Domino's rolling in the dough

A Domino's pizza store. A big reason for Domino's ongoing success is that it is so good at using technology.

Australians and New Zealanders gobble a lot of pizza, but in such a competitive market it's hard for pizza companies to turn a profit, or if you prefer, to make a crust.

Domino's Pizza has bucked the trend, reporting another blockbuster result last week, with net profit rising 40 per cent to A$64 million ($72 million) and dividends rising 41 per cent across the full year.

Its secret is that these days it's as much a technology company as a company selling disks of dough with cheese and tomato sauce on top.

The 2015 financial year is just the latest in a series of improved profits that long-time chief executive Don Meij has presented to investors.

This is a standout result to say the least, in an environment of weak consumer sentiment (in all of Domino's key markets of Australia, New Zealand, Japan and Europe) as well as Australia's obesity epidemic and the backlash against junk food.

Pizza is also a highly commoditised market where price is the most important consideration for many consumers. (After all, most pizzas are pretty similar, with the exception of the occasional culinary abomination like tandoori chicken or prawn, bacon and feta.)

Meij appears to have recognised this, though it's doubtful you'd ever catch him saying so.

The big reason for Domino's ongoing success is that it is so good at using technology. Put simply, it keeps finding new ways to sell and deliver pizza.

The company has just launched an app that uses GPS tracking to allow hungry customers to track their pizza as it makes its way to them. Domino's says the app also allows Domino's to keep track of their drivers and make sure they're safe and not exceeding the speed limit.

Just as importantly, it gives the company a huge amount of information about delivery times and routes, information that will help the company with its next promise -- the 15-minute home delivered pizza.

It's an astounding promise -- for an extra A$5 the company will take the customer's order, cook their pizza and deliver it to them all within 15 minutes, or the customer will get a voucher for a free pizza.

By making this offer, Meij is trying to take sales from burger chains, which consumers consider to be faster than pizza. Why bother jumping into your car and driving to McDonald's when you can stay at home and have a pizza in a quarter of an hour?

This is a very clever strategy. Instead of trying to differentiate their pizzas, Domino's is offering something else -- speed, convenience and a bit of fun.

It has served the company very well. Its shares are up about 65 per cent so far this year and at A$42 are about 20 times higher than their listing price of two decades ago.

And there might be more to come for shareholders -- Domino's says it's working on 40 new digital projects.

Investors in the company might want to repeat Homer Simpson's famous mantra: "Mmmmmmm Pizza."

Earnings season

Domino's strong result notwithstanding, the first big week of corporate profit results hasn't brought much joy for investors.

The benchmark ASX 200 index ended this week in correction territory -- 10 per cent below its most recent peak -- after several companies disappointed the market. The surprise devaluation of the Chinese currency didn't help either, raising concerns about the strength of Australia's largest export market.

Investors are very unforgiving at the moment, even of companies reporting good results.

"Bionic ear" maker Cochlear reported a 56 per cent profit rise, but missed analysts' estimates slightly so its shares fell 15 per cent.

Vaccine maker CSL was also marked down after investors took a cooler view on its growth prospects, the impact of currency volatility and costs. It plans to invest more in manufacturing and its sales force, which will eat into growth in the short term while setting it up well for long-term growth. Nonetheless, investors cut 6 per cent off the company's shares.

Even Domino's was not immune. Its shares dipped about 7 per cent after the company said it expected earnings growth of only (yes, only) 20 per cent in the coming year, not the 25 per cent the market was expecting.

It's a sign of how skittish investors are at the moment. They won't forgive even the slightest misstep by a company, even one that's performing as well as Domino's.

Still, the shares quickly recovered as investors took a deep breath and realised just how well this company is performing.

Part of the problem is fund managers who are judged more by their quarterly performance rather than how they perform over the longer term, so have to make knee-jerk reactions to the slightest bit of bad news. For investors who can take a longer-term view, these events create great opportunities.