Metcash (MTS) shares fell to their lowest level for more than 11 years yesterday following a weak half-yearly results announcement which calls into question the company’s current business strategy.
Metcash shares closed down 16.4% at $2.18, an 11 year plus low for the shares.
It was yet another sharp whack from investors to a leading company for disappointing the market by reporting a weak result.
And the outlook for the full year was below market expectations as well, which added to the market dissatisfaction with Metcash.
Metcash owns the IGA supermarket brands and wholesales groceries, general merchandise, alcohol, hardware (Mitre 10) and automotive parts.
The grocery retailer and wholesaler said interim profits fell short of consensus forecasts at $101.7 million for the six months to October 31.
That was up 2.8% on a 1% rise in revenue to $6.65 billion.
Underlying profit after tax fell 9% as the group’s investment in its turnaround food and grocery strategy begins.
The result follows a 17.9% fall in 2013-14 net profit to $169.2 million. That means the company is in for another rough six to 12 months.
But Metcash’s core business is grocery retailing and there it reported an 18% drop in earnings before interest and tax to $119.2 million.
MTS YTD – Groceries squeezed at Metcash
Group CEO Ian Morrice said the results confirm the need for investment to improve the food and grocery business.
Metcash is six months into a transformation program, to be partly funded by a cut in dividend to 6.5c, so it can’t retain investor goodwill by maintaining dividends in the face of what it says is a “challenging” retail environment.
Metcash will pay shareholders than 6.5c a share dividend (9.5c a year ago), but the profit performance in the latest half looked weaker.
Mr Morrice said, "There is no doubt challenges remain but we are encouraged by the progress made since March, with significant capability added to the group.
"The general trading environment continues to be highly competitive with price deflation expected to continue and consumers remaining value conscious.
"Recent trading, with additional stores transitioning to Diamond, shows signs of a sales led recovery. Positive momentum is encouraging to see as we lead into Christmas."
Its EBIT guidance of between $315 and $330 million this financial year falls below analysts’ estimates of $351.5 million, according to Bloomberg estimates.
