Ignore the statutory profit data from yesterday’s 2014-15 earnings report from Wesfarmers (WES) because they don’t clearly show the way the company performed in the year to June.
The proforma data shows a big profit fall because of the absence of the group’s insurance businesses (they were sold to IAG and another buyer a year ago).
Revenue rose 0.2% to just over $62 billion.
Underlying net profit rose 8.3% to $2.44 billion in 2015 thanks to strong earnings growth at Bunnings, Kmart and Coles, which more than offset a slide in earnings in the conglomerate’s coal and industrial and safety operations.
On top of that the first sign of improvement at the Target discount chain appeared, especially in the six months to June.
Earnings before interest and tax from continuing operations rose 5.4% to $3.76 billion.
The company will pay a fully franked final dividend of $1.11, up 5.7% on a year ago.
Full year payout is $2 a share, unchanged from a year ago, but effectively higher because the 2013-14 figure included a 10 cents a share special payment.
WES vs WOW – Retail drives Wesfarmers, signs of life at Target
The overall result improved thanks to the 11.1% rise in profit at Bunnings to $1.206 billion, including Officeworks and 18% at Kmart. Combining Target, earnings in the two department stores were up 15.5% to $522 million.
At Coles, earnings rose 6.6% to $1.78 billion, half the rate of growth in recent years, and short of many market forecasts.
At Target, where earnings have fallen for four years, EBIT grew 4.7% as the slide in same store sales came to an end and the chain saw some of the benefit of job cuts and supply chain savings.
Earnings also improved in chemicals, energy and fertilisers for the first time in several years, rising more than 5%.
But in coal and industrial and safety it was a very different story as earnings fell for the third year in a row, down nearly 27% to $353 million, thanks to weaker coal prices and the impact of the mining downturn in western Australia where the industrial and safety businesses mostly operate.
CEO Richard Goyder said Wesfarmers was looking for its retailing businesses to "benefit from strategies to drive further value for customers and improvement in merchandise offers”.
Commenting on the outlook for industrials, he said the near-term outlook was "challenging" and that it will seek to further cut costs and optimise plant and mine performance.
For the Wesfarmers group, Mr Goyder repeated what he has said in previous profit announcements – something along the lines of the company being “well placed to strengthen and build upon existing businesses with a focus on seeking to deliver improved shareholder returns”.
"As the Group enters the 2016 financial year, the Coles, Bunnings, Officeworks and Kmart businesses all have good momentum, with Target expected to improve as its transformation plan continues,” Mr Goyder said.
"The retail businesses will seek to create increased value for customers through reinvestment of sourcing and supply chain efficiencies, as well as other productivity gains. Each business also has strategies aimed at driving increased merchandise innovation, better customer service, and extending channel reach and performance through improving store networks and digital offers.
“The near-term outlook for the Group’s Industrials division remains challenging,” Mr Goyder said. “In this environment, each business will seek to further reduce cost structures and optimise plant and mine performance.”
"Within the Chemicals, Energy and Fertilisers business, the ammonium nitrate business is expected to benefit from increased customer demand, while lower benchmark pricing and a planned major plant shutdown in the second half of the 2016 financial year will affect ammonia earnings. Production economics are expected to remain challenging for Australian Vinyls, with a strategic review of its polyvinyl chloride (PVC) business underway.
"Kleenheat is expected to benefit from lower gas input costs, whilst strong recent harvests afford a positive outlook for the fertilisers business, subject to seasonal conditions.
"The Resources and Industrial and Safety businesses will seek to further reduce costs and improve operational productivity. Recent pricing pressures, as evidenced by declines in the current quarter’s export coal price settlements, present a subdued revenue and earnings environment for the Resources business.
"With volume and margin pressure expected, the Industrial and Safety business will tightly manage its cost base, while endeavouring to grow sales in existing and new markets, including through integration and improvement of the Workwear Group,” he added.
Wesfarmers shares rose 1.2% yesterday to $40.86. Now for rival Woolworths, which is due to report close to the end of the month.
WES Results Video
