Wesfarmers: Coal fires conglomerate to record first half as Coles cools
Updated
Booming coal prices have come to the rescue of giant conglomerate Wesfarmers' bottom line just as its supermarket division earnings take a hit from increased competition and falling fuel sales.
Wesfarmers delivered a record first-half profit of $1.58 billion, up 13 per cent on the same period last year and well ahead of analyst expectations.
Overall sales for the nation's largest employer rose by 4.3 per cent to just shy $35 billion, also a first-half record.
The resources division — which is primarily coal from the Curragh and Bengalla mines — was the standout, swinging back into the black with earnings of $138 million, a $256 million turnaround from last year.
Wesfarmers chief executive Richard Goyder said the benefits of increased coal prices were expected to flow strongly into the full year result, but warned the windfall may not last.
"Prices are expected to remain volatile for the rest of the year, with recent spot prices trading significantly below their November 2016 peak," Mr Goyder said.
Supermarket war sees Coles' earning fall
However, the news was not so good in the flagship Coles supermarket business.
Normalised earnings after interest and tax — which stripped out the benefit of property sales — fell almost 7 per cent, as comparable food sales growth slowed to 1 per cent, its lowest level since 2010.
The impact of the competitive battle with traditional rival Woolworths and the disruptive influence of Germany's Aldi chain was evident with food and liquor prices falling almost 1 per cent over the half.
"The business has now recorded 23 consecutive quarters of price deflation, reflecting an on-going focus on lowering the cost of the weekly shop for customers," Mr Goyder said.
Sales in the convenience store sector fell more than 11 per cent in the half, weighed down by falling fuel volumes and prices.
However, the stalwart businesses Bunnings and Kmart remained solid.
Bunnings weathered the impact of fire-sale closure of the Woolworths failure, Masters, to record a better than expected 9.8 per cent increase in earnings before tax and interest (EBIT).
Bunnings' UK expansion reported a pre-tax loss of $48 million on sales of more than $1 billion for the half, which was not too bad compared to Masters' traumatic start.
Kmart rollicked along with EBIT up 16 per cent on 9 per cent sales growth, while its department store stablemate Target continued to go backwards with earnings sliding almost 80 per cent to just $16 million.
Officeworks' earning rose 5 per cent to $62 million.
Despite ongoing solid returns, Officeworks is the subject of a strategic review by management which may see it spun off as a separate business to boost shareholder returns.
The interim dividend rose 13 per cent to $1.03 per share, which was also ahead of market expectations.
Morgan Stanley analyst Thomas Kierath said Wesfarmers was playing a long-game with Coles.
"Significant price investment [discounting] by Coles suggest Coles is highly focused on maintaining share and won't allow Woolworths an easy recovery," Mr Kierath said.
At 11:00am (AEDT) Wesfamers' shares had enjoyed a solid rise 2 per cent to $43.03 per share, while rival Woolworths was down.
Topics: business-economics-and-finance, company-news, retail, mining-industry, coal, australia
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