BHP share price on watch following 37% profit collapse

BHP has delivered a result largely in line with expectations.

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The BHP Group Ltd (ASX: BHP) share price will be one to watch this morning.

That's because the mining giant has just released its eagerly anticipated full-year results for FY 2023.

BHP share price on watch following large profit decline

  • Revenue down 17% to US$53.8 billion
  • Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) down 31% to US$28 billion
  • Underlying attributable profit down 37% to US$13.4 billion
  • Fully franked final dividend of 80 US cents per share
  • Total FY 2023 dividends of US$1.70 per share

What happened in FY 2023?

For the 12 months ended 30 June, BHP reported a 17% decline in revenue to US$54.8 billion. This was driven by significantly lower prices across iron ore, metallurgical coal, and copper.

The Big Australian's earnings fell at a sharper rate. Underlying EBITDA was down 31% to US$28 billion and underlying attributable profit dropped 37% to US$13.4 billion. This reflects a combination of lower prices across major commodities and the impacts of inflation on its underlying cost base, particularly on labour, diesel and electricity prices.

Unit costs were 9% higher across its major assets. Though, one positive was that the WAIO operation extended its lead as the lowest cost major iron ore producer globally.

In respect to inflation, BHP revealed that it experienced an effective inflation rate of 10% in FY 2023. Unfortunately, it expects the lagged impact of inflation to continue into FY 2024, particularly for labour costs.

This ultimately meant that the BHP board was forced to cut its dividend by a sizeable 48% to US$1.70 per share in FY 2023. This comprises an interim dividend of 90 US cents per share and a final dividend of 80 US cents per share.

How does this compare to expectations?

Despite the decline, the Big Australian has delivered a result largely in line with the market's expectations.

For example, the consensus estimate was for revenue of US$54,363 million and EBITDA of US$28,072 million.

Though, one thing the miner has fallen a touch short of was its dividend. The market was expecting a full-year dividend of US$1.72 per share.

Management commentary

BHP's CEO, Mike Henry, commented:

Our financial results for the year were strong, underpinned by reliable production together with capital and cost discipline as we managed lower commodity prices and inflationary pressures. Our balance sheet is robust and deliberately positioned to support portfolio growth in commodities the world needs for population growth, urbanisation and decarbonisation.

In Canada, our investment in potash is progressing at pace with first production at Jansen on track for the latter half of 2026, and we are creating a new copper province in South Australia following the acquisition of OZ Minerals. We are investing strategically in new ideas, technologies and countries through exploration and early-stage copper and nickel prospects to capture future growth opportunities.

Outlook

Henry appears cautiously optimistic on the year ahead. He said:

Commodity demand has remained relatively robust in China and India even as developed world economies have slowed substantially. In the near term, China's trajectory is contingent on the effectiveness of recent policy measures. We expect buoyant growth in India with strong construction activity underpinning an expansion in steelmaking capacity. More broadly, there is increased recognition of the importance of critical minerals and strategies across the globe to incentivise investment in supply and demand, which provides opportunities and challenges.

BHP has also provided guidance for FY 2024.

For copper, it is expecting production of 1,720kt to 1,910kt with unit costs of US$1.40 to US$1.70 per pound. This compares to FY 2023 production of 1,717kt with a unit cost of US$1.40 per pound.

As for iron ore, it is forecasting production of 254Mt to 264.5Mt with unit cash costs of US$17.4 to US$18.9 per tonne. In FY 2023, iron ore production came in a 257Mt with a unit cost of US$17.79 per tonne.

The BHP share price is up 5% over the last 12 months.

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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