Wesfarmers share price drops 2.25%: investors mixed on FY19 results

The FY19 reaction at a glance

Heading into Wesfarmes’s full-year profit results today, analysts had taken a bearish view on the blue-chip conglomerate: with zero buy recommendations and six sell recommendations.

Even so, Wesfarmers delivered a strong set of FY19 results to the market this morning: revenue ticked upwards, profits rose and total dividends for the year hit a five-year high.

Investors seemed unimpressed with these results at the open however. Here, Wesfarmers Ltd (ASX: WES) saw its share price drop as much as 2.25%, falling to A$37.82 per share.

The ASX 200 benchmark by comparison opened mostly flat, gaining just 11 points by 10:28 AEST.

Key Wesfarmers financials in focus

Wesfarmers Ltd’s Managing Director, Rob Scott out that today’s FY19 results were delivered during a period of change for the company, where:

‘Our operating divisions have […] continued to generate solid returns while remaining focused on long-term value creation.’

Such comments were well reflected in the company’s FY19 financials, with the overall performance from Wesfarmers’s ‘continuing operations’ remaining strong.

From a revenue perspective, Wesfarmers saw sales grow some 4.3% to A$27,920m. A modest, but good increase for a company of its size.

On the bottom-line, the conglomerate also saw a boost across its FY19 earnings. Earnings (EBITDA) rose 22.5% to A$3,511m, while net profits after tax (NPAT) climbed even higher, rising 37.7% to A$1,940m.

Though Wesfarmers continues to post strong results from its ‘continuing operations’, some of the conglomerate’s financials were impacted by recent corporate restructuring activity.

For instance, as Mr Scott pointed out, the company’s operating cash flows came in ‘33.4 per cent below the prior year, primarily due to the demerger of Coles and disposals of Bengalla, KTAS and Quadrant Energy.’

A five-year dividend record

Wesfarmers Ltd (ASX: WES) has continued to demonstrate its strength as a leading Australian blue-chip company, posting another year of strong dividend growth.

Specifically, Wesfarmers today declared a fully-franked dividend of A$0.78 per share. This takes the conglomerate’s full year payout to A$2.78 per share – the highest of the last five years.

Indeed, this result was bolstered by Wesfarmers demerger of Coles during the FY19, with Managing Director, Rob Scott positively pointing out that, ‘we were able to distribute to Wesfarmers shareholders the profits realised from these actions.’

Wesfarmers’s full-year dividend will have a record date of September 2 and be paid on October 9.

What is Wesfarmers FY20 outlook?

With Australia's August earnings season almost over, investors will now likely be turning their attention to 2020 and beyond.

On this front, Wesfarmers made just general commentary about its future outlook.

For one, in an increasingly digital world, the company’s commitment to building out its digital capabilities looks to be a good indicator of the company’s forward-thinking business approach.

Here, in the FY19 results, a key point was made that Wesfarmers will continue to, 'focus on developing a deeper & broader digital offer, developing great talent & teams, and driving entrepreneurial initiative.’

Such an approach was clearly evidenced with Wesfarmers recent A$230m acquisition of the online ‘superstore’ Catch.com.

Finally, no significant update has been given on the proposed acquisition of Kidman resources – which remains subject to shareholder and court approval.

Final thoughts

These acquisition plans however are not intended to overshadow Wesfarmers’s core operations, but rather to compliment them.

Indeed, as Managing Director Rob Scott pointed out in the FY19 release:

‘Wesfarmers will continue to build on its unique capabilities and platforms to take advantage of growth opportunities within its existing businesses, recently acquired investments and other value-accretive transactions.’

In the last eight months Wesfarmers Ltd has proven to be a solid performer, with its share price rising 22%.

Such performance, likely underpinned by the group’s ‘unique capabilities’, does not include the conglomerate’s dividend, which remains significant.