Metcash Limited share price storms higher on half-year results

The Metcash Limited (ASX:MTS) share price has had a strong start to the week following the release of its half-year results…

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In morning trade the Metcash Limited (ASX: MTS) share price has stormed 8% higher to $2.97 following the release of its half-year results.

A few key takeaways from today's release include:

  • Group sales increased 7.6% on the prior corresponding period to $7,100 million.
  • Group EBIT increased 18.7% to $152 million.
  • Underlying profit after tax increased 19.6% to $99 million.
  • Interim dividend of 6 cents per share, fully franked.
  • Underlying earnings per share of 10.1 cents.

On paper this initially looks like an impressive result from Metcash, however it is worth noting that it includes the benefits of the Home Timber & Hardware acquisition.

Hardware sales increased $482.6 million to $1,060 million due largely to it being a full period of Home Timber & Hardware sales compared to just one month in the prior corresponding period.

This helped offset a 1.4% decline in food sales to $4,360 million brought about by weakness in supermarket wholesale sales from grocery deflation. Things would have been far worse had tobacco sales not been strong.

Elsewhere the company reported a 5.1% increase in sales for its Liquor segment. The segment posted sales of $1,640 million thanks to a number of contract customers converting to the Independent Brands Australia network.

Looking ahead, the company didn't provide much by way of guidance. Management expects the modest growth in the Liquor market and positive sales momentum in Hardware to continue in the second-half.

The same cannot be said for its Food segment. Heightened competition is expected to weigh on the segment's results in the second-half, particularly in South Australia and Western Australia. Management is however working towards mitigating this through its Working Smarter program.

Should you invest?

Due to the tough trading condition being faced by its main breadwinner, its Food segment, I wouldn't be a buyer of Metcash shares at this point. Especially with Amazon expected to come into the market with its own food offering in the near future.

This could make trading conditions even tougher for Metcash and its retail peers Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) in 2018.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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