The Quebec-based company said it faced a similar challenge before, prompting many observers to write it off when it didn't participate in a wave of industry consolidations in 1998. Yet seven years later the company made its own large move by purchasing A&P for $1.7 billion, making it the second-largest player in Ontario.
"We have our own plan," CEO Eric La Fleche said Tuesday following the company's annual meeting. "We've never been the biggest, but that hasn't precluded us from having very good results and very good performance over a very long period of time. We're patient, we're disciplined."
He acknowledged that some investors and analysts are eager for the company to make a move after deals by Loblaw's (TSX:L) to purchase Shoppers Drug Mart (TSX:SC) and Sobeys (TSX:EMP) to buy Safeway Canada in Western Canada. Metro's Food Basics discount banner is also fending off expansion by Walmart (NYSE:WMT) and Target (NYSE:TGT).
The company announced plans Tuesday to step up efforts to reward shareholders while still maintaining the flexibility to invest in its network and pounce on acquisition opportunities that may arise, likely over the medium and longer-term.
Metro (TSX:MRU) raised its quarterly dividend 20 per cent and increased the number of shares it can purchase over the next year through a normal course issuer bid by nearly 17 per cent to seven million.
The company said it will now pay a quarterly dividend of 30 cents per share, up from 25 cents. The payout ratio is 24 per cent, implying a yield of two per cent at the current share price. It also raised its dividend target by five percentage points to 25 per cent of net income from the previous year, excluding non-recurring items.
Some analysts had expected Metro to borrow up to $1 billion to launch a special stock repurchase plan. But the company said it prefers to increase its leverage gradually and avoid the heavy premium that comes with a separate share repurchase program.
"To us it's the smart way to leverage up the company a bit, reward our shareholders...and keep the powder dry for investments in the business," La Fleche told reporters.
He wouldn't identify potential takeover targets or if the pharmacy sector poses a greater opportunity for growth, but said large transactions are unlikely in the short term.
In the meantime, Metro plans to invest $275 million along with its franchisees this year, primarily to improve its Ontario operations. La Fleche said initial changes announced last November at Food Basics are beginning to generate results.
Metro said its profits slipped in the first quarter compared with a year ago amid a what it called a challenging marketplace.
It earned $99.2 million or $1.06 per share for the quarter, down from $117.3 million or $1.19 per share a year earlier, when discontinued operations contributing seven cents per share.
Metro's adjusted earnings from continuing operations dropped to $103.9 million or $1.11 per share, from $110.9 million or $1.12 per share a year ago.
The company's overall revenue was slightly lower at $2.7 billion as same-store sales fell 0.5 per cent.
Analysts had expected Metro would earn $1.13 per share of adjusted earnings on $2.66 billion of revenue.
Irene Nattel of RBC Capital Markets said the company delivered "solid" results, while pursuing a "gradual optimization of the capital structure."
"Although we are admittedly disappointed that Metro did not take a more aggressive stance with regard to balance sheet optimization, we understand the company's approach," she wrote in a report.
Nattel said revenues were stronger than expected, reflecting an improvement in same-store sales from the declines of 1.8 per cent and 0.9 per cent in the previous two quarters.
Meanwhile, La Fleche said the falling Canadian dollar will likely cause prices of imported fruits and vegetables to rise as costs are passed on to consumers.
Up to a quarter of its purchases come from the United States in the winter.
On the Toronto Stock Exchange, Metro's shares gained $1.31 or 2.1 per cent at $63.80 in Tuesday afternoon trading.