The Metcash Limited (ASX: MTS) share price is starting the week positively.
In morning trade, the wholesale distributor's shares are up 1% to $4.29.
This follows the release of Metcash's half year results this morning.
Metcash share price higher on earnings and dividend boost
- Group revenue up 8.2% to $7.7 billion
- Group underlying earnings before interest and tax (EBIT) up 10.3% to $255.1 million
- Underlying profit after tax up 9.1% to $159.9 million
- Fully franked interim dividend up 9.5% to 11.5 cents per share
- Outlook: strong start to second half
What happened during the half?
For the six months ended 31 October, Metcash reported an 8.2% increase in revenue to $7.7 billion thanks to growth in all pillars despite cycling the impact of extensive lockdowns. Management advised that this was underpinned by continued strong demand, inflation, and acquisitions.
On a three-year basis, which the company notes provides a comparison with pre-COVID trading, group revenue including charge-through sales increased 31.7% on a normalised basis.
Pleasingly, Metcash's margins expanded, leading to a 10.3% increase in underlying EBIT to $255.1 million. The key drivers of this earnings growth were its Hardware and Liquor businesses.
Hardware EBIT increased 17.9% with growth in both IHG and Total Tools after underlying demand in the Trade and DIY segments remained robust.
Liquor EBIT increased 11.3% over the prior corresponding period. This was thanks to strong sales to retail customers and a recovery in sales to on-premise customers post-lockdowns and easing of other COVID-related restrictions.
The Food pillar delivered a more modest 3.2% increase in EBIT. However, this was achieved despite cycling the impact of extensive lockdowns in New South Wales and Victoria a year earlier, which led to demand for food being elevated. This reflects continued shopper support for local neighbourhood stores, underpinned by their differentiated offer and a further improvement in network competitiveness.
This increase in earnings and its strong financial position ultimately allowed the Metcash board to lift its interim dividend by 9.5% to a fully franked 11.5 cents per share. This dividend will be paid to eligible shareholders on 30 January.
Outlook
All pillars have continued to trade well in the first four weeks of the second half, with group sales up 6.2% over the prior corresponding period. This comprises Food sales growth of 4%, Hardware sales growth of 8%, and Liquor sales growth of 8.9%.
Management advised that this growth reflects consumers continuing to enjoy the improved competitiveness and differentiated offer of the network's local neighbourhood stores.
And while sales growth rates have moderated compared to the very high levels during COVID, they continue to be driven largely by robust underlying demand and inflation, with volume growth remaining broadly positive.
However, management acknowledges that there is a lot of economic uncertainty which could impact its second-half performance. This could be holding back the Metcash share price a touch today. It concluded:
While supply chain challenges have improved, they continue to be a risk for all pillars in 2H23, as do additional fuel, freight and labour costs. There continues to be uncertainty over the level of inflation going forward, as well as how the impact of inflation and other cost of living increases may impact consumer behaviour in the retail networks of our pillars, and Metcash.
