Hardware & Lumber‘s profit after tax to the end of 2013 jumped to $610 million from only $2.8 million in 2012, but without a one-off reversal of pension obligations of $502.5 million, profit would be in the order of $260 million after tax. Earning were equivalent to $2.76 per stock unit for the year, beating our earnings estimate of $2.
The result for 2013 represents a major turnaround in the fortune of the company that has been struggling with major losses in 2008 and 2009, high debt load and minuscule profits from 2010 to 2012.
Profit before tax was $818 million including the pension adjustment compared with the previous year’s $125 million. The one-off reduction is a non-cash adjustment arising from the company’s decision to move from the Grace Kennedy defined benefit pension plan in 2013 to the Grace Kennedy defined contribution pension plan. Return on equity leapt to 28 percent during the year from ongoing earnings.
Total revenue for 2013 was $6.8 billion, representing an 8.4 percent increase over 2012 but the last quarter of the year revenues climbed by 13 percent bettering the previous three quarters. The retail, hardware and household segment (trading as Rapid True Value) grew by 8.2 percent while the agricultural segment (which trades as Agro Grace) recorded revenue growth of 9 percent. Gross profit for the year was $1.746 billion, representing 25.6 percent of revenue as it slipped slightly from 25.9 percent achieved in 2012. Gross profit margin is back up to 36 percent for the last three years from a low in 2008 of only 27 percent.
At the end of the year, cash funds stood at $418 million compared to $206 million in 2012 even as borrowed funds were reduced by $85 million. The balance sheet reflects stockholders’ equity of $1.176 billion and debt, which was at $1.265 billion in 2008 is now down to $370 million, and should decline further in 2014 as profits increase.
Current assets are now twice that of liabilities with working capital of $1 billion. Hardware & Lumber is majority-owned and controlled by Grace Kennedy. Andrea D. Coy, who headed the operations since April 2012, has gone back to Grace Kennedy. Being an accountant by training, her task may well have been to cut cost and now that is in place, the need for a marketing-oriented person may be the area of focus now.
Hardware & Lumber is an IC Insider Buy Rated stock. We project earnings of $3.76 for 2014, rising to $4.50 in 2015 with a tax rate of 25 percent. For investors, this is a strong buy signal as the stock is expected to record price gains in the weeks and months ahead.
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[…] latest quarter just slightly higher than the same period last year, with sales of $1.71 billion. Hardware and Lumber reported a 20 percent increase in profit for the September quarter to $44 million or $0.54 per stock […]