after the blanket warning.

“We had to throw away a lot of romaine lettuce. That’s a direct loss to our bottom line. It’s part of our results,” he said, estimating the loss to be in the ballpark of $1-million.

Still, he said later during a conference call with analysts that the year is off to a strong start as the company expects a more normal level of inflation, which he said is about 2 per cent.

During the company’s first quarter, which ended Dec. 22, internal inflation rose 1.8 per cent. Produce was the main driver, he said, with a bit of deflation in the meat category.

Metro reported a first-quarter profit of $203.1 million and raised its dividend, saying it will pay a quarterly dividend of 20 cents a share, up from 18 cents a share.

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Its profit amounted to 79 cents a diluted share compared with a profit of nearly $1.3 billion or $5.67 a diluted share for the same period a year earlier.

At that time, it benefited from the sale of its stake in Alimentation Couche-Tard Inc. to help fund its deal to buy the Jean Coutu Group Inc.

On an adjusted basis, Metro says it earned $172.2 million or 67 cents a diluted share for its latest quarter, up from an adjusted profit of $126.7 million or 55 cents a diluted share a year earlier.

Analysts on average had expected a profit of 68 cents a share for the quarter, according to Thomson Reuters Eikon.

Sales totalled $3.98 billion, up from $3.11 billion a year earlier.

With files from Christopher Reynolds

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