Metcash posts slight improvement in H1, worries of not meeting H2 guidance
Australian national grocery, liquor and hardware wholesaler, distributor and marketer, Metcash Ltd (ASX: MTS) has lifted earnings before interest, tax and amortisation (EBITA) 7.7 per cent from $184.9 million to $199.4 million for the six months to October 31, 2010.
The result was struck on a 5.8 per cent rise in wholesale sales from $5.61 billion to $5.94 billion.
"The strong EBITA was posted despite persistent tough trading conditions, price deflation in most product categories and set against a background of strong trading in 2009 as a result of the Federal Government's stimulus package," the company said in a statement on Tuesday.
"Metcash's 19.7 per cent MAT market share of the packaged grocery market remained steady despite the competitive trading conditions."
Underlying earnings per share rose 2.1 per cent to 15 cents a share - within guidance provided to the market earlier this year and updated at the September AGM.
Directors have announced an interim dividend of 11 cents per share fully franked - with a record date of 15 December 2010 and payable on 7 January 2011. This dividend represents a payment ratio of 76 per cent of reported EPS.
Metcash chief executive Andrew Reitzer said: "We are pleased to announce a half year result that is within our guidance despite tough trading conditions.
"We are facing price deflation across a range of categories at the same time as there are cost pressures on the labour front and utilities. There is no doubt that consumers are also becoming more price conscious as a result of higher interest rates."
Mr Reitzer added, "Metcash has reduced its cost of doing business as a result of incremental and sustained improvements in our distribution centres and across our supply chain".
Risks in meeting second half guidance
While Metcash directors are pleased with the performance of the group in the first half of FY11, the board has expressed its concern that the continuation of the extremely tight trading conditions experienced throughout the first half onwards into the second half will exert pressure on the group's ability to achieve its guidance.
"Management remains determined to steer the group successfully through the second half of FY11 and towards achieving the previously stated guidance. However, given the uncertainty created by the above factors, especially their longevity, the board wish to caution shareholders that achievement of guidance is at risk," the company said.
Mr Reitzer, however, stressed the company was not downgrading its guidance but needed to warn shareholders of the risk that it may not be met.
"If it was a normal situation and deflation wasn't getting worse, I am sure management and the board would have confirmed our guidance," he said at the company's half year results presentation in Sydney on Tuesday.
"But the trends we have seen with deflation in the last two months are very worrying.
"Therefore the board is saying we are not issuing a profit warning but we are just saying there is risk."
At 1321 AEDT shares in Metcash had fallen 2.1 per cent at $4.18, against a flat benchmark index.