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Results: Metcash reports $210.3 million full year profit

The Metcash Limited (ASX: MTS) share price will be on watch this morning after the wholesale distributor released its full year results.

Here’s a summary of how Metcash performed compared to the prior corresponding period:

  • Reported revenue (excluding charge-through sales) up 1.8% to $12.7 billion.
  • Group revenue (including charge-through sales) increased 1.4% to $14.6 billion.
  • Statutory profit after tax of $192.8 million, compared to a loss of $148.2 million in FY 2018.
  • Group EBIT down 1.4% to $330 million.
  • Underlying profit after tax fell 3% to $210.3 million.
  • Underlying earnings per share up 1.8% to 22.6 cents thanks to $150 million share buy-back.
  • FY 2019 final dividend of 7 cents per share, fully franked.

How does this compare to expectations?

According to a note out of Goldman Sachs last week, its analysts were expecting Metcash to report a 1.8% increase in sales to $12.67 billion and a 0.5% lift in EBIT to $336.4 million.

This result appears to have fallen a touch short of expectations on the bottom line. Goldman may be disappointed with this as it currently has Metcash on its conviction buy list with a $3.30 price target.

What were the drivers of the result?

The main drag on its performance was its Food segment which reported a 3% decline in segment EBIT to $182.7 million.

This was blamed on highly competitive market conditions and deflation, which is something that Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) shareholders will no doubt be taking note of.

In addition to this, Metcash’s investment in MFuture growth initiatives also weighed on its Food segment’s margins.

The soft performance of its Food segment offset strong performances from its Liquor and Hardware segments.

The Liquor segment recorded a 1.3% increase in EBIT to $71.2 million. The catalyst for this was strong sales growth driven by the continuation of the premiumisation trend, which has seen higher quality purchases but lower consumption.

The star of the show in FY 2019 was the company’s Hardware segment which posted a 17.2% increase in EBIT to $81.2 million.

Management advised that this reflected additional synergy benefits from its HTH acquisition and the benefit from the closure or sale of unprofitable company-owned stores. In addition to synergies, Working Smarter cost savings helped offset inflation.

Dividend.

The Metcash board opted to declare a 7 cents per share fully franked final dividend, which was in line with the prior corresponding period and brought its full year dividend to 13.5 cents per share.

Based on the last close price, this means Metcash’s shares offer investors a fully franked 4.3% dividend yield today.

Outlook.

No formal guidance was provided for FY 2020, but management appears pleased with how its Food and Liquor segments are positioned.

However, the company advised that its Hardware segment has lost a major customer in Queensland and has seen sales decline during the first seven weeks of FY 2020.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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