Wesfarmers' profit takes insurance hit
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Christine St Anne is Morningstar's online editor.
Australian diversified conglomerate Wesfarmers (WES) on Thursday announced a $2.1-billion profit for the 2012 fiscal year, despite a disappointing result from its insurance division.
The profit result was slightly below Morningstar's estimate of $2.2 billion.
The insurance division reported a 75 per cent drop in pre-tax earnings to $5 million following the Christchurch earthquake.
Morningstar head of equity research Peter Warnes said while the insurance division result was disappointing, the market reaction to the overall group result should be positive.
"The balance sheet is in excellent shape. Despite the expectation of continued subdued retail conditions, the outlook statement is positive," Warnes said.
In a statement to the Australian Securities Exchange, Wesfarmers said its divisions were positioned for further growth in the near future.
Wesfarmers announced a final dividend of 95 cents a share, with full-year dividends of 165 cents a share. The dividend announcement was in line with Morningstar's expectations.
Although consumer sentiment remains subdued, the company's retail operations performed strongly with a 10.3 per cent lift in earnings before interest and taxes to $2.8 billion. This represented 79 per cent of the group's pre-tax earnings.
"Coles and Kmart were the features although Bunnings was sound in a challenging, tighter environment," Warnes said.
Coles posted $1.2 billion in pre-tax earnings, with its margin widening from 4.3 per cent to 4.7 per cent.
Warnes said this was a strong performance given the underperforming liquor operations.
Kmart's pre-tax earnings rose 31 per cent to $268 million, while Wesfarmers' home improvement division posted a 4.9 per cent increase in pre-tax earnings to $841 million for the full year.
Target's pre-tax earnings result of $244 million - a decline of 12.9 per cent - included a restructuring provision of $40 million. Warnes described Target's result as "a good performance in a very difficult space".
The resources division has come under pressure amid falling commodity prices, but the division still managed to deliver a 19 per cent increase in pre-tax earnings to $39 million.