Wesfarmers Ltd (ASX:WES) share price sinks lower ahead of Coles demerger vote

It hasn’t been a great day for the Wesfarmers Ltd (ASX: WES) share price. In afternoon trade the conglomerate’s shares are down almost 3% to $44.89 ahead of the all-important vote on the Coles demerger.

As well as voting on the demerger, shareholders were given an update on Wesfarmers’ performance so far in FY 2019 and its outlook for the remainder of the financial year.

What were shareholders told?

Managing director Rob Scott advised that he is positive about the long term outlook for Wesfarmers. He believes the company has a portfolio of world-class businesses that are well-positioned in their respective industries and have clear strategies for the future.

In addition to this, Mr Scott noted that Wesfarmers’ balance sheet is strong and the company has the financial capacity and flexibility to invest in its businesses and new value adding opportunities.

The Bunnings business will be the company’s crown jewel once the Coles demerger occurs. Mr Scott advised that its “outlook remains positive given the strength of its customer offer and the resilient, defensive nature of the business.”

Though he did warn that “Bunnings is continuing to cycle high levels of sales growth in the prior year, and growth is moderating to levels in line with the fourth quarter. Periods of very high rainfall in certain centres and a generally cooler start to spring across Australia have impacted sales.”

The managing director spoke positively about the Coles business ahead of the vote. He is pleased with the way the business has performed in a very competitive environment and advised that it remains focused on customers and delivering sustainable earnings growth.

The company’s Convenience business has been a let-down so far in FY 2019. It has been experiencing difficult trading conditions with “fuel volumes and earnings continuing to be impacted by high global oil prices, a lower Australian dollar and the ongoing impact of changes to the commercial terms with our Alliance partner.” A recent pullback in the oil price could be the segment’s saving grace in FY 2019.

Mr Scott is pleased with its Department Stores business so far this year. The segment continues to grow volumes thanks to “Kmart reinforcing its strong value and product development credentials while Target is showing improved sales momentum in key categories.”

It has again warned, though, that “Kmart’s sales growth has moderated since last year, particularly in apparel which was impacted by a later than expected start to spring, delaying sales of summer product.” But he remains confident both brands are well positioned for the important Christmas trading period.

Officeworks has performed well so far this year thanks to its ‘every channel’ strategy. This has led to sales growth rates which are comparable to 2018 growth rates.

And finally, the Industrials division has been “benefiting from good demand for sodium cyanide in the gold sector, and from opportunistic sales of ammonium nitrate in the Pilbara and emulsion sales, following the construction of a new production facility last year.”

Should you invest?

Overall, I think Wesfarmers has had a reasonably positive start to FY 2019. Whilst this could make it a decent option for investors, I would suggest they keep their powder dry until after the Coles demerger vote.

In the meantime, I think the likes of Caltex Australia Limited (ASX: CTX) and Super Retail Group Ltd (ASX: SUL) could be worth a look.

Alternatively, this top dividend share could be a great option for investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of Super Retail Group 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 Scott Phillips.

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