Mainfreight profits fall 2pc - shares drop

Profit rose to $87.6 million, or 87.65 cents a share, in the 12 months ended March 31, from $82.4 million, or 82.58 cents.

Mainfreight, the transport and logistics group, said first-half profit fell 2 percent as costs of new transport and logistics facilities at home and weaker trading across the Tasman eroded the benefits of record first-half revenue. The shares dropped.

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. The shares dropped 5.9 percent to $15.05 and earlier touched 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 percent to $702.7 million and labour costs rose 15 percent 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 percent to about $271 million and earnings before interest, tax, depreciation and amortisation fell 3 percent 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 percent to A$248.6 million, while Ebitda fell 14 percent 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 percent to US$21.7 million, although when inter-company trading effects were removed, sales climbed 37 percent to US$48.9 million. Ebitda jumped 58 percent to US$3.55 million.

In the Americas, its Mainfreight USA business lifted first-half sales by 16 percent to US$155.4 million, while Ebitda fell 13 percent to US$4.96 million. Its air and ocean business recorded 32 percent sales growth and 27 percent earnings growth. That was offset by weaker earnings from domestic operations, where sales rose 2.9 percent and Ebitda dropped 37 percent, 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 percent to 130.8 million euros and earnings gaining 14 percent 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.

See today's release from Mainfreight here: