Eyes Down For Wm. Morrison Supermarkets plc’s Results

morrisonsShareholders in Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US) haven’t had a great 12 months, seeing their price fall about 10% to today’s 232p levels. But look ahead to the latest forecasts, and it’s perhaps not hard to see why.

After four straight years of solid earnings growth, Morrisons is expected to record a 13% fall in earnings per share (EPS) for the year ended 31 January — and we are expecting to see the results on Thursday, 13 March.

The signs were there

At first-half time back in August, Morrisons had seen turnover of £8.9bn, which was bang in line with the first half of the previous year. But pre-tax profit was down 22% to £344m, although underlying EPS was reported to have fallen only 2% to 12.86p — and the company upped its interim dividend by 10% to 3.84p per share.

Net debt was up, too, by 50% from a year previously to £2,529m, with gearing up from 32% to 48%. was still some months away — although it is there now — and the company was just ramping up its local convenience stores. That’s been a problem for Morrisons for a while now, that it follows where others lead and doesn’t grab the share it could possibly achieve.

Weak Christmas

The Christmas trading period was a little disappointing too, with a 1.9% fall in sales for the six weeks to 5 January, excluding fuel. And worryingly, like-for-like sales fell by 5.6%, making it the weakest festive season out of our three listed supermarkets — in fact, the company’s trading announcement used the word “challenging” twice in the space of just 300 words.

And the board was not too upbeat about next week’s full-year results, saying it “expects that our full year underlying profit performance will be towards the bottom of the range of current market expectations” — with the range covering £783-853m at the time.

Watch those dividends

Analysts are still expecting Morrisons’ dividend to remain strong at a little above a 5% yield, but some will be a little concerned about its level of cover — it should be down around 1.8 times for the year just finished, which seems a little stretching for a company that is investing a lot of cash in its expansion programmes and is seeing debt rising.

There’s a modest 3% recovery in EPS forecast for the year to January 2016, but that’s a bit meaningless at this stage. Any return to growth is going to be dependent on that online offering and the convenience store rollout, so we should be watching out for tidings on those next week — and some early sales indications from would not go amiss.

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> Alan does not own any shares in Wm. Morrison. The Motley Fool has recommended shares in Morrisons.