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This week, Wesfarmers Ltd (ASX:WES) shares drew significant attention following the release of the company’s FY24 results.
Wesfarmers, a diverse conglomerate, owns several well-known businesses, including Bunnings, Kmart, Officeworks, Target, Priceline, Catch, and various industrial businesses such as WesCEF (chemicals, energy, and fertilisers).
Key FY24 Results
For the 12 months ending 30 June 2024, Wesfarmers reported:
- Total revenue increased by 1.5% to $44.2 billion
- Earnings Before Interest and Tax (EBIT) grew by 3.3% to $4 billion
- Net profit after tax (NPAT) rose 3.7% to $2.56 billion
- Operating cash flow increased by 9.9% to $4.6 billion
- Full-year dividend per share increased by 3.7% to $1.98
The company faced several headwinds during the financial year, including cost-of-living pressures, rising business costs, subdued residential construction activity, and significant volatility in key commodities.
Performance by Business Segment
Some highlights from Wesfarmers’ businesses over the past year include:
- Bunnings Group: Revenue rose 2.3% to $19 billion, with earnings increasing 0.9% to $2.25 billion.
- Kmart Group: Revenue grew 4.4% to $11.1 billion, while earnings rose 24.6% to $958 million.
- WesCEF: Revenue dropped 16.9% to $2.7 billion, with a 34.2% decline in earnings to $669 million.
- Officeworks: Revenue increased 2.3% to $3.4 billion, and earnings grew 4% to $208 million.
- Industrial and Safety: Revenue was up 1.5% to $2 billion, with earnings increasing 9% to $109 million.
- Wesfarmers Health: Revenue rose 5.9% to $5.6 billion, with earnings up 11.1% to $50 million.
Bunnings demonstrated resilience in challenging conditions, while Kmart delivered a strong performance driven by the value of its Anko products, unique sourcing capabilities, and cost-reduction actions.
WesCEF's earnings were affected by lower global commodity prices, but the segment maintained strong operational performance with high plant production rates. The business reached a key milestone with its first shipment of spodumene concentrate in March 2024 and continues to focus on the construction and commissioning of the Kwinana lithium hydroxide refinery.
While Catch reported a $96 million loss for the year, this was a 41% improvement compared to FY23.
Outlook for Wesfarmers
The company noted that inflation and interest rates remain elevated, creating continued pressure on household budgets and parts of the economy.
In the first eight weeks of FY25, Kmart Group's sales growth aligned with the FY24 second half at around 4.1%. Bunnings reported positive sales growth, although it moderated from the 2.9% growth in the second half, while Officeworks saw sales growth slightly ahead of the 2.8% increase in the same period.
The performance of Wesfarmers' industrial businesses is expected to be influenced by international commodity prices and other factors, while WesCEF will face continued pressure from higher Western Australia natural gas costs due to renewed gas supply contracts.
Valuation Insights
Despite a 4% drop in Wesfarmers' share price following the result, the stock remains valued at an elevated price-to-earnings (P/E) ratio of more than 32 times FY24 earnings. Bunnings and Kmart are strong businesses, but Wesfarmers' current growth rate may not fully justify this high valuation.
Though Wesfarmers is regarded as one of the best large ASX-listed companies, other shares with more favorable dividend yields or growth prospects might be worth exploring before focusing solely on Wesfarmers at its current valuation.
