With Aurizon Holdings Ltd (ASX: AZJ) and Asciano Ltd (ASX: AIO) having already reported, today it was transport, freight and logistics operator Toll Holdings Limited (ASX: TOL) turn. Toll's results were essentially flat with revenue down 0.5% to $4.523 billion and adjusted net profit after tax up just 1.4% to $176 million for the six months ended 31 December 2013. The market appeared unimpressed with the results, with the share price trading down 4.4% at $5.38 by lunchtime.
While there were plenty of negatives, there were two highlights for shareholders. Firstly the board saw fit to raise the dividend by 0.5 cent to 13 cents per share (cps). Secondly, operating cash flow improved 39% to $308 million.
Divisional Results
Toll Global Resources produced a respectable result considering the tough conditions it faced from a slowing resources sector. Return on Capital Employed (ROCE) was 9.8%.
Toll Global Logistics benefited from new contract wins including one with Coca-Cola Amatil Ltd (ASX: CCL).
However, the poor decision to expand into the forwarding market continued to drag on Toll's results. While revenue within the Toll Global Forwarding division grew to $795 million, EBITA were only $14 million and ROCE just 0.8%.
Toll Global Express was once again a top performer, achieving a ROCE of 39.9% – not including the underperforming Japanese business which continues to prove to be another value destroying acquisition for shareholders. However, despite 39.9% being a high absolute figure, it remains a worrying trend that ROCE has declined by over 10% in the past two years.
Toll Domestic Forwarding faced a competitive environment but still managed a credible result with a ROCE of 19.5%.
Toll Specialised & Domestic Freight was affected by lower volumes from both the mining and defence sectors. ROCE fell sharply from 40.1% to 33.1%.
Pricing
Adjusted earnings per share for the half were 24.2 cps. Currently Thomson consensus estimates show a full-year earnings forecast of 40.3 cps and a full-year dividend of 27 cps which appears reasonable given the historically stronger first-half earnings skew. Based on this forecast, Toll is currently trading on a forward price-to-earnings ratio of 13.3 and dividend yield of 5%.
Foolish takeaway
Toll's Return on Invested Capital (ROIC) was incredibly weak at just 7.7%. This is far below the company's cost of capital and suggests the company is destroying shareholder value. It is also a reason to potentially be positive about the outlook for Toll from this point. If the company can improve returns it could create better shareholder value.
