Wesfarmers produced a surprise on the upside yesterday in its 2009-10 first half profit announcement.
Coles Group and Bunnings boosted earnings, enabling the group to avoid a nasty drop in profit generated from its coal business.
Westfarmers managed to report a 1% rise in first net profit of $879 million, against the $871 million of the first half of 2008-09 when coal prices were much higher.
The result in fact beat market expectations, with Bloomberg saying that its analysts survey had forecast a profit of $802 million.
Analysts have expected the slump in coal earnings not to be offset by the improved returns from Coles Group and Bunnings.
As a result, interim dividend was boosted 10%, or 5c a share, to 55c.
The news saw Wesfarmers shares jump sharply, up to more than 5%, or $1.53, at one stage.
That reversed earlier weakness before the result came out.
They finished at $30.60, up 3.2%, or 90c on the day.
The key to the surprise improvement was the 13% rise in earnings before interest and tax (EBIT) from Coles supermarkets to $486 million.
That was after a 7.5% rise in supermarket sales in the first half with same store sales up 5%, which was a better performance than Woolies, which reported a 6.8% rise in first half revenue and a 4.8% jump in same store sales.
The other big improver was the home improvement and office supplies unit, which includes Bunnings and Officeworks. It saw EBIT rise 14% to $422 million.
As forecast by analysts, the resource division, which includes coking and steaming coal from the Curragh mine in Queensland and steaming coal interests from the NSW Hunter Valley, was weak with a 99% drop in EBIT to just $2 million.
Wesfarmers said total group revenues edged up to $26.53 billion in the latest half year, from $26.36 billion previously.
Group EBIT was down 11% at $1.54 billion compared to $1.73 billion previously, thanks to the drop in coal earnings.
Sales in Coles supermarket business jumped to $15.16 billion, from $14.62 billion for the half year to December 2008.
Coles’ earnings before interest, tax and corporate overheads was $486 million, up from $431 million previously.
"Performance across the retail business was strong with earnings increasing 22.6 per cent compared to the previous corresponding period," Wesfarmers said in a statement.
"The economy and consumer spending began to show signs of recovery during the period."
"The improvement in results was driven broadly across Wesfarmers’ retail businesses and reflected the continued turnaround of Coles, Kmart and Officeworks and the ongoing strong performance of Bunnings and Target.
"This was somewhat tempered by the impact of three interest rate increases and the cycling of the December 2008 federal government stimulus package, which resulted in a more challenging discretionary environment.’’
"Earnings from the Resources division were significantly down on last year’s record result, due to materially lower global export coal prices, high Stanwell royalty and costs associated with the early close-out of a number of foreign exchange hedge contracts.
"Earnings for both the Energy and the Chemicals and Fertilisers divisions improved, despite a $25 million write-down of fertiliser inventory, following a return to full gas supply during the period.
"The slower economy continued to impact the results of the Industrial and Safety and Insurance divisions, with the latter also affected by reduced investment income as a result of comparatively lower interest rates.
‘‘The Coles division’s … performance over the period was pleasing.
"This result reflects the significant amount of work underway on the long-term turnaround of that business.
"Kmart’s turnaround showed very good progress in the period, with EBIT more than double the previous corresponding period despite slightly reduced revenue.’’
Wesfarmers said Target’s result was "very good’’, with EBIT of $279 million, up 29.8%.
Officeworks generated EBIT of $27 million, up 9%.
