Agreed, my no-growth numbers were showing underlying EBIT of 35.1m for July14-June15 year and 41.6m in July15-June16. These were based on underlying EBIT guidance for ED and DD on standalone basis plus 13m of synergies, of which 50% were expected to be captured in FY15 (disclosed in 08/07/2014 guidance).
Based on today's numbers the underlying EBIT so far was 13.8m (40% of the full year expectation). Not a disaster, if the second half can deliver.
Though, what has been concerning me is the ongoing improvement in gross margins offset by deterioration in CODB.
While I am not sure if this has something to do with a change in mix of products/services, I think it is not great when a plain vanilla volume distributor is growing the cost base like this (mostly salaries).
You arguably want to see gross margins flat (not improving) and CODB margin decreasing on growing revenue (i.e. CODB expense staying flat). Improving gross margins may mean that the company is trying to squeeze margins from customers/suppliers instead of trying to be as lean and efficient as possible (correct me if I am wrong here!). While this may be a great idea for someone like Coles/Wollies, DD provides a commodity service and has plenty of competition that can take over the market share very fast.
In this light, news like Synnex investing 45m in a fully automated warehouse makes me wonder if DD is lagging in terms of operational efficiency. And if you look at DD's expenditure on PPE, it is surprisingly low given they are effectively a logistics company.
DDR Price at posting:
$1.80 Sentiment: Buy Disclosure: Not Held
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