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Metro Expects Operating Profit to Fall on Cash & Carry Spending

Metro AG (MEO), Germany’s biggest retailer, forecast a decline in operating profit as the company invests in its Cash & Carry unit and the economy remains challenging in southern and eastern Europe.

Operating income will drop in the first nine months of 2013, the Dusseldorf-based company said today in a statement. Adjusted Earnings before interest and tax including real estate will rise in the first nine months of 2013 from 704 million euros ($907 million) in the year-earlier period, the retailer also said.

Sales adjusted for portfolio changes will rise “moderately,” Metro said. Those projections are based on unchanged exchange rates, the retailer said.

“The continued challenging consumer environment in many European countries resulting from the sovereign debt crisis again impacted business development at Metro Group in 2012,” Chief Executive Officer Olaf Koch said in the statement. “In 2012, we have created first conditions for long-term growth.”

Metro is changing its financial calendar and this fiscal year will be nine months long. For fiscal 2014, the retailer forecast Ebit to rise excluding one-time items.

UBS Report

Metro shares jumped the most since November 2011 yesterday after UBS AG recommended buying the stock as Koch’s divestment policy may trigger further gains. The company’s largest unit, Cash & Carry, is worth 14 billion euros, almost twice as much as the company’s current market value, UBS said.

Fourth-quarter Ebit at Cash & Carry dropped 15 percent to 491 million euros, Metro said today. Earnings fell 12 percent at Media Markt/Saturn and Real and were little changed at Kaufhof.

Koch said when he became CEO at the beginning of last year that he would focus on Cash & Carry and the Media-Saturn electronics chain as he cuts investment in Kaufhof department stores and Real grocery outlets. Since then, he has agreed to sell Real stores in eastern Europe to Groupe Auchan SA, sold Makro U.K. wholesale unit to Booker Group Plc (BOK) and announced Media-Saturn is leaving China.

Metro cut its full-year dividend 26 percent and reported earnings that missed analysts’ estimates on March 1 as the company struggled to contend with weakening economies in Europe.

Metro gets about two-thirds of its revenue from the euro area, where the economy will shrink again this year after contracting last year, the first back-to-back decline since the euro’s debut in 1999, according to a European Commission forecast.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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