Reports from two leading companies on Friday nicely illustrated the current ‘two speed’ earnings/sales performance for the six to 12 months to December.
As we have seen from the earnings story, this two speed idea is quite apparent from the profit reports already released this month.
And we will see it again in the reports of BHP Billiton, Wesfarmers (although Coles Group will be a bit solid, its Target and Kmart divisions will do less well) and The Reject Shop, which has already warned of a profit fall because of subdued consumer demand.
Friday we saw gold mining giant Newcrest almost double underlying profit in the six months to December and Harvey Norman reveal another weak trading performance for the December quarter and half year.
Newcrest Mining rode a virtuous combination of higher gold production, thanks to the Lihir merger last year (higher US dollar gold prices, but lower in Aussies), and revealed a new chief executive.
The Lihir buy made Newcrest the world’s third-largest gold miner.
It said on Friday that finance director Greg Robinson will replace Ian Smith as chief executive from July 1.
Newcrest doubled interim dividend to 10c a share from 5c, on capital increased by the shares issued in the Lihir takeover.
Net profit was up 148%
"Profit for the half year ended 31 December 2010 increased 96% to A$523.1 million over the prior corresponding period (A$266.6 million)," directors said in the statement.
"The increase was primarily driven by higher gold production and increased commodity prices.
"Higher sales revenue reflects the inclusion of assets acquired from LGL from September 2010, and increased production and sales from Cadia Valley, Gosowong and Hidden Valley.
"Higher mine production costs reflect a 2.5% increase in costs at existing operations and the inclusion of Hidden Valley post commissioning and the assets acquired from LGL.
"Statutory Profit for the half-year of $437.8 million represents a 148% increase over the corresponding period.
"The Statutory Profit includes hedge restructure and close out impacts resulting from Newcrest’s September 2007 equity raising and subsequent hedge book close-out and debt repayment. Costs associated with the merger and integration of LGL are also included."
The result was driven by a 70% jump in gold production on the back of the Lihir acquisition.
Copper production fell due to lower production from its flood-affected Cadia Valley operation in the NSW central west.
The company did not give earnings guidance but said its hedge book had been closed out; it had a strong balance sheet and was well placed for growth.
"The company is well placed for future growth with a suite of large scale, long life, low cost mines, two major projects currently in construction – Cadia East and the Lihir plant upgrade – and an enviable pipeline of organic growth opportunities including Wafi Golpu," Newcrest Chairman Don Mercer said in the statement.
Newcrest shares fell by just over 1%, or 54c, to $37.16 as investors were unnerved (as they always are) by the change in CEO.
Harvey Norman shares also fell on Friday, but that was a bit more understandable.
The shares dipped 5c to $2.92, only 5c above their 52 week low.
In fact the shares have fallen 10% since the middle of last month as investors have grown concerned about its performance.
The six-month sales showed operations in its core markets were all in decline, with a 3.1% drop in global same-store sales.
Analysts said the market had been looking for softer sales from the owner and franchiser of the Harvey Norman, Domayne and Joyce Mayne brands, but the reality was that sales in its core regions – Australia, New Zealand and Ireland – were all weaker than expected.
"Global sales have been negatively affected by a 2.9% deterioration in the NZ$, a 16.1% deterioration in the Euro and a 11.8% deterioration in the UK Pound, for the six months ended 31 December 2010 compared to the six months ended 31 December 2009, " the company said.
There was no update on half year profits, that comes late this month.
But Gerry Harvey warned last November in an update that the company was facing a "sizeable" fall in profits for the first half of this financial year. He blamed the falling price of TV sets and weak consumer confidence (but not internet purchases).
The company reported on Friday that global sales from its Harvey Norman stores and other divisions in Australia, NZ, Ireland, Northern Ireland and Slovenia totalled $3.31 billion in the six months to December.
That was an increase of 1.3% in total sales compared with the same period a year earlier. But its same-store sales were 3.1% lower.
There was growth in Slovenia and Northern Ireland but the company only has a few outlets in these small markets.
Sales in Australia for the half year were up 3% on a topline basis, but down 2% on a same store basis. In NZ, sales fell 3.6% on a topline basis, but were off 3.0% on a same store basis. In Ireland both measures were down 2.6%.
No 148% increase in profit here.
