Wesfarmers profit up, EPS down

Wesfarmers Ltd's share price slumped today after it announced a 33 per cent increase in net profit for the year ending June 2008 of just over $1 billion but a fall in earnings per share.

The company's profit for the 12 months to June 30 climbed 33.6 per cent on the previous year to $1.05 billion, but below analyst expectations for a result around $1.20 billion.

But earnings per share dropped to $1.81 from the $2.05 recorded in the previous years and operating cash flow per share down 27 per cent to $2.47, due to the additional 411 million shares being issues during the year.

Dividends are also less than last year, with shareholders receiving a $2 per share total dividend for the year ended June 2008, down from $2.25 the previous year.

Wesfarmers managing director Richard Goyder said the outlook was for continuing solid performances across most businesses, with the changes in Coles expected to gain momentum.

"It's really been a significant year for Wesfarmers with the acquisition of the Coles group, which was completed on the 23rd of November last year, and in that time there's been a whole bunch of external challenges and I'm pleased with the way we've dealt with both things."

The diversified group, which acquired Coles last November for about $20 billion, said changes within that business would continue to lay the foundation for its planned turnaround of the retailer's performance within five years.

The result reflected a seven month contribution from the Coles business, and strong performances at its Bunnings hardware chain, energy, resources, chemicals and fertilisers, and industrial and safety divisions.

Revenue for 2007/08 rose 244 per cent to $33.58 billion - with about half coming from the Coles supermarkets, liquor, fuel and convenience businesses, which lifted revenue by 7.2 per cent on a pro-forma basis to $16.9 billion.

Wesfarmers forecast continuing solid performances across most of its business in 2008/09, with the resources unit expected to be particularly strong.

"Notwithstanding the challenges of a tougher economic environment, change in Coles will gain momentum, as work continues to fix the basics," it said.

The company said the businesses it owned for the full 2007/08 year had recorded a 15 per cent increase in revenue and an increase in earnings before interest and tax (EBIT) of 16 per cent.

Wesfarmers said retail markets were becoming more challenging as household budgets came under pressure and consumer confidence softened.

But strategies to revitalise Coles by "fixing the basics", including a new store format, would pave the way for a sustained improvement.

"The changes won't suddenly be obvious on a particular day or date, but ... the results of progress made to date, and the strategies being planned, will deliver value to our shareholders and our customers," managing director Richard Goyder said.

Coles' food and liquor sales grew by 4.2 per cent, with growth in all categories except fresh produce, which was impacted by price deflation in the fourth quarter.

Wesfarmers said food and liquor sales were beginning to improve, and that Coles' market share had stabilised.

Mr Goyder also said Coles would continue to absorb increased food costs instead of passing it on to consumers because it wanted to build "price trust" with shoppers.

He did not say if Wesfarmers was concerned about losing market share to rival Woolworths Ltd, suggesting it wanted to lift market share by getting "more customers into our stores and having them buy more product".

Wesfarmers' forecast for the rest of its large retail portfolio was mixed, with continued sales growth expected for Bunnings, while an accelerated store refurbishment program at Target would affect profitability.

The outlook for the company's coal division was bullish, with earnings forecast to increase "significantly" on record contract coal prices and strong demand.

Operating revenue from the resources division increased 15.6 per cent to $1.3 billion during the year, while EBIT rose 25.1 per cent to $423 million.

"The results are pleasing given a tightening economy and the Varanus gas outage which curtailed our Western Australian energy and chemicals operations in June," Mr Goyder said.

Wesfarmer repeated that the gas interruption would cut pre-tax earnings by as much as $20 million a month, but it expected "to get some insurance recovery".

Wesfarmers declared a final dividend of $1.35, taking the total for the year to $2 a share, down from $2.25 in fiscal 2007.

Wesfarmers shares fell $1.65 or 4.78 per cent to $32.90.