Mainfreight shares sink after profit drop

Shares in Mainfreight [NZX: MFT] plunged 6% after the transport and logistics group reported first-half profit down 2% as costs of new facilities at home and weaker trading across the Tasman offset record first-half revenue. 

Profit fell to $32.9 million in the six months ended September 30, from $33.5 million a year earlier, the Auckland-based company said in a statement. Revenue rose to a record for a first half of $1.1 billion from $987 million.

In early trading the company's shares dropped 5.9% to $15.05 after touching a three-week low of $15.

Managing director Don Braid said the first-half result was disappointing, given "acceptable revenue and margin gains were eroded by increased overhead cost structures" but that some of the increased costs were from spending to grow its businesses, while the result also reflected softer trading in the Australian and US markets. Transport costs rose 13% to $702.7 million and labour costs rose 15% to about $233 million.

Braid said he expects improved revenue and margins in the second half, "together with better cost controls" will lead to an improved 2016 result compared to the previous year. Trading in September improved across its five regional divisions and the company had seen volumes rise in October and November.

"The majority of these costs have been incurred as we prepare the business for further growth," Braid said. "New and larger facilities have been built with improved, but more expensive, equipment, and labour costs have increased as we develop our operations for a significant period of growth globally."

Mainfreight will pay an interim dividend of 14 cents a share, unchanged from a year earlier, on December 18, with a record date of December 11.

Revenue in New Zealand rose 5.9% to about $271 million and earnings before interest, tax, depreciation and amortisation fell 3% to $29 million, but the company doesn't expect overhead and wage costs will need to rise further as volumes increase.

In Australia, sales rose 5.2% to A$248.6 million, while ebitda fell 14% to A$13.2 million. The performance of its domestic transport business in Australia "was well below our expectations", contributing to the "less-than satisfactory" 26 percent drop in first-half ebitda. "Overhead cost increases, a declining gross margin and poor sales growth were all factors affecting the result," it said.

By contrast, its Australian logistics operations were at full capacity in most locations and were expected to generate improved second-half earnings. Its air and ocean business recorded improved sales and earnings.

In Asia, sales fell 0.4% to $US21.7 million ($33m), although when inter-company trading effects were removed, sales climbed 37% to $US48.9 million. Ebitda jumped 58% to $US3.55 million.

In the Americas, its Mainfreight USA business lifted first-half sales by 16 percent to $US155.4 million, while ebitda fell 13% to $US4.96 million. Its air and ocean business recorded 32% sales growth and 27% earnings growth. That was offset by weaker earnings from domestic operations, where sales rose 2.9% and ebitda dropped 37%, reflecting expansion of its line-haul routes and new logistics warehouse facilities in Los Angeles, Dallas and New Jersey.

Mainfreight reported improved results in Europe, with sales edging up 0.7% to 130.8 million euros($215m) and earnings gaining 14% to 5.9 million euros. It posted an improved performance from its European forwarding and transport operations, helped by a turnaround in its Belgian business. Its logistics operations "continue to show progress, and it noted "good momentum" in air and ocean. Those trends were expected to continue through the second half.

The company said its European manager, Mark Newman, would return to New Zealand, to be replaced by Ben Fitts, who is currently in charge of New Zealand air and ocean operations.

(BusinessDesk)