METRO INC., $49.25, Toronto symbol MRU, operates over 600 grocery stores and 650 drugstores, mainly in Quebec and Ontario.
On May 11, 2018, the company completed its acquisition of Jean Coutu Group. That drugstore chain operates 418 franchised locations in Quebec, New Brunswick and Ontario. Metro paid $4.5 billion (75% in cash, 25% in shares).
If you exclude costs related to that acquisition and other unusual items, Metro earned $155.1 million in its fiscal 2019 second quarter, ended March 16, 2019. That’s up 43.5% from $108.1 million a year earlier. Due to the additional shares outstanding, earnings per share gained just 27.7%, to $0.60 from $0.47. That missed the consensus estimate of $0.63.
Overall sales rose 27.7%, to $3.70 billion from $2.90 billion. That also fell short of the consensus forecast of $3.73 billion.
The new Jean Coutu operations contributed $686.4 million to the latest total sales. If you disregard the new operations, sales gained 4.0%.
Food same-store sales improved 4.3%. Higher prices accounted for about 60% of that increase. Same-store sales at the pharmacies rose 1.1%. That reflects a 0.1% decrease in sales of prescription drugs due to lower drug prices, and a 3.6% improvement in sales of other merchandise.
Metro continues to close stores and renovate others in the wake of the Jean Coutu acquisition. It still expects to cut $50 million from its annual costs by the end of the first year.
GREAT-WEST LIFECO INC., $34.38, Toronto symbol GWO, is Canada’s second-largest insurance company, after Manulife Financial (Toronto symbol MFC). It also offers mutual funds and wealth management services.
The company has announced the results of its offer to buy back $2 billion of its common shares through a Dutch auction process.
It has now repurchased 59,700,974 of its common shares at $33.50 a share (shareholders were invited to offer their shares at any price between $30.00 and $35.00, in $0.10 increments). Great-West’s complete share repurchase through the auction represents 6.04% of the total number of shares outstanding.
Share repurchases raise earnings per share and other per-share calculations, which gives the remaining shareholders a larger stake in the company. Investors did not have to pay commissions on those transactions.
Power Financial (Toronto symbol PWF), which owned 67.8% of Great-West before the buyback, also participated in the offer. As a result, it now owns 66.8% of the company.
OUR RECOMMENDATION: Great-West Lifeco is still a hold.
FORTIS INC., $49.90, Toronto symbol FTS, is the main supplier of electrical power in Newfoundland and PEI. It also owns electrical utilities across Canada, the U.S. and the Caribbean. In addition, the company distributes natural gas in British Columbia, Arizona and New York State.
Fortis has now completed the sale of its 51% stake in B.C.’s Waneta expansion power project to the provincial government. This facility, downstream from the Waneta hydroelectric dam on the Pend d’Oreille River, began operating in 2015.
The company received $1 billion for its stake. It will use the cash to pay down its long-term debt of $23.2 billion (as of December 31, 2019). That’s equal to a high 108% of Fortis’s $21.5 billion market cap (the total value of all outstanding shares). However, predictable cash flows from its regulated utilities (99% of its assets) let the company service its debt and upgrade its operations.
Those cash flows will also help Fortis meet its goal to raise its dividend by about 6% each year through 2023. The current annual rate of $1.80 a share yields 3.6%.
OUR RECOMMENDATION: Fortis is our #1 Income buy for 2019.
SNC-LAVALIN GROUP INC., $34.27, Toronto symbol SNC, is a leading Canadian engineering and construction company that specializes in large-scale infrastructure projects such as roads, bridges, transit systems and water-treatment plants.
The company owns 40% of a joint venture with U.S.-based Holtec International, which holds the remaining 60%. This business—called Comprehensive Decommissioning International—specializes in the decontamination and decommissioning of retired nuclear power plants in the U.S.
This week, the joint venture won a contract to decommission three nuclear power reactors at the Indian Point site in Buchanan, New York.
The partners will begin the process in the third quarter of 2021. It will probably take 8 to 10 years to complete the job.
The deal is worth $1 billion; SNC’s share of $400 million is equal to 4% of its 2018 revenue of $10.1 billion.
CANADIAN TIRE CORP., $149.55, Toronto symbol CTC.A, operates 503 Canadian Tire stores. They sell automotive parts and products, and household and sporting goods. The company’s other operations include the following: 297 gas stations; 105 PartSource auto part stores; 386 Mark’s casual and work clothing stores; and 409 stores that sell sporting goods and athletic wear under various banners, among them SportChek and Sports Experts.
Canadian Tire recently launched a new rewards program called “Triangle.” Under the plan, customers can accumulate points and spend them at most of the company’s retail chains and gas stations. Under the old plan, customers could only redeem points at Canadian Tire stores.
The company has now expanded the Triangle program to include 111 additional stores in Quebec. Those outlets, operated by franchisees, sell sporting goods under several banners, including Atmosphere, Hockey Experts, L’Entrepôt du Hockey and Sports Rousseau.
Loyalty plans are an increasingly important tool for retailers: they spur repeat visits and greater spending per visit. Moreover, Canadian Tire can study the purchasing data for patterns. That will let it create exclusive offers for Triangle members.
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