Feb. 16 (Bloomberg) -- Wesfarmers Ltd., whose businesses range from mining and insurance to supermarkets, said first-half profit rose 46 percent on record prices for coal and its takeover of Coles Group Ltd.

Net income rose to A$879 million ($570 million), or A$1.06 a share, in the six months ended December from A$601 million, or A$1.26, a year earlier, Perth-based Wesfarmers said in a statement today. The result compares with the company’s Jan. 14 forecast for earnings between A$850 million and A$880 million.

Chief Executive Officer Richard Goyder is spending as much as A$5 billion revamping Coles supermarkets to close the earnings and sales growth gap with larger rival Woolworths Ltd. and limit the impact of a slowing economy. He has sold new stock twice in the past year and cut dividend payments to help refinance debt from the record A$18.2 billion takeover in 2007.

“The quality of Wesfarmers’ first half result was high,” Craig Woolford, an analyst at Citigroup Inc., said in note to clients today. “Focus is turning to the Coles division and we expect continued improvements,” said Woolford, who recommends buying the company’s stock.

The takeover, which tripled sales, gave Goyder ownership of the Coles supermarket chain, Officeworks, the nation’s biggest office supply chain, and the Target and Kmart discount department stores.

Share Price, Dividend

Wesfarmers shares rose 8 cents to A$16.23 at the 4:10 p.m. market close in Sydney. The stock was worth A$45.73 when it announced the Coles purchase in July 2007.

Wesfarmers will pay a first-half dividend of 50 cents a share, 23 percent less than the year earlier payment of 65 cents. The annual payout will be less than A$1, half the A$2 a share the company paid in 2008.

Goyder declined to give a forecast for second-half earnings on a conference call with reporters, citing ongoing negotiations for new coal sales contracts and slowing economic growth.

Coles supermarket earnings before interest and tax more than tripled to A$431 million from A$130 million a year earlier on a full six-month contribution from owning the business. Sales from stores open at least a year rose 2.6 percent, compared with 6.6 percent growth for Sydney-based Woolworths.

The unit posted a profit margin, which measures earnings as a proportion of revenue, of 3 percent in the half. Woolworths, which releases audited earnings on Feb. 27, has a margin of 5.5 percent.

Fruit, Vegetables, Liquor

Ian McLeod, who took charge of Coles in May, has expanded the chain’s fresh fruit and vegetables offering and halving the amount of inventory that is out of stock. Tony Leon, who took charge of liquor sales last year, has cut prices on 1,000 items to make its stores more competitive with Woolworths and its Dan Murphy’s chain.

“Despite the impact of a tougher consumer environment, the group’s retail businesses have generally weathered the downturn well and the Coles turnaround is gaining momentum,” Goyder, 49, said in the statement. “I expect the turnaround of Coles to continue to gather pace over the next 12 months,” he said.

Total sales rose to A$26.4 billion from A$9.8 billion a year earlier.

Coking Coal

First-half resources earnings, which includes three coal mines, rose sixfold to A$686 million from A$112 million a year earlier.

The price of coking coal, the fuel used by steelmakers, surged to a record $300 a ton last year with talks underway for contracts starting April 1.

Japanese steelmakers are seeking a 67 percent cut in the annual contract price to 2007 levels, or $98 a metric ton, analysts at Macquarie Group ltd. led by Jim Lennon said today in a report.

Full-year coking coal sales will probably be between 6.5 million and 6.9 million tons, Wesfarmers said.

Energy earnings, which include its liquefied natural and petroleum gas businesses, fell 38 percent to A$30 million.

The home improvement and office supplies unit, which includes Australia’s biggest hardware retailer Bunnings, had a 19 percent increase in earnings to A$395 million.

Insurance earnings for the half rose 4.7 percent to A$67 million.

Kmart discount department stores had a 26 percent fall in earnings to A$75 million while the Target chain increased profit 82 percent to A$215 million.

Earnings at the chemicals & fertilizer division slumped 92 percent to A$4 million as a gas outage in Western Australia state forced the company to buy more expensive imported ammonia and gas.

The industrial & safety unit, which sells workplace equipment ranging from tools to clothing, had an 11 percent rise in earnings to A$68 million.

To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net

Last Updated: February 16, 2009 01:24 EST