"I think that they would have done very well to deliver a second-half Pre-Tax Profit result that is within 5% of the $25m that was reported for JH2018 (i.e., a full-year FY2019 Pre-Tax Profit number of ~$60m, given DH2018 Pre-Tax Profit came in at $35.8m)."
Well, the second-half Pre-Tax Profit number came in exactly at my expectation of$23.9m, for full-year Pre-Tax Profit of $59.7m.
So I obviously rock as a financial modeller.
Trouble is, the devil is in the detail and while I got it "right", I did so via a whole lot of compensating errors(!)
For starters, Revenue was $3m less than I was expecting, but the Gross Profit Margin for the second-half came in at 63.1%, which was well ahead of my 62% guesstimate.
The resilience in the GP Margin is the highlight of the result (for context, in the preceding 4 half-year periods, the GP Margin was 62.8% (DH2017), 62.8% (JH2018), 62.6% (DH2017) and 63.1% (JH2017)), as far as I am concerned. Given the state of the beaten-up state of the discretionary consumer mindset in the half, added to how the A$ has weakened over the past 12 months, the way GP Margins are holding up is impressive.
The other major variance was in the marketing/advertising expense line which, at $12.2m in the half (I was expecting something closer to $10.5m), was up a whopping 19% on pcp's $10.2m figure.
So you could argue that, if they wanted to, they could have reported the result a good $1.0m or so higher, simply by easing back on the marketing spend. But then again, that might have impacted the sales line and the gross profit line, so its hard to be definitive about this in terms of a result quality because it cuts both ways.
As to what this result means for the share price, well, I'm not too sure because it is quite a mixed result (the full-year result might look resilient under the circumstances but to those who focus on the half-yearly numbers, it is a result of two differing halves: the first half was up 6% (I'm talking Pre-Tax here),but the second half result was down 5%, with the commentary accompanying result pointing ongoing negative momentum into the current financial year.
Which means that FY2020's result could be 5% to 10% lower than FY2019.
And I'm not sure the market has that sort of outcome in mind at this stage.
My sense is that brokers are still looking for earnings growth in FY2020, but which is not going to happen, so downgrades are pending.
The cut in the final dividend is unlikely to help sentiment either, because it is likely to be interpreted as management going into defensive mode.
I want to buy NCK, and I suspect I might get chance to do so in coming days.
It's a solid result under the circumstances, but the "circumstances" look set to continue.
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