All eyes were on Wesfarmers Ltd (ASX: WES) shares this week after the company reported its FY24 result.
Wesfarmers is a company that owns businesses like Bunnings, Kmart, Officeworks, Target, Priceline, Catch and a number of other industrial businesses, including WesCEF (chemicals, energy and fertilisers).
FY24 result
Let’s recap what the company reported in the 12 months to 30 June 2024:
- Total revenue increased 1.5% to $44.2 billion
- EBIT increased 3.3% to $4 billion
- Net profit after tax (NPAT) grew 3.7% to $2.56 billion
- Operating cashflow increased 9.9% to $4.6 billion
- Full-year dividend per share hiked by 3.7% to $1.98
Wesfarmers said it navigated a number of headwinds during the financial year including cost of living pressures, rising costs of doing business, subdued activity in residential construction and significant volatility in key commodities.
Looking at some of the individual performance of businesses over the 12 months:
- Bunnings Group revenue rose 2.3% to $19 billion and earnings rose 0.9% to $2.25 billion
- Kmart Group revenue rose 4.4% to $11.1 billion and earnings rose 24.6% to $958 million
- WesCEF revenue dropped 16.9% to $2.7 billion and earnings declined 34.2% to $669 million
- Officeworks revenue rose 2.3% to $3.4 billion and earnings increased 4% to $208 million
- Industrial and safety revenue rose 1.5% to $2 billion and earnings grew 9% to $109 million
- Wesfarmers Health revenue grew 5.9% to $5.6 billion and earnings increased 11.1% to $50 million
Wesfarmers said Bunnings demonstrated resilience in the conditions, while Kmart delivered a “standout” performance supported by the “market-leading value credentials of its Anko products, unique sourcing capabilities and actions to reduce costs.”
WesCEF earnings were hit by lower global commodity prices, but “operating performance was strong with good plant production rates.” It achieved an interim milestone of its first shipment of spodumene concentrate in March 2024, while it continues to focus on construction and commissioning of the Kwinana lithium hydroxide refinery.
While Catch made a $96 million loss in the year, it was a 41% improvement on FY23.
Outlook for the Wesfarmers share price
The company noted inflation and interest rates remain elevated and continue to place pressure on parts of the economy, including household budgets.
In the first eight weeks of FY25 Kmart Group saw sales growth “broadly in line” with the FY24 second half (which was 4.1%), Bunnings sales growth is positive but has moderated from the second half (which was only 2.9%) and Officeworks saw sales growth “slightly ahead” of the second half (which was 2.8%).
The performance of its industrial businesses will be influenced by international commodity prices and other factors. WesCEF will also continue to be impacted by higher WA natural gas costs as more gas supply contracts are renewed.
Is it a buy?
Despite the 4% drop of the Wesfarmers share price on result today, it’s still valued on an elevated price/earnings ratio (p/e ratio). It’s priced at more than 32 times FY24’s earnings.
Bunnings and Kmart are both excellent businesses, but I’m not sure Wesfarmers is growing at a fast enough pace to justify that sort of valuation. However, I’d still prefer to own Wesfarmers shares over the long-term than have cash because of the earnings growth.
I think Wesfarmers is one of the best large ASX shares, but I’d want a better p/e ratio before buying. There are other ASX dividend shares that look better value to me.
