Corporates: Wesfarmers’ Sales, Macquarie Meets, GUD’s Record

Wesfarmers' shares partly recovered from a sharp and irrational sell-off yesterday after it released its 4th quarter financial year 2011 sales figures for its Coles and Bunnings retail chains.

The sales figures showed solid growth in the 4th quarter, and as expected for the full 12 months in the Coles Group supermarkets, Bunnings and Officeworks, and average to below par sales growth for Target and Kmart.

But on the whole they were better than the effort revealed by Woolies, except Woolies' 4th quarter sales growth in its supermarkets and liquor business was a bit stronger.

But that was no reason for the shares to be sold off so sharply; at one stage they were down 4.1% or more than $1.20 at around $28.85 in morning trade, a 52 week low.

In a market down 1.3% at the time, it was an irrational sell-off.

Investors slowly came to their senses and the Wesfarmers regained ground over the rest of the day to close down 2.4% or 72c at $29.37.

Wesfarmers says sales at its Coles-owned chains rose 6.7% to $31.768 billion in the 2011 financial year, much better than the 4.7% rise reported last week in group sales for the year from bitter rival Woolworths to $54 billion.

Wesfarmers key supermarkets and liquor divisions recorded a 6.3% increase in sales to $25.025 billion for the year, against a 4.3% rise, to $46.3 billion reported by Woolies for its supermarkets and liquor business.

Coles also reported that sales at its home improvement and office supplies divisions rose 5.4% to $8.24 billion.

But Target sales fell 1.2%, while Kmart sales rose just 0.4% in the year.

Woolies' Big W chain had a similar experience: same-store sales at Woolies' Big W rose 2.8% in the fourth quarter and fell 0.8% for the year.

Comparable store sales were down 2.5% for the year but up 2.8% (on a 5.0% lift in overall sales) in the 4th quarter.

Fourth-quarter sales from supermarkets and liquor stores open for more than a year grew 5.2%, against forecasts for 6-7% from some brokers who were just too optimistic.

They were also slower than the 6% improvement reported by Woolies.

Total 4th quarter sales from its Coles supermarkets, liquor and convenience stores rose 7.2% from a year ago to $7.98 billion.

Analysts had expected a 1.6% drop in sales at Wesfarmers' Kmart discount stores, but 4th quarter like-for-like sales fell only 0.1%.

In the statement with the figures Wesfarmers managing director Richard Goyder described the retail divisions' sales performance as solid, given the backdrop of declining consumer confidence, significant price deflation and adverse weather conditions experienced during the period.

"A highlight of the result was the continuation of the strong sales momentum in Coles and Bunnings, building on strong results from the previous year,'' Mr Goyder said in a statement.

"The result reflects the re-investment of productivity gains in lower prices, category expansion and the continued focus on growing the store network to position the business for future growth."

Meanwhile the much awaited AGM for Macquarie Group in Sydney yesterday was either predictably upbeat, or downbeat, depending on your view of the company.

Australia's major investment bank maintained its earnings guidance, with crossed fingers and qualifications.

Macquarie reiterated that its outlook for earnings for the year to March 2012 would be higher than 2010-11, on expectations of a stronger second half.

It didn't, as some analysts had forecast, sharply downgrade its outlook in the face of weak markets and poor results from the trading and other divisions of major competitors like Goldman Sachs, Morgan Stanley, UBS, Deutsche Bank and Credit Suisse.

But it left open the door to a possible downgrade later in the year if markets took a turn for the worse, given debt crises in Europe and the US (where it has been trying to expand to offset its dominant position in Australia).

But Macquarie also said that the first half result for fiscal 2012 would be lower than a year earlier because of a higher tax rate and the absence of the benefit of the MAp AVS reclassification included in the prior corresponding period.

"The FY12 result also remains subject to a range of other challenges including movements in foreign exchange rates, increased competition across all markets, the cost of our continued conservative approach to funding and capital, and regulation, including the potential for regulatory changes," chief executive Nicholas Moore said in a statement yesterday.

The market took a brief glimpse at the statements from the AGM, looked at the debt ceiling fiasco in the US and took to Macquarie shares, knocking them down nearly 5% or $1.52 to $27.81, close to the 52 week low of $27.35 hit a fortnight ago when the first downgrades started emerging from analysts.

the shares closed at $27.99, a fall of $1.34 on the day or 4.6%.

Macquarie said in the statement that the contribution from operating groups in the first quarter of the current fiscal year was ahead of the same period a year earlier but down from the preceding quarter.

"Compared with the prior corresponding period (1Q11), an increased contribution from our annuity-style businesses in 1Q12 more than offset the lower contribution from those impacted by subdued market conditions," Mr Moore said in the trading update statement.

Contributions from Macquarie Funds Group, Corporate and Asset Finance and Macquarie Capital in the first quarter were higher than a year earlier.

The quarterly profit from Banking and Financial Services was in line with the preceding quarter, while the contributions from Macquarie Securities and Fixed Income, Currencies and Commodities were down.

"Looking to the shorter term, we recognise that since the global financial crisis our returns, along with those of our peers, have dropped in what have been exceptionally difficult market conditions," Chairman Kevin McCann said in a statement.

"I can assure you that everyone around the organisation is focussed on improving returns to shareholders," he added.

The company said that while there were no significant one-off items during the quarter, "high levels of cash continued to impact the Group's current earnings.

"Group capital was $A11.6 billion at 30 June 2011, a $A2.9 billion buffer in excess of Macquarie's minimum regulatory capital requirements.

"The Tier-1 capital ratio for the Banking Group was 11.5 per cent, up from 10.7 per cent at 31 March 2011. Total capital was 15 per cent, up from 12.4 per cent at 31 March 2011.

"Macquarie's current assessment is that it has sufficient capital to meet the Basel III capital and leverage ratio requirements."

So clearly Macquarie sees itself as having the balance sheet strength to withstand a downturn in global markets.

But the market doesn't believe the forecast for a higher result because of stronger second half earnings.

Let's get through the next, increasingly difficult week or so first.

Dig through the final profit report from consumer and industrial products supplier GUD Holdings Ltd and you find it battled manfully in the increasingly tough 2011 financial year to produce a record profit of $49 million.

But you had to get through the $12.3 million of costs associated with the acquisition of storage products maker Dexion and associated restructuring in Dexion and the revamp of GUD's water products business.

Including those costs (one-offs) GUD had a full year net profit of $39.6 million, down 14.5% from 2010.

The shares eased 2c yesterday to $8.49 after the profit was announced, which was a pretty good outcome compared to the gloom and doom elsewhere and the 1.6% fall overall.

So in terms of market reaction, a solid result and realistic outlook.

The company declared a final dividend of 35c per share, up from 34c in the prior corresponding period, which is always a good indicator of the way management and the board see the company travelling in the coming year.

With the 1c rise in the interim to 29c, the total for the year is 64c a share, up 2c from the 2010 payout of 62c a share.

"EBIT decreased by nearly 10% to $64.8 million, with underlying EBIT up 8% to a record $77.1 million," the company said yesterday.

"The underlying EBIT margin was 13.0% compared with 15.1% previously reflecting Dexion's lower margin contribution for the ten months since acquisition."

Total group sales increased 25% to $592.8 million and included a contribution from Dexion of $156.7 million.

Group sales excluding Dexion declined 8% to $436.1 million, largely due to unfavourable weather conditions affecting demand in the Water Products business.

Through its Sunbeam business, GUD is exposed to the sluggish retailing sector, but offsetting that is its big importing business where the rise in the value of the Australian dollar has helped.

Earnings before interest and tax in the consumer products division, which includes Sunbeam, rose 15% to a new high of $38.8 million. That was despite a 6% drop in sales "reflecting subdued retail trading conditions in both Australia and New Zealand along with increased competition from low-priced, lower quality housebrand products.

"Despite the growing intensity of trade brand competition in the small appliances market, Sunbeam maintained its market leadership position in both Australia and New Zealand. Sunbeam's involvement with the extremely successful MasterChef program in Australia has underpinned market share growth for the brand in food preparation appliance categories.

"EBIT to sales margin in the Consumer business improved to 16% chiefly as a result of the stronger Australian dollar and continuing tight cost control," the company said.

CEO Ian Campbell said, "We are expecting a solid financial performance in FY12, underpinned by the strength of GUD's brand portfolio.

"A recovery in the Water Products business is likely as more normal weather conditions return.

"Trading conditions are predicted to remain difficult in the Australian retail sector and this will influence both Sunbeam and Oates. In the Automotive business we expect a continuation of a strong performance from Wesfil. All these businesses will continue to benefit from our secured currency position over the year.

"A key driver of performance in the current year will be the margin improvement anticipated in Dexion flowing from restructuring activities. To support growth in FY12 and beyond, all our businesses remain focused on new product development and tight cost control," he said.

Like Alesco and a few other companies that have already reported, GUD is very wary about the outlook for the 2012 financial year and beyond.