Wesfarmers expected to lift proft
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SYDNEY, Feb 13 AAP
February 13 2013, 11:00AM
Wesfarmers is expected to deliver a first half profit of around $1.2 billion led by its retail division, amid supermarket price wars and lower coal production.
The group will deliver its first half earnings results on Thursday and analysts expect a net profit of between $1.21 billion and $1.22 billion, up about two per cent on the previous corresponding period.
Supermarket giant Coles is expected to be the company's biggest driver of profits, after it delivered first a half sales lift of 4.9 cent to $18.3 billion.
"Obviously Coles is going to be a significant earnings contributor," City Index chief market analyst Peter Esho said.
Mr Esho said Coles' rate of sales growth was expected to continue to outpace rival Woolworths, but the supermarket chain's costs were still unknown.
"They've been booking a faster rate of growth (than Woolworths) on a quarterly basis for a while now and that should translate into earnings.
"I guess this is the first real glimpse into at what costs sales growth has been coming at," he said.
"The market is assuming that their (Coles') rate of sales growth is translating into earnings growth."
Citigroup analyst Craig Woolford said in a market note that he expected earnings margins at Coles to widen because of reduced operating costs, particularly in the supply chain.
However, the price war with Woolworths, especially in petrol, may affect margins in the future.
"We expect a good half, but signs of pressure in balancing sales and margins are emerging given escalating petrol discounts." Mr Woolford said.
Mr Woolford predicts that Wesfarmers will experience an earnings collapse from its resources division as it continues to produce higher volumes of coal at lower prices.
"Lower coal prices will particularly influence export earnings while the level of production costs will impact the division's margins," he said.
Morningstar head of research Peter Warnes said the biggest threat to Wesfarmers' earnings was its resources division.
He said the company had flagged that production for the three months to December 31 at its Curragh coal mine in Queensland's Bowen Basin was expected to be down 6.4 per cent on the same period in 2011/10 but the actual reduction was still unclear.
"The market will be looking to see how far down the resources division will be," he said.
"It all depends on the costs and how much they were able to take the costs out."
Mr Esho said he would be looking out for a turnaround in Wesfarmers' insurance business after it delivered a very poor result in 2011/12.
By Kylie Williams