Metcash Ltd. (MTS) fell the most since 2008 in Sydney trading after Australia’s largest grocery wholesaler said it will take charges worth as much as A$133 million ($139 million) and fire 8.5 percent of its workforce.
Shares in the Sydney-based company fell 4.7 percent to A$4.10 at the close of trading, their biggest decline since October 2008. Metcash will shut 15 of its Campbells Cash & Carry stores and sell its food service unit as a decline in shelf prices curbs profit margins, it said in a statement today.
The moves will result in 478 job losses, including 163 positions at the head office, said Metcash, which also operates Australia’s third-largest supermarket chain.
Increased competition between Australia’s largest chains Woolworths Ltd. (WOW) and the Coles unit of Wesfarmers Ltd. (WES), which together account for about 80 percent of supermarket revenue, has dragged down shelf prices for food and liquor. Excluding the writedowns, earnings-per-share will match a previous forecast for “low to mid single-digit growth,” Metcash said.
“We are skeptical of management’s maintenance of guidance,” Andrew McLennan, an analyst at Commonwealth Bank of Australia (CBA), wrote in a note to clients after the announcement. Metcash faces “significant structural headwinds,” wrote McLennan, whose hold recommendation for the stock is “under review.”
The charges will be taken in the financial year ending this month and may result in the smallest annual net income in six years.
The stock had been halted since March 29 when Metcash first announced it was expecting a writedown. It has now risen by 1.5 percent this year, compared with a 6.9 percent gain in the benchmark S&P/ASX 200 index.
Australian food prices have fallen for the past two quarters as higher rates of household saving and falling consumer confidence drive shoppers to seek out bargains.
“Prices are down and the shopper is a value-conscious shopper,” Andrew Reitzer, chief executive officer, told a conference call after the announcement. “The whole deflationary environment is clearly here to stay.”
The Reserve Bank of Australia signaled today it may resume cutting rates if weaker-than-expected growth slows inflation. Retail sales in February rose by 0.2 percent from a month earlier.
The retreat from sharp rises in some food categories due to natural disasters 12 months ago has also increased grocery price deflation. Sydney-based Woolworths last month said prices fell 3.7 percent from a year earlier during the six months through December, and fresh produce in recent weeks had been running 17 percent to 20 percent below the previous year, Reitzer said.
“What’s driving the prices down is oversupply” as productive crops hit fresh food markets in major cities, he said.
The company will restructure two joint ventures in Queensland state because of floods, storms and a decline in the tourism business and will take an impairment charge of between A$75 million and A$90 million, according to the statement.
Closing the Campbell’s stores and cutting jobs at its corporate office will cause a charge of between A$34 million and A$43 million, the company said.
Metcash had 5,638 workers at the end of April 30, according to its 2011 annual report.
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