Company Interview / Coles and Woolies grocery race

Key Topics

Fortescue (ASX:FMG) and BHP's (ASX:BHP) earnings aligned with projectionsWoolies (ASX:WOW) and Coles' (ASX:COL) earnings and margins discussedAPA Group's (ASX:APA) noteworthy 10% earnings increase and dividend growth

James Gerrish from Shaw and Partners and Market Matters provides insights into recent earnings results, highlighting Fortescue's FY 24 results. The company delivers a $0.04 higher dividend than expected, boasting a strong balance sheet with half a billion dollars in net debt. Operational updates from BHP and Fortescue are aligned with projections.

On food retailers, Woolies surpasses expectations with a 1.5% EBIT beat and a food business margin of 6.13%, but Coles shows marginally higher growth. Woolies' shares rise 1%, reflecting their earnings beat. APA Group also presents a solid performance with a 10% increase in earnings and projected dividend growth, leaving a strong impression on investors.

James notes that Smart Group (ASX:SIQ) averts concerns with a 5% revenue beat, lifting shares 3%, despite recent market doubts. Woodside's robust dividend and low gearing reflect confidence in future growth, aligning with the strong financial health seen across commodity and energy firms.

Full unedited transcript:

0:11

Let's get some more analysis of some of those earnings results we've seen. James Gary joining us I'm Sean partners and market matters James. Difficult to get off the merry go round. That is earnings season at the moment isn't it. Our heads a spinning as we try and make a sense of these results. Let's begin perhaps with we've had Fortescue out this morning. We had BHP yesterday. What are you seeing from the big iron ore miners at the moment.

0:38

Yeah. Good morning to you Andrew. Um, operationally they're they're doing pretty well. So Fortescue this morning. FY 24 results uh, pretty much in line, give or take about 5% in terms of revenue and Pat and the like. Uh, the focus is around the dividend. The dividend was slightly higher than expected. So market was at $0.85. For the full year dividend. They've delivered $0.89. Uh, and I guess the other thing that to, to make note of is that they're, uh, in really good shape from a balance sheet perspective. So they've got about half a billion, uh, dollars worth of net debt. So, uh, overall, it was a solid update when you get a lot of these companies. So you may mention of BHP and Fortescue. They've already released their, um, production guidance for FY 24 at the Q4 24, uh, production numbers. So all of those are as per program. So there's not a lot of new news there. Uh, the new news in Fortescue was probably the dividend, I'd say. Uh, Andrew, this morning,

1:35

what about the, uh, food retailers? We heard from Coles yesterday. Well, Woolies this morning, uh, of course, you know, the mainstream media making a focus of, uh. What's outrageous? These guys make a profit. Uh, it's at our expense. But of course, it's all about the shareholder.

1:52

Well, you got to balance those two things outright, so there's a lot of pressure on these guys at the moment. Uh, and it's. I don't think Woolies has done any. Um. Had it done, done themselves any favours? Uh, this morning, their result today was, uh, probably better than expected. It's about a 1.5% beat at the Ebit line. Uh, so earnings before interest tax, uh, and the, the interesting component around that is, um, the Ebit margin in terms of their food business was higher than expected to the market was looking at 6% margins. They've come in at 6.13. Uh, so that was uh, mildly, uh, more positive in terms of the FY 25 sales so far. So food's running at about 3%, uh, growth, to put that in the context, calls is running. Uh, they were out yesterday. They're running at 3.7. So uh, Coles growing quicker than Woolies in food at the moment. Uh, Woolies shares are trading up about 1%, which is about right relative to the earnings beat they have delivered this morning.

2:50

Elsewhere as mentioned this APA group close to 10% increase in underlying earnings there. What do you make of that result.

2:57

Yeah good solid result. I mean, it's a it's a really solid, um, regulated, uh, energy, uh, utility. So, uh, obviously a focus will be on the dividend. So for the, uh, FY 24, they've delivered in line with their expectations, $0.50, uh, cents per share for the full year. Uh, they've guided to growth in the dividend. So, uh, next year. Sorry FY 25. Sorry. This financial year is going to be $0.57. So that's, um, all good. This is a company that we do own in our income focused portfolios. Uh, it's been a bit of a struggle in the last couple of months, to be honest with you, Andrew. Uh, but the the tide is turning there. Uh, and, uh, some growth in earnings and some growth in dividend in what is a really robust, defensive, uh, earning stream out of RPA

3:45

uh, elsewhere smart group. I think you've got an eye on that. Do you guys own that?

3:51

Yeah, we do own smart group as well in our income focused portfolios. Uh, really interesting. Last um, yesterday for smart Group. They got whacked down about seven 8% on the session yesterday. A couple of their PRS reported yesterday. So SG fleet and McMillan, uh, both reported numbers that were below expectations. The market got concerned that smart Group would deliver a poor first half 24 result. Today there are December year end. Uh, but they haven't. So, um, in terms of the numbers, you know, revenue was about a 5% beat in terms of consensus. Uh, profit was about a 2% beat. The volumes are going, uh, particularly well in smaller group. It's up 3% today. I would have thought it would be up a bit more, given what, uh, played out yesterday in terms of share price performance ahead of today's results, uh, which is, um, above expectations. The only thing I would caution is around the dividend, the dividend of 17.5 cents for the half. Uh, that's probably a little light on, but they've got a

4:50

history of, um, announcing special dividends at their full year result. So that'll happen in March 25th. So if they stay true to trend, there will be a special dividend in March of 25. Uh, to bump up the dividend for the full year. Andrew.

5:09

And James Woodside out yesterday, uh, maintaining its guidance of full year production and spending. What do you make as they emphasize that energy transition that they're a part of?

5:22

Yeah, I mean, it was a better result yesterday. You can see that in the share price in terms of, uh, Woodside up nearly 4% on the day. A couple of takeaways that I, uh, highlight. I thought the dividend uh, $0.69 us was obviously good and better than consensus. Uh, but the payout ratio of 80% shows a bit of confidence, uh, in, in their future. So obviously they've got a lot of CapEx, uh, coming, uh, coming to, uh, into play over the next couple of years. So the fact that they've had the confidence to, um, continue to pay out 80% of their earnings in dividends. I think that's a positive. Uh, if you look at their gearing and you can understand why they've got some confidence, gearing is low at 13% or thereabouts. Uh, they guide they've got a right gearing range of about 10 to 20%. So to the lower end of the low end of the range. So I think that's probably a key trend across all the commodity energy companies at the moment. Their balance sheets are in really good nick. Um, so Fortescue today, you know, half

6:22

a billion of net debt. BHP had lower net lower, uh, net debt when they reported yesterday, about $1 billion less than the mark was anticipating. So, uh, um, balance sheet is in good shape. Uh, a bit of money to spend operationally. Uh, but I think, you know, they're they're reasonable. We don't own Woodside. Uh, we own BHP, uh, and we've recently bought into Fortescue on the expectation of this dividend, uh, which puts that on a yield, uh, sort of, you know, 6.5% for the half if you include franking. So, uh, that's pretty juicy. Uh despite the headwinds in the iron ore price.