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Wesfarmers Ltd FY19 Result - Broadly Neutral But Apparel And General Merchandise Weakening

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Wesfarmers Ltd (ASX: WES) is an Australian conglomerate. Wesfarmers has interests in Australian and New Zealand that cover businesses such as, home improvements and outdoor living, apparel and general merchandise, office supplies and in the industrial sector with businesses in chemicals, energy and fertiliser and industrial safety products. Wesfarmers has a market capitalisation of A$43.9 billion.

 

Westfarmers-FY19-Results-300x169

What are the results from Wesfarmers FY19?

Today (Tuesday 27 August 2019) Wesfarmers released its FY19 annual results. The main points are as follows:

  • Earnings before interest and tax (EBIT) (continuing operations) for FY19 is $2,974 million, up 12.2 per cent from FY18.
  • Net profit after tax (continuing operations) for FY19 is $1,940 million, up 13.5 per cent from FY18.
  • Basic earnings per share (continuing operations) for FY19 is 171.5 cents, up 13.5 per cent from FY18.
  • Total FY19 dividend is $2.78 per share, up 24 per cent from FY18. This includes a special dividend of $1.00 per cent from the sale of various assets and the demerger of Coles Ltd.

Specific results on company operations are as follows:

  • EBIT for Bunnings Australia and New Zealand for FY19 is $1,626 million, up 8.1 per cent from FY18.
  • EBIT for Kmart Group (continuing operations) for FY19 is $540 million, down 13.7 per cent from FY18.
  • EBIT for Industrials (continuing operations) for FY19 is $519 million, up 4.4 per cent from FY18.
  • EBIT for Officeworks for FY19 is $167 million, up 7.1 per cent from FY18.

During FY19, the Coles Group was demerger from Wesfarmers and Wesfarmers coal assets and Quadrant Energy were sold. This resulted in a post-tax $3.1 billion gain.

 

What were the drivers of this result?

Bunnings Australia and New Zealand, Industrials and Officeworks all performed well in FY19. Consumer demand for grew and Wesfarmers made additional investment within specific operations of these business, mainly in the online space.

Kmart group under performed with lower growth in apparel and non-seasonal products. Also, new initiatives to address stock flows resulted in temporary reduction in on-self availability at some stores. 

 

What is the outlook for Wesfarmers?

Wesfarmers commented on the outlook for the group’s main businesses. The important points are as follows:

Bunnings outlook:

  • Wesfarmers management is expecting moderate trading conditions to continue in FY20.
  • 13 new stores are under construction and significant investment has been into the online transactional platform.

Kmart Group outlook:

  • Wesfarmers management notes Kmart and Target remains well positioned for the future moving into FY20.
  • The Catch Group acquisition completed on 12 August 2019. This provides further capability to develop digital & e-commerce capabilities within the Kmart Group.

Chemicals, Energy, and Fertilisers outlook:

  • Wesfarmers management notes that they expect demand for chemical productions to remain robust in FY20.
  • Fertiliser earnings remain dependent on seasonal weather conditions.

Industrial and Safety outlook:

  • Wesfarmers management note that Australian market conditions & demand expected to remain relatively stable, but weakness in NZ market is expected to persist.

Officeworks outlook:

  • Wesfarmers management note that they continue to invest in digital supply chains, new growth initiatives, data, and analytics to better understand customer.
  • Earnings growth will be impacted by investments in customer value & team member wage

 

What is the market reaction?

The initial market reaction to Wesfarmers FY19 is broadly neutral. Wesfarmers share price is up around 1 per cent and is currently trading at around A$38.74 (10.50am, 27 August). Wesfarmers has a P/E ratio in the high-teens and an annual dividend yield of around 5 per cent (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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