Metcash (MTS) shares were treated kindly by investors yesterday after the company unveiled lower sales growth for the year to April, as well as lower earnings and a lower dividend.
The shares ended up around 2.8% at $2.85, after rising to a day’s high of $2.87 in early trading.
Normally a weak result like Metcash’s would have seen the shares sold down heavily, but the wider market was solid all day, and the company had warned in March of the impact to sales, earnings and dividends from its current transformation program.
Analysts had forecast a fall of around 14% in earnings for the year and as it was the drop in net profit was 17.9%, to $169.2 million.
The company told the ASX yesterday that underlying group net profit (before one-off items) fell 10.9% to $250.1 million in the 12 months to April and underlying earnings per share fell 13.2% to 28.3¢, in line with the company’s guidance in March for a fall of 13% to 15%.
The company said while earnings from liquor distribution, the Mitre 10 hardware business and automotive rose, earnings from the core food and grocery distribution business fell 19.5% as it struggled to maintain sales and margins amid higher costs and the added pressures of the revamp of the retailing and distribution businesses.
The bottom line result included one-off costs of $54 million and a $10.5 million charge for 25 closed Franklins stores.
Metcash cut its full-year dividend by 33.9% to 18.5c a share, in line with the previously announced strategy to preserve cash to reinvest in price reductions, stores and supply chain restructuring.
Final dividend was cut from 16.5c to 9c a share.
Overall sales revenue rose 3.2% to $13.4 billion, but same store sales were down more than 2% in the group’s core supermarkets business. But operating cash flow grew 29.7% to $388.7 million.
Directors said in yesterday’s statement, “The trading environment during 2014 remained difficult. In particular, the effects of ongoing deflation (estimated to be 1.4% for grocery), rising utility costs, a highly value-driven consumer and excessive fuel discounting by the two large grocery chains adversely impacted operating leverage.
"Metcash’s Food & Grocery segment was also impacted by the closure of 25 Franklins stores and a reduced ‘teamwork’ score from the converted stores. The tough trading conditions for the Food & Grocery segments were partially offset by growth in the Liquor and Hardware & Automotive segments as well as by incremental growth from acquisitions.
"During 2014, the Group incurred $54.0 million of significant items after tax mainly due to the strategic review and impairment and acquisition costs incurred. The Franklins corporate stores recorded a retail loss of $10.5 million after tax, down from $59.9 million in 2013. Metcash has now completed the disposal of all 80 Franklins’ corporate stores," director said.
Metcash CEO Ian Morrice said that while the year had been challenging, it had been an important transition period as the company undertook a strategic review and developed a transformation plan to address the structural challenges of the business, particularly in Food & Grocery.
“During the year, Metcash Food & Grocery ‘like for like’ supermarket wholesale sales fell by 2.1%. Metcash Food & Grocery earnings before interest, tax and amortisation (EBITA) declined 19.5% from $377.9 million to $304.3 million.
"Although ongoing price deflation hampered performance in Metcash Food & Grocery, transformation in this business is now well underway and initial results from pilot programs are encouraging.
“In contrast, our non-food businesses returned highly creditable results in very tough market conditions, gaining market share amongst fierce competition. Good sales growth played through into strong EBITA performances. These businesses are also executing their own strategic plans, driving network growth and consolidation within their respective markets.
“Once again, our Liquor division achieved strong growth in a flat liquor market, with sales growth of 8.3% and EBITA of $53.8 million, an increase of 14.2%. At the same time, our Hardware & Automotive division grew sales by 23.6%, and increased EBITA by 47.8% to $53.5 million. In each case, the success of these businesses came from their strong consumer focus,” Mr Morrice said.
