Wesfarmers Profit Beats Analyst Estimates on Supermarkets

Wesfarmers Ltd., Australia’s largest employer, posted first-half profit that beat analyst estimates as sales from its Coles supermarkets and chain stores limited the effect of falling earnings from its coal mines.

Net income rose 9.3 percent to A$1.29 billion ($1.34 billion) in the six months ended December, Perth, Australia-based Wesfarmers said in a statement today. That compares with the A$1.27 billion median estimate of five analysts surveyed by Bloomberg News.

Wesfarmers, which owns mines, chemical companies, an investment bank and retailers, has spent five years turning around the department stores and Coles supermarkets it bought in Australia’s largest corporate takeover. It has refurbished outlets and cut prices on staples including bread and milk to win customers from first-ranked Woolworths Ltd. in a country where they share 80 percent of the market.

“The promotions from the supermarkets seem to have become a bit more rational,” meaning discounts aren’t so steep, Grant Saligari, an analyst at Credit Suisse Group AG in Melbourne, said before today’s announcement. “The retail division is quite healthy, though clearly coal is going to struggle.”

Steelmaking coal from Wesfarmers’ Curragh mine will sell at a benchmark price of $160 a metric ton in the current quarter, the company said in a Jan. 30 statement. The price is about 30 percent less than a year earlier.

Shares Gain

Wesfarmers shares rose 1.2 percent to A$38.88 at the close in Sydney after earlier gaining as much as 3.3 percent. The benchmark S&P/ASX 200 Index climbed 0.7 percent.

The company’s retail chains, which include the Target and Kmart discount department stores and Bunnings hardware outlets, will “provide resilience and growth in an overall challenging consumer environment” over the remainder of the year, it said in the statement.

First-half group earnings before interest and tax, or Ebit, rose 5.5 percent from a year earlier to A$2.04 billion.

Coles earnings jumped 15 percent to A$755 million and Bunnings profit rose 6.8 percent to A$518 million.

The Kmart discount department store grew Ebit by 25 percent to A$246 million while profit at the Target chain slumped 20 percent to A$148 million.

Earnings at the resources division dropped 63 percent to A$93 million on lower coal prices, a stronger Australian dollar, and the impact of a rebate paid to a state-owned electricity generator.

The insurance division faces claims of about A$40 million connected to weather and fire incidents, it said.