Mainfreight boosts profit by a fifth to $426.5m

A strong first six months was enough to steer Mainfreight to a 20 per cent improvement in net profit after tax (Npat) to $426.5m for the year to March, despite weaker trading conditions in its
US and Asian markets.

That was largely in line with market expectations and reduced global freight volumes which year-on-year are down 8 per cent across air-freight kilograms, 7 per cent on sea-freight container volumes and 3% on custom clearances.

The multinational transport and logistics operator, one of the NZ stock exchange’s biggest counters with a market capitalisation of $7.08 billion, posted revenue of $5.68b for the year, up 8.8 per cent on the prior year.

Adjusted for foreign exchange impacts, revenue rose 4.2 per cent with Npat up 14.9 per cent. The group will pay a final dividend of 87c a share, payable on July 21 to shareholders registered on July 13 and bringing the year’s total dividend to 172c, up a fifth on the prior year.

However, it has reduced its discretionary profit bonus to staff to $79.9m, down on the $94.2m for the prior year, reflecting the “declining rates of improvement” across some branch networks during the second half.

New branches

Managing director Don Braid said the first half had been characterised by “extraordinary levels” of freight volumes, reflecting a difficult and overheated logistics market.

“We have taken the opportunities that were presented and have grown a bigger and better business, including the continued expansion of our network and infrastructure investment into better and larger facilities.”

The company spread its branch network properties from 305 to 331 during the year, and it has plans to lease another 36 properties across warehousing and domestic freight.

The group’s NZ operations, while impacted by supply chain and weather event issues, were the biggest contributor to profit before tax for the year at $169.4m.

Braid said the European business, which had posted a 48 per cent improvement in pre-tax profit to €46.9m (NZ$82.5m) from €630.7m in revenue, had experienced its strongest financial performance to date.

US rejig

During the year, the group opened new transport branches in the Netherlands, Poland and France, with plans to open a new air and ocean branch in Munich, Germany.

The Australian business, which kicked in A$136.8m (NZ$146.5m) to pre-tax profits, expanded its capacity during the year with three new sites, at Adelaide, South Melbourne and Gold Coast, while new transport facilities were also opened in Mackay, Orange and Dubbo, increasing network distribution to 88% of the country.

Braid said the US performance had been disappointing due to a “lack of customer depth and slowing economic conditions”. After an 11.5 per cent decline to US$89.25m (NZ$146.1m) in pre-tax profits, the group has re-organised its senior leadership team and centralised its American office to Chicago.

The Asian business had also been weak, he said, given the company’s reliance on trans-Pacific freight volume from China to the US – and which had been impacted by slowing freight demand. Pre-tax profits came in at US$29.1m in that market, from revenue of US$152.8m, down a third on last year.

Re-pricing to increase market share

Group capital expenditure during the year was $313.9m, of which $293.7m went into land and building improvements, warehousing and fit-outs and $20.2m into IT upgrades.

It has $676m in capex committed through to the end of 2025, which includes $556m in property, racking and fit-out costs.

Braid said while he expects reduced freight volumes across its logistics products, with inflation as a feature affecting “cost to serve”, the company was re-pricing freight rates and sales teams are actively increasing market share.

While trading post-result had continued to show weakness in both volumes and activity, Braid said Mainfreight’s customer verticals across food, beverage, DIY, pharma, perishables and retail would reduce its exposure to the downturn.

Nevertheless, he said, “it is expected to be a challenging first six months of trading”.

Jarden analysts say Mainfreight’s “mixed result” showed it was in the midst of a “clear slowdown”, falling short of their expectations.

A softer result in its Australia and United States divisions, was offset by a better than expected result from its New Zealand and Asia divisions, analysts Grant Lowe and James Stanners said in a note to clients following the result.

They remained overweight the stock despite the next six to 12 months appearing to be “incrementally more challenging” for the business, with macroeconomic conditions a key downside risk.