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The 3 Most Important Factors You Need to Know About Metro Inc.’s Q4 Report

Metro Inc. (TSX: MRU), one of the largest owners and operators of grocery stores, convenience stores, drugstores, and pharmacies in Canada, released fourth-quarter earnings on November 19 and its stock has reacted by rising over 5% in the days since. Let’s take a look at three of the most important statistics and updates provided in the report to determine if we should consider buying into this rally or if we should wait for a better entry point in the trading days ahead.

1) Earnings per share and revenue surpassed expectations

Here’s a chart of Metro’s earnings per share and revenue results in the fourth quarter compared to what analysts had expected to see and its actual results in the fourth quarter a year ago.

Metric Reported Expected Year Ago
Earnings Per Share $1.32 $1.27 $0.83
Revenue $2.71 billion $2.66 billion $2.61 billion

Source: Financial Times

Metro’s earnings per share increased 59% and its revenue increased 3.8% from the year ago period, as same-store sales climbed by a robust 3.9%. For the full year of fiscal 2014, earnings per share increased 8.5% to $5.13, revenue increased 1.7% to $11.59 billion, and same-store sales increased 1.1% compared to fiscal 2013.

2) EBIT increased over 40% and the EBIT margin expanded

Metro’s earnings before interest and taxes (EBIT) increased an impressive 42.9% to $152.8 million and its EBIT margin expanded 150 basis points to 5.6% in the fourth quarter. This growth and expansion can be attributed to total expenses increasing just 2.2% relative to the 3.8% revenue growth achieved. In fiscal 2014, excluding certain items, Metro’s EBIT increased 3.3% to $606.4 million and its EBIT margin remained unchanged at 5.2% compared to fiscal 2013.

3) The company generated over $60 million in free cash flow

Lastly, in the fourth quarter, Metro generated $128.5 million in net cash provided by operating activities and invested $62.7 million in capital expenditures, resulting in a healthy free cash flow of $65.8 million. The company utilized this free cash to pay out $25.5 million in dividends and grow its balance of cash and cash equivalents to $36 million. It did not engage in any share repurchase activity.  In fiscal 2014, the company generated $241.7 million in free cash flow, which it used to pay out $100.6 million in dividends and repurchase $4.6 million worth of its common stock.

Does Metro represent a long-term investment opportunity?

Metro is home to some of the most popular retail brands in Canada and increased traffic at its stores led it to a very strong financial performance in the fourth quarter and full year of fiscal 2014. Even though the stock has jumped, I think it could head much higher from here, as it still trades at only 15.2 times fiscal 2015’s earnings estimates and a mere 13.8 times fiscal 2016’s estimates. In my opinion, investors would be well served taking a closer look at Metro and strongly consider initiating long-term positions.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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