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Metcash Slumps After Full-Year Earnings Forecast Cut

Metcash Ltd., Australia’s largest grocery wholesaler, declined the most in almost five months in Sydney trading after cutting its full-year earnings forecast amid a price war with larger supermarket chains.

The shares fell 2.3 percent, the most since July 5 to A$3.43 at the close. Underlying earnings-per-share will be between 2 percent and 6 percent lower in the 12 months through April, the Sydney-based company said in a statement today. In August, Metcash forecast the measure would fall between 1 percent and 3 percent.

Metcash has been squeezed as competition between Australia’s two largest supermarket chains, Woolworths Ltd. and Wesfarmers Ltd.-owned Coles, has driven grocery discounts. A push to sell milk at A$1 ($1) a liter contributed to a 27 percent profit fall at the dairy and drinks division of Kirin Holdings Co.’s Lion unit, the company said in August.

“The deflationary trading conditions are expected to continue,” Metcash Chief Executive Officer Andrew Reitzer said in the statement. “Ongoing deflation will have to be managed carefully in the second half of the year.”

Metcash shares have fallen 15 percent this year, compared with an 18 percent rise for Woolworths and a 21 percent gain for Wesfarmers. The benchmark S&P/ASX 200 index has gained 11 percent over the period.

First-half net income fell 13 percent from a year earlier to A$82 million, the company said, even as sales climbed 3.5 percent to A$6.34 billion.

Increased Competition

“Aggressive marketing campaigns” by the major supermarket chains had been a headwind for earnings during the period, the company said.

The company posted underlying EPS of 34.1 cents in June. Profit was expected to fall 4.1 percent to 32.7 cents in the 2013 financial year, according to the average of 15 analyst estimates compiled by Bloomberg.

Earnings before interest, tax and amortization in the food and grocery business, Metcash’s largest division, slipped 5.4 percent to A$175 million as discounting pushed down profit margins.

Fresh produce prices sank 13 percent during the first half while packaged grocery fell 0.7 percent, Metcash said. Market share slipped 0.2 percent as trading hours were deregulated in Western Australia state.

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