Next Monday will see a couple of heavyweight reporters, led by iron ore miner Fortescue Metals Group (FMG). Market consensus expects full-year net profit of US$1,094.6 million, down 48% on the US$2.1 billion earned in FY17. That will follow a 44% fall in first-half profit, to US$681 million.
Fortescue racked up record production of 46.5 million tonnes in the final quarter of FY17, enabling the miner to meet its forecast for iron ore shipments for fiscal 2018 of 170 million tonnes, down marginally on the 170.4 million tonnes shipped in FY17. The company forecasts this financial year’s iron ore shipment target at between 165 million–173 million tonnes.
Investors will also look closely at Fortescue’s costs: at the end of last year, the miner was producing iron ore at a cash production cost of $US12.82 per wet metric tonne, for the June 2017 quarter. That was down from US$15.43 in FY16. Fortescue has done great work in controlling and lowering its costs, to the point where it says it is the lowest-cost iron ore producer in the world.
The market will also be keenly interested in the impact on margins of the price discount that Fortescue’s lower-grade iron ores receive. Fortescue has always received lower prices for its 58%-iron ore than the 62%-plus ore of its Australian rivals BHP and Rio Tinto. It usually got about 85% of the price that the higher-grade ores got, but last year that discount started to widen to Fortescue getting paid about 63% of the higher-grade prices. Fortescue has said that over the full FY18 year, its average revenue was $US44 per dry metric tonne, equal to 64% of the average industry benchmark price.
China’s preference for higher grade iron stripped about $1 billion from Fortescue’s underlying earnings in the first half of the financial year, but the company’s EBITDA (earnings before interest, tax, depreciation and amortisation) margins remained healthy at $US24 per dry tonne. Investors will be looking closely at this number.
FN Arena’s collation of analysts’ forecasts comes to EPS of 29.8 US cents in FY18, down from 67.3 US cents in FY17, with a fully franked dividend of 14.3 US cents, versus 45 US cents in FY17. In A$ terms, Thomson Reuters expects EPS of 46 cents, and dividend of 23.9 cents. As of last year, Fortescue’s dividend policy promises payouts of between 50%–80% of net profit.
Woolworths (WOW)
Retail giant Woolworths also reports on Monday, August 20. Investors will be looking for good growth in like-for-like sales and expanding margins. At the half-year, margins rose from 4.4% to 4.7%, as gross margins lifted by 55 basis points (0.55 percentage points). Same-store supermarket sales rose 4.0% in the March quarter.
Investors will want to see progress at turning Big W around, after a loss of $150.5 million in FY17. The discount department store market is very competitive, and the entry of Amazon has not helped that. But the result earlier this month of major Woolworths landlord, the real estate investment trust (REIT) Shopping Centres Australasia Group (SCA), gave Woollies investors heart. It said that Big W stores had recorded positive month-on-month sales growth during FY18, and that overall, discount department store sales improved by 1.9% in FY18. SCA also noted that supermarket sales growth was 1.9%, with both Woolworths and Coles recording positive sales growth.
Market consensus expects net profit of about $1.69 billion – up about 10.4% on FY17’s $1.53 billion – although Woollies is seen as a potential upside surprise. The company delivered a 15% increase in underlying December-half net profit to $902 million, and lifted its interim fully franked dividend by 26%, to 43 cents. Interim net profit surged 38% to $969 million.
For the full year, Thomson Reuters’ collation of analysts’ forecasts expects EPS of 128.3 cents, up from 110.8 cents in FY17, flowing through to a fully franked dividend of 95 cents, up from 84 cents in FY17. FN Arena expects EPS of 126.2 cents and a dividend of 91.7 cents.
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