UPDATE 2-Metro says weak economy, investments to hit earnings

Wed Mar 20, 2013 6:35am EDT

* Sees 9-month operating earnings down on comparable period

* Hit by weak consumer spending, cash and carry investments

* Shares fall over 3 percent (Changes dateline, adds analyst, details, background)

By Victoria Bryan

DUESSELDORF, Germany, March 20 (Reuters) - German retailer Metro predicted operating earnings would fall in the coming months, hit by weak consumer spending, a lack of major sporting events and investments aimed at reviving its main cash and carry business.

Shares in the company, which also runs consumer electronics stores, hypermarkets and department stores, fell over 3 percent in Wednesday morning trade, the biggest decline by a European blue-chip stock.

Store groups across Europe are battling with a prolonged squeeze on consumer incomes as governments try to reduce their deficits. France's Carrefour, for example, is handing more power to store managers, while Britain's Tesco is cutting prices and upgrading stores.

Metro, which runs over 2,200 outlets in 32 countries, has also been cutting prices at its cash and carry business, as well as revamping product ranges and investing in its delivery arm in a bid to reverse a decline in earnings.

That investment would continue in the first nine months of this year - a shortened fiscal year as the group changes its reporting period - leading to a further profit fall, Metro said.

The group also said its consumer electronics business Media Markt Saturn would be held back by a lack of major sporting events compared with 2012, when the Olympic Games and European soccer finals boosted sales of televisions.

"Overall, the guidance would imply that the earnings scenario looks poorer than expected," Commerzbank analysts wrote in a research note.

DIVIDEND WORRIES

In an unscheduled statement earlier this month, Metro reported operating profit dropped 16 percent to 1.98 billion euros last year and cut its dividend for the first time in over 14 years.

The dividend cut hurt its largest shareholder, the Haniel group, which has recently sold a stake of around 4 percent in Metro in a bid to reduce its debts.

A big payout for the shortened fiscal year looks unlikely.

"We intend to continue to distribute a competitive and attractive dividend," the group said in its annual report.

"But Metro generates a large share of its earnings in the final quarter of the calendar year. This all-important quarter will not be included in the short financial year 2013."

Metro is changing its reporting period to start its fiscal year on Oct. 1. That means its first quarter will include the Christmas trading period, in which it makes most of its profit, making it easier to give an outlook for the financial year.

The company did not say on Wednesday by how much it expected operating earnings to fall in the first nine months of 2013.

But it added that earnings before interest and tax, excluding special items, would improve from 704 million euros ($907 million) in the comparable period thanks to gains from the sale of property assets.

Despite the spending on its cash and carry business, Metro said it would reduce overall investment in the shortened 2013 year to below 954 million euros.

Earlier this week, chief executive Olaf Koch took over the running of the cash and carry business.

At 1005 GMT Metro shares, which last year dropped out of Germany's index of 30 leading companies, were down 3.4 percent at 22.165 euros.

($1 = 0.7760 euros) (Additional reporting by Maria Sheahan; Editing by Ludwig Burger and Mark Potter)

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