Wesfarmers Shares Up Despite Profit Announcement

Stock in Wesfarmers Ltd [ASX:WES] rose 3.8% today at the time of writing to $42.31, despite revelations that its bottom line net profit had dropped 86.6% to $212 million in the December half.

Losses of $165 million from Wesfarmers Bunnings UK and Ireland concerns contributed to the result, along with a 14.1% drop in profits from Coles. Strong returns from Bunnings Australia and New Zealand and Officeworks could not offset the losses, leading to a shortfall of $1.6 billion below expectations.

EBIT (earnings before interest and tax) for Bunnings Australia and New Zealand was up 12.2% to $864 million, helped by the opening of 11 new stores and trade centres.

Total store sales were up 8.8% for the December quarter. But Wesfarmers Bunning’s UK and Ireland recorded a 15.5% drop in sales, leading losses to blow out from $48 million to $165 million.

Meanwhile, earnings from Coles fell 14.1% to $790 million, with sales down 0.4% to $19.9 million.

What about Target and Officeworks?

Target managed to improve its earnings through better supply chain efficiencies, despite a fall in sales, while Kmart’s sales grew 8.6%. Kmart’s reduced prices contributed to the higher volume of sales, with consumer’s buying more items per basket.

Officeworks wrapped up Wesfarmers strong Australian-led results, with earnings up 9.7% to $68 million. Sales also rose to $1.02 billion, with growth of 11.8% in the December quarter.

Officeworks looks set to continue its strong performance on the back of good trading during the back-to-school period.

What caused the rise?

Higher coal prices boosted Wesfarmers industrial earnings, with a rise of 51.4% to $209 million. Wesfarmers also expect a windfall of $100 million for the sale of the Curragh coal mine. Speaking on the deal, Wesfarmer’s Managing director Rob Scott said:

In December 2017, the Group announced an agreement to sell the Curragh coal mine for $700 million, which also includes a value share mechanism1 that allows Wesfarmers to participate in possible future coal price increases. On successful completion of the transaction, which is subject to a number of conditions precedent, the Group expects to record a post-tax profit on sale of approximately $100 million’.

Mr Scott also said the Group would offer an interim dividend $1.03 per share.

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Ryan Dinse,
Editor, Markets & Mon


Ryan Dinse is an analyst at Markets and Money. He has two decades of experience in financial planning, equity analysis and credit markets. Ryan combines fundamental, technical and economic analysis to identify and invest in good ideas at the appropriate stage of the economic cycle. He has a strong interest in technology, economic history and disruptive business models. His focus at the moment is as lead analyst on two of our most recent and innovative investor services, Crash Market Investor and Sam Volkering’s Secret Crypto Network. He will write about the exciting opportunities for investors to benefit from significant changes in world markets. He is a member of Fintech Australia, a former member of the Digital Currency Council, and is a fully accredited financial adviser.

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