April 21, 2010 / 11:41 AM / 7 years ago

UPDATE 3-Metro profit rises 5.2 pct, tops forecasts

* Boosts quarterly dividend 23 pct to C$0.17

* Repurchased 1.7 million shares so far this year

* EPS C$0.74 vs consensus C$0.71

* Sales rise 1.1 pct to C$2.58 billion

* Shares drop 0.5 percent (Recasts. Adds company comments)

TORONTO, April 21 (Reuters) - Metro Inc MRUa.TO, Canada’s No. 3 grocer, said on Wednesday its quarterly earnings rose 5.2 percent, topping forecasts, as the strong Canadian dollar drove down its food costs and widened profit margins.

The company said it would use its excess cash to buy back shares, rather than pursue potential acquisitions, as it sees few attractive takeover targets on the horizon.

The Montreal-based company, which has bought back more than 1.7 million shares so far this year, also said it would lift its quarterly dividend by 23 percent to 17 Canadian cents a share.

Grocers benefited from rising food prices last year as they passed along higher costs for vegetables, fruit, meat and other goods. More recently, the rising Canadian dollar, which touched a near 23-month high against its U.S. counterpart on Wednesday, lowered costs for importing food.

“Similar to all Canadian grocers, product costs, driven largely by the strong Canadian dollar, seem to be dropping faster than retail prices, creating healthy margins even with soft sales results,” said Perry Caicco, a retail analyst at CIBC World Markets.

Sales rose 1.1 percent to C$2.58 billion, although sales in stores open for at least a year, or same-store sales, ebbed in the quarter which ended March 13.

Eric LaFleche, the company’s chief executive, said on a conference call that the trend toward lower selling prices was tapering off, and he sees more steadier pricing trends by the fall.

Earnings rose to C$80.3 million ($80.6 million), or 74 Canadian cents a share, in its second quarter, topping the average estimate of 71 Canadian cents as compiled by Thomson Reuters I/B/E/S.

That was up from C$76.3 million, or 68 Canadian cents, in the same period a year earlier when Metro benefited from rising food prices.

“TWO TO TANGO”

Metro has grown steadily in the past decade on a string of acquisitions, but has grown frustrated recently by a lack of attractive targets.

“You need two to tango and there is no one on the dance floor,” La Fleche said at a recent industry conference.

Typically companies look to spend the cash on key purchases or significant upgrades to its infrastructure, but often reward investors as well with dividend hikes or share repurchases that prop up its share price.

Metro’s shares, which have risen 9.7 percent so far this year, were off 0.5 percent on Wednesday at C$41.60.

The deployment of cash comes as the Montreal-based chain recently consolidated all of its Ontario stores, including Dominion, under the Metro banner.

$1=$1.00 Canadian Reporting by Scott Anderson; Editing by Frank McGurty

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