Metcash share price crashes lower after losing 7-Eleven contract

The Metcash Limited (ASX:MTS) share price is crashing lower after losing a major contract with 7-Eleven…

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The Metcash Limited (ASX: MTS) share price is ending the week on a very disappointing note.

In early afternoon trade the wholesale distributor's shares have crashed over 9% lower to $2.76.

Why is the Metcash share price crashing lower?

Investors have been heading to the exits in their droves on Friday after Metcash revealed the loss of another supply agreement.

According to the release, Metcash has been advised by 7-Eleven that it will not be renewing its current supply agreement following its conclusion on August 12 2020.

The release explains that Metcash was unable to reach an agreement with 7-Eleven on its supply requirements for the east coast, including its delivery routes and scheduling.

Metcash determined that these requirements would lead to supply being uneconomic for its Convenience business.

The company remains in discussions with 7-Eleven to continue supply in Western Australia, as well as a number of smaller categories on the east coast.

This loss is a bitter blow for Metcash, especially given its recent loss of a Drakes supply agreement estimated to be worth $270 million.

Metcash advised that total Convenience annual sales to 7-Eleven are ~$800 million. These comprise predominantly lower margin tobacco sales.

Although it is a low margin contract, it looks likely to create a reasonable gap in its earnings. This could put a fair bit of pressure on its dividend, which came in at 13.5 cents per share in FY 2019.

What's next for Metcash?

Management advised that it will now be assessing other opportunities in order to help offset the future impact to its earnings that this development will have.

However, it did not elaborate on what these opportunities are.

Metcash isn't the only share falling heavily today. Both Gentrack Group Ltd (ASX: GTK) and Mayne Pharma Group Ltd (ASX: MYX) shares are down over 10% this afternoon.

Gentrack's shares have been sold off following its third earnings downgrade since the end of July. Whereas Mayne Pharma's shares have hit hard after a disappointing trading update at its annual general meeting.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended GENTRACK FPO NZ. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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