Monday, February 14, 2011

Freightways Ltd: 2011 Half Year Profit Commentary

The half year profit to December 31 2010 that came out this morning from Freightways Ltd [FRE.NZX] is an indication that life is starting to get better for the company in these tough times and as a bell-weather stock it perhaps is first evidence that the economy as a whole has picked up after all. I am still dubious about that though.

The net profit of is up 9% to $15,796 million on the comparable 2010 half year.

Revenue was also up by 7% to $176,166 on last year, a year in when revenue was down by the same amount so the net profit is a combination of slightly higher revenue and a focus on costs.

A healthy dividend of 7.25 c is to be paid compared with last years half of 7c, so it looks like management are confidant that the rebound has some legs.

Financing costs for a sizable company debt have also increased markedly over the half, by 13%, so that increase in dividend may not be wise after all -better to pay down the debt.

Naturally management are cagey about company prospects for the coming year given economic uncertainty and they see the possibility that their good result is "not sustainable", especially as revenue growth has not been consistent throughout the group's businesses. I would have to say that business operations and therefore revenue will probably come under pressure over the rest of 2011 and into 2012 and once again careful capital management and a focus on business costs will see them through another tough year until the New Zealand economy bounces back and real consistent growth for the company can return.

Overall, the half year 2011 result has been a good indicator of a very tough 2010 and an indicator that there is more patchiness to come for Freightways. The same can also be said about the New Zealand economy as a whole.

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FRE has not traded at time of writing this morning with a big gap between buyers and sellers.
9 out of ten.


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I own FRE shares in the Share Investor Portfolio


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