Metro Profit Beats Analyst Estimates on Disposals, Prices

Metro AG reported second-quarter profit that topped analyst predictions as Germany’s biggest retailer’s electronics unit lured shoppers with lower prices amid government austerity measures and sold businesses abroad.

Metro rose to almost a 16-month high after posting earnings before interest, taxes and special items totaling 276 million euros ($366 million). That beat the 269.2 million-euro average estimate of 13 analysts compiled by Bloomberg. Operating earnings will rise again in the 2013-2014 fiscal year after dropping in the nine months until September, Chief Executive Officer Olaf Koch told journalists today.

Since taking the helm a year ago, Koch worked to focus Dusseldorf-based Metro on its Cash & Carry wholesale business and Media-Saturn electronics chain. Disposals he has arranged include the sales of Real hypermarkets in eastern Europe to Groupe Auchan SA and the Makro U.K. wholesale unit to Booker Group Plc. He has also announced the Media-Saturn electronics chain is leaving China. Metro will focus on “strict cost management” in 2013 while shoppers continue to rein in spending, it reiterated today.

“The disposable income and purchasing power of our customers in nearly all European countries were still burdened by austerity measures,” Koch said in a statement.

Metro jumped as much as 2.09 euros to 28 euros, the highest intraday price since April 5, 2012, and was trading up 7.6 percent at 1:14 p.m. in Frankfurt, bringing this year’s gain to 33 percent.

Retail Sales

German retail sales unexpectedly declined in June, a report yesterday showed, suggesting that doubts about Europe’s economic recovery weighed on consumer spending. Euro-area unemployment has reached a record 12.2 percent. Media-Saturn had a loss of 94 million euros in the quarter, Metro said, while the price cuts helped the division win market share.

The electronics unit remains in a very competitive environment, Koch told journalists on a conference call today. The company invested about 100 million euros in price cuts at Media-Saturn in the first half of the year, Chief Financial Officer Mark Frese said.

“It’s still difficult trading in all business segments,” said Christoph Schlienkamp, an analyst at Bankhaus Lampe in Dusseldorf, by phone.

Second-quarter sales fell to 15.3 billion euros from 15.8 billion euros, in line with the 15.3 billion-euro average estimate of 13 analysts. Revenue declined 5.4 percent to 4.6 billion euros in western Europe excluding Germany and dropped 2.4 percent to 5.8 billion euros in the company’s home country. Adjusted Ebit dropped 12 percent from a year earlier, and the company posted a net loss in the 2012 period.

The retailer reiterated that it expects a decline in operating earnings for the transitional nine-month financial year ending in September as it invests in Cash & Carry and the economy remains challenging in southern and eastern Europe.

Adjusted Ebit at Cash & Carry, Metro’s biggest unit, fell 2.4 percent from a year earlier to 241 million euros in the quarter as a decline in sales and price investments was “mostly” compensated for by cost-saving measures, Koch told analysts on a conference call today.

Transformation initiatives are “progressing well” and Metro will make further price investments at the unit, Koch said. The retailer is introducing new food product ranges at the wholesale unit in Germany while the offering is becoming “much more focused” for non-food goods.

“Management is talking a game of improvement, and there is plenty going on, but trading conditions remain tough,” Andrew Gwynn, an analyst at Exane BNP Paribas, said in e-mailed comments. “C&C sounds modestly better with slightly better trading in France, Spain, Turkey and Poland, and management does seem to be controlling debt well. Accordingly, the business feels like it is being better managed, but format issues remain a drag.”

A sale of the Kaufhof department-store chain “still makes sense strategically,” Koch told journalists. The retailer suspended negotiations on a disposal in January 2012, citing unsuitable market conditions. Koch said he’s pleased with the business and that he won’t rush a sale. Adjusted Ebit at the unit in the quarter quadrupled to 4 million euros.

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