Coles fuels Wesfarmers profit growth
Coles has been a winner for Wesfarmers. Photo: AFR
- Half-year net profit rises 9.3% to $1.285 billion
- Coles pre-tax profit jumps 15% to $755 million
- Interim dividend of 77 cents, up from 70 cents
- Lower coal prices hurt resources division
- Shares rally to highest since December 2007
Perth-based conglomerate Wesfarmers has posted a 9.3 per cent jump in half-year net profit to $1.285 billion as revenue from its portfolio of businesses which are heavily weighted towards its supermarkets business Coles rose 3.2 per cent to $30.6 billion.
We expect growth from the group’s retail businesses as we further improve customer offers.Richard Goyder
The company said today it would pay an interim dividend of 77 cents per share, up from 70 cents paid for the same time last year.
Wesfarmers said that during the half, it recorded strong pre-tax earnings at its Coles, Bunnings and Kmart operations with a turnaround in the insurance division compensating for reduced earnings at Target and its resources division.
Coles, the main driver of the conglomerate’s earnings, recorded pre-tax earnings of $755 million, up 15.1 per cent. This was three times the rate of revenue growth. Return on capital for Coles increased 100 basis points to 9.2 per cent.
Wesfarmers shares gained as much as 2.7 per cent to their highest since December 2007 and reversing an earlier loss of 1 per cent. Shares were recently up 81 cents, or 2 per cent, to $39.23.
Ahead of Woolies again
Wesfarmers bought Coles nearly five years ago for about $20 billion, and has turned it around from the underperforming supermarket it was under previous management.
It has also managed to beat its arch rival Woolworths in terms of sales for nearly the past four years.
Earlier this month Wesfarmers said December quarter same-store sales at Coles had risen 3.9 per cent for its supermarkets, easily eclipsing Woolworths. Coles reported total sales rose 5.2 per cent for the period.
Woolworths said its flagship food and liquor business had posted a 2.5 per cent increase in second-quarter same-store sales to $10.3 billion. Total sales, which includes new store openings in the period, were up 4.8 per cent.
In its half-year report, Wesfarmers said its hardware business Bunnings had interim pre-tax earnings of $518 million, up 6.8 per cent for the half.
Earnings at Kmart rose 24.9 per cent to $246 million but its stablemate Target continued to suffer in the current trading environment, with its earnings falling 20.4 per cent to $148 million.
Resources division weak
Earnings at Wesfarmers resources division, which sells coal, fell 62.8 per cent to $93 million as that business was hurt by lower coal prices and a strong Australian dollar.
The insurance division recorded earnings of $104 million, $87 million above the prior corresponding period, while its chemicals, energy and fertilisers division posted earnings of $104 million, up 5.1 per cent.
Industrial safety operations netted $88 million in earnings, down 9.3 per cent, mainly due to lower sales and increased margin pressure, particularly from customers in the resources industry.
The half-year result was inline with analyst expectations of a half-year profit of around $1.2 billion although the interim dividend was slightly ahead of some estimates with some analysts tipping a dividend of 75 cents per share.
Retail to drive growth
Wesfarmers boss Richard Goyder was cautiously optimistic for the group’s second half outlook despite continuing economic and market uncertainty which pose challenging conditions in the resources and industrial safety divisions.
‘‘We expect growth from the group’s retail businesses as we further improve customer offers and operating efficiencies, and strengthen all of our channels to market,’’ he said.
Mr Goyder said he expected the company’s retail portfolio to provide resilience and growth in an overall challenging consumer environment.