Amid yesterday’s big market sell-off, Supermarket group and supplier, Metcash (MTS) stood out with a sharp, 6.7% jump in earnings for the year to April 30.
Metcash shares jumped 17c to $3.61 (a rise of 4.9%), despite the wider market tanking for the third time in four trading days – this time by more than 70 points, or over 1.6%.
MTS YTD – Metcash to review core business after sales dip
The jump in the share price came despite a fall in market share after the group reported a 7% rise in underlying profit to $281 million.
Total revenues were $13.1 billion for the year, up 3.8%.
Net profit after tax was $206 million, but the retailer, which is behind the IGA, Franklins, Campbell’s and Mitre 10 chains and wholesaling businesses, saw a 2.3% dip in sales in its key wholesaling division to $9.1 billion.
Reversing that surprise fall is the key objective of a review announced with yesterday’s profit report.
As a result of the drop, earnings before interest, tax, depreciation and amortization in this division (the most important for Metcash) fell 5% to $378 million from $398 million last year.
But the company reported a 35% improvement in its liquor business profit (Australian Liquor Marketers) to $47 million which more than made up for that weakness.
Retiring CEO Andrew Reitzer said Metcash remained in a strong position and was capable of weathering difficult economic conditions.
‘‘It is a challenging time for the independent retail sector with consumer confidence low and the self-service supermarket chains locked in a marketing war,’’ he said.
Mr Reitzer also said Metcash had felt the impact of ongoing price cuts in the supermarket business.
‘‘The impact of deflation has continued and we have been affected by the deregulation of trading hours in Western Australia,’’ he said.
‘‘This, together with some store closures, has resulted in a small decline in our market share in Metcash Food and Grocery.’’
Incoming chief executive Ian Morrice, who takes over from Mr Reitzer on June 30, said a review of the food and grocery operations to respond to deflationary and competitive market conditions would be a key part of keeping the company’s performance on track and improving.
Final dividend for the year was 16.5c a share, making 28c for the full year. That’s unchanged from what was paid in 2011-12.
That tells us the board is very cautious about the outlook, despite the comment in yesterday’s report that "The maintenance of a strong dividend reflects the Board’s confidence in the underlying position of the Group, its future prospects and strong cash flow generation".
One reason for the steady dividend is the 12% expansion in capital from the capital issue earlier in the year.
That was used to finance the part acquisition of Mitre 10 and the purchase of the Automotive Products Group, owners of the Autobarn group of stores.
But the new CEO Ian Morrice’s review is going to be important for positioning Metcash for the next couple of years, as well as bedding down the Mitre 10 and Autobarn acquisitions.
Making them pay will be key to keeping earnings and dividends growing in the next few years.
