BHP share price on watch after first-half earnings miss

BHP has released a set of results that appear to have fallen short of expectations…

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Key points

  • BHP has released its half-year results
  • The mining giant had a very profitable half
  • However, the miner appears to have fallen short of expectations

The BHP Group Ltd (ASX: BHP) share price will be on watch on Tuesday.

This follows the release of the mining giant's half-year results this morning.

BHP share price on watch amid earnings miss

  • Revenue down 16% to US$25,713 million
  • Underlying EBITDA down 28% to US$13,230 million
  • Profit after tax down 32% to US$6,457 million
  • Interim dividend down 40% to 90 US cents

What happened during the first half?

For the six months ended 31 December, BHP reported a 16% decline in revenue to US$25,713 million. This reflects lower average realised prices for iron ore, copper, and hard coking coal, partially offset by higher prices for weak coking coal, thermal coal, and nickel.

In respect to earnings, BHP posted a 28% decline in underlying EBITDA to US$13,230 million. The main drag on the miner's earnings was the aforementioned copper and iron ore price weakness.

This led to the company's iron ore underlying EBITDA falling 31.4% to US$7,641 million. It was a similar story for BHP's next largest segment, copper, which posted a 34.1% decline in underlying EBITDA to US$2,814 million.

In light of its softer earnings, the BHP board determined to pay an interim dividend of 90 US cents per share. This equates to a total return of US$4.6 billion and is the equivalent to a 69% payout ratio.

How does this compare to expectations?

According to a note out of Goldman Sachs, its analysts were expecting "underlying EBITDA US$13.7bn vs. cons US$14.3bn."

So with the Big Australian reporting an underlying EBITDA of US$13,230 million, it has missed on both estimates.

And while BHP has beaten Goldman's dividend estimate of 88 US cents per share, it has fallen short of the consensus estimate of 98 US cents per share.

This could be bad news for the BHP share price this morning.

Management commentary

BHP's CEO, Mike Henry, was pleased with the half. He commented:

BHP has today announced a strong first half dividend of 90 US cents per share, on the back of solid operating performance. During the half, we delivered well on the production front, with Western Australia Iron Ore posting another record half. BHP remains the lowest cost major iron ore producer globally. We continued to make strong progress on executing our strategy, including the development of growth options.

Significant wet weather in our coal assets impacted production and unit costs, as did challenges in securing sufficient labour. Inventory movements during the half contributed to costs, including the planned draw-down at Olympic Dam after inventory built up during the smelter refurbishment last year. We expect these factors to abate in the second half and for unit costs to fall, in line with revised guidance.

Outlook

The good news is that BHP's production guidance remains unchanged for the full year.

In addition, Henry is feeling positive about BHP's prospects in the second half thanks largely to the reopening of China. He adds:

We are positive about the demand outlook in the second half of FY23 and into FY24, with strengthening activity in China on the back of recent policy decisions the major driver. We expect domestic demand in China and India to provide stabilising counterweights to the ongoing slowdown in global trade and in the economies of the US, Japan and Europe. The long-term outlook for our commodities remains strong given population growth, rising living standards and the metals intensity of the energy transition, including for steel making raw materials.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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