Wesfarmers shares rallied to a 15-month high after the conglomerate posted another strong earnings performance from its Coles supermarket divsion.
Wesfarmers said full-year net profit role 11 per cent to $2.126 billion. Its Coles unit capped a third year of market-beating performances as it stepped up its price war with bigger rival Woolworths.
Shares in the company jumped on the news, rising as much as $1.26, or 3.9 per cent, to $33.75 - a level not reached since May 19 last year. The intra-day increase is the most in eight months.
The earnings growth, while in line with analyst estimates, was largely driven by the continued resurgence of the once-struggling Coles division. Coles posted recorded a 16.3 per cent increase in 2011-12 pre-tax earnings to $1.356 billion.
Revenue for the group, which also includes hardware store Bunnings, Kmart and other investments in coal and insurance, rose 5.8 per cent to $58 billion.
The group’s other consumer-focused business units also put in solid performances, with pre-tax earnings at Bunnings up 4.9 per cent to $841 million, and Kmart also showing strong signs of improvement as its pre-tax earnings lifted 31.4 per cent to $268 million.
But the general pull-back in consumer spending, dour consumer confidence and price deflation dented its Target division which reported a 12.9 per cent drop in pre-tax earnings to $244 million although this included a restructuring provision of $40 million.
Rival Woolworths shares are up about 1 per cent, or 29 cents, to $28.57. Both Wesfarmers and Woolies shares are up about 14 per cent in 2012, more than double the overall market's advance.
Wesfarmers said it expected the positive momentum at its Coles, Kmart and Officeworks chains to continue into 2012-13 while Bunnings would benefit from improved offerings and better service levels.
“It’s a very solid result,” Peter Esho, said chief market analyst at City Index. “This sends a message to the market that they are very serious in what they’re doing and it’s yielding results.”
The company declared a final dividend of 95 cents per share, up from the 85 cents per share paid to shareholders in the second-half of last year.
Managing director Richard Goyder said the outlook for the group was positive, notwithstanding the expected continuation of subdued retail trading conditions and global economic uncertainty.
‘‘The group has a strong portfolio of businesses and a healthy balance sheet providing a good outlook for growth, both from within the existing group and from potential business expansion opportunities,’’ he said in a statement.
The flagship Coles business, bought by Wesfarmers in 2007 for $18 billion, reported a 6.4 per cent rise in revenue to $34.117 billion with its food and liquor division outperforming the market for the past three years, the company said.
Coles boss Ian McLeod said the nation’s No.2 supermarket chain had developed the platforms for its second wave of transformation which would include stronger supplier partnerships, an integrated loyalty platform, improved category management, and new and broader ranges of Coles private label products.
Mr Goyder said the group’s results for the year was ‘‘pleasing’’ with all divisions achieving improvements in underlying performance and strong growth in the group’s operating cashflow.
‘‘During the year all of our retail businesses worked hard to deliver better value and improved merchandise offers for customers, while investing to renew and grow their store networks and improve supply chains,’’ Mr Goyder said.
‘‘These initiatives were rewarded with increasing customer numbers and units sold, more than offsetting price deflation impacts, including from our reinvestment in lowering prices.’’
However, not all divisions put in a strong full-year earnings performance.
The Wesfarmers insurance arm saw pre-tax earnings dive 75 per cent to $5 million as a result of fallout from Christchurch earthquakes.
Wesfarmers chemicals, energy and fertilisers business had an 8.8 per cent dip in pre-tax earnings to $258 million.
Target’s earnings were hit by the restructure charge and also faced difficult trading conditions especially in consumer electronics.
‘‘Underlying earnings were maintained through a focus on the profitability of promotions and lower levels of clearance activity due to better inventory management,’’ Wesfarmers said.
Wesfarmers said the group’s outlook for 2012-13 remained positive supported by solid strategic plans in place across the conglomerate’s operating businesses.
‘‘The turnaround momentum in Coles, Kmart and Officeworks is expected to continue, with each business well-positioned for the next phase of growth," the company said.
‘‘Bunnings strong performance is expected to continue, supported by further improvements in its merchandise offer and service levels as well as ongoing improvement of its store network.’’
Target’s turnaround would hinge on the success of efforts to emphasis its "mid-tier" offerings.
Earnings from insurance should improve, assuming the absence of a high number of catastrophe related claims, while its industrial businesses would be supported by good long-term market fundamentals, the company said.
Source: Argentine Beef Packers S.A.
Back to News Headlines