Metro Pressured by Currencies in Eastern Europe -- Update

By Natascha Divac

FRANKFURT--Metro AG (MEO.XE) on Thursday reported a decline in third-quarter revenue, citing unfavorable currency effects in large parts of Eastern Europe and a shift in its traditionally strong Easter business, which this year fell in the second quarter.

The German retailer swung to a net profit of 115 million euros ($125.54 million) from a loss of EUR63 million a year earlier, but its adjusted earnings before interest and taxes, a figure closely watched by analysts, fell to EUR209 million from EUR253 million after its prior-year results were boosted by income from real-estate divestments. Sales slid 1.4% to EUR13.97 billion against analysts' expectations of about EUR14 billion.

Separately, Metro said it acquired Classic Fine Foods, a Singapore-based importer and food distributor, from European private-equity firm EQT in a transaction worth $290 million, plus an additional payment of up to $38 million, depending on the company's earnings development in 2015 to 2017.

The acquisition of CFF is part of Metro's strategy of expanding its wholesale Cash & Carry operations. CFF has an established own-delivery and storage system and about 800 employees in 14 countries. It generates annual sales of more than $200 million, and is highly profitable, according to Metro. With CFF the retailer will grow its presence in wholesale business to 36 countries from 26.

The Wall Street Journal reported in March that EQT had been approached by several parties interested in the company.

In June, Metro, one of Europe's largest supermarket groups alongside U.K.'s Tesco PLC (TSCO.LN) and France's Carrefour SA (CA.FR), agreed to sell its Kaufhof department store chain to Hudson Bay for about EUR2.8 billion. The unit has for the first time been classified as discontinued business this quarter, meaning it is no longer accounted for in the retailer's adjusted EBIT figure, but still figures in net profit.

Metro, whose fiscal year ends in September, still projects fiscal 2015 group earnings before interest, tax and special items to be slightly above the EUR1.53 billion posted in the previous fiscal year, with a slight increase in sales. Due to the announced sale of Galeria Kaufhof, the outlook is now based on continuing operations.

-Write to Natascha Divac at [e-mail]

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