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BHP Group (BHP) Earnings Dip Y/Y in First Half of Fiscal 2023

BHP Group BHP reported underlying attributable profit from continuing operations of $6.6 billion in the first half of fiscal 2023 (ended Dec 31, 2022). The figure indicated a year-over-year slump of 32% mainly due to lower iron ore and copper prices as well as inflated costs (particularly diesel), somewhat offset by higher nickel and thermal coal prices.

Underlying earnings per share came in at $1.30 compared with $1.92 earned in the prior-year period. Earnings per American Depositary Share (ADS) came in at $2.61 for the first half of fiscal 2023 compared with $3.84 in the first half of the previous fiscal. BHP’s each American Depositary Shares represent two fully-paid ordinary shares.

In the reported period BHP’s attributable profit (for total operations) declined 32% year over year to $6.5 billion. The figure included an exceptional loss of $0.1 billion which is the current half-year impact of the Samarco dam failure. Attributable profit was $9.4 billion in the first half of fiscal 2022 (including an exceptional loss of $1.2 billion).

Revenues for the first half of fiscal 2023 totaled $25.7 billion, down 16% year on year. The Iron ore segment’s revenues were down 25% year over year to $11.8 billion. The Copper segment reported revenues of $7.3 billion, down 14% year over year. Meanwhile, revenues in the Coal segment rose 4% year over year to $5.6 billion.

Profit from operations came in at $10.8 billion in the period under review compared with $14.8 billion in the comparable period in the last fiscal. The downfall was mainly attributed to lower realized prices for iron ore and copper and higher royalties as a result of the increased Queensland Government royalty rates. BHP also continues to bear the brunt of inflationary pressures, particularly for diesel. However, record production at WAIO, higher realized prices for thermal coal and nickel, and favorable exchange rate movements somewhat negated these impacts.

Underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations fell 28% year over year to $13.2 billion. For the Iron ore segment underlying EBITDA plunged 31.5% year on year to $7.6 billion and the Copper segment was down 34% to $2.8 billion. The Coal segment’s underlying EBITDA was $2.6 billion flat year over year.

Financial Position

As of Dec 31, 2022, BHP Group had cash and cash equivalents of $9.6 billion, down from $17.3 billion as of Jun 30, 2021. In the half year ended Dec 31, 2022, the company generated $6.8 billion of net operating cash flow, lower than the $11.5 billion recorded in the prior-year comparable period mainly owing to lower iron ore and copper prices.
    
Net debt was $6.9 billion as of Dec 31, 2022, which remains within BHP’s targeted range of between $5 and $15 billion. BHP’s board has announced  payment of an interim dividend of 90 cents per share or a total of $4.6 billion. This translates to a payout ratio of 69%.

Other Updates

BHP stated that the Jansen Stage 1 project in Canada is on track for its first potash production in late 2026. The company has accelerated Stage 2 studies and a feasibility study is expected to be completed in fiscal 2024.

In December 2022, BHP signed a Scheme Implementation Deed with OZ Minerals Ltd to acquire 100% of the latter through a scheme of arrangement for a cash price of AUD28.25 ($18.67) per OZL share. The implementation of the scheme is subject to the satisfaction of certain conditions including OZL shareholder approval. This takeover would significantly enhance its exposure to future-facing commodities while adding attractive synergies.

Affirms Fiscal 2023 Production & Cost Guidance

BHP’s iron ore production guidance for fiscal 2023 is 249-260 Mt. WAIO's production is expected between 246 Mt and 256 Mt (278 Mt and 290 Mt on a 100% basis), indicating the tie-in of the port debottlenecking project (PDP1) and the continued ramp-up of South Flank.

BHP expects copper production within 1,635-1,825 kt, Production guidance for Metallurgical coal is now expected in the range of 29 Mt to 32 Mt. The production guidance for energy coal remains at 13-15 Mt. Nickel production is expected between 80 kt and 90 kt.

Unit cost guidance for WAIO remains at $18-$19 per ton. Escondida unit cost is estimated at $1.25-$1.45 per pound. BMA unit cost is expected in the range of $100 to $105 per ton. NSWEC unit cost has been maintained at $84-$91 per ton.

Unit cost is expected to be higher in fiscal 2023, indicating inflation trends and higher research costs. These factors will be somewhat negated by lower exchange rates, gains from productivity improvements and cost-reduction initiatives.

Price Performance

BHP Group's shares have fallen 3% over the past year compared with the industry’s 2.4% decline.

Zacks Rank & Stocks to Consider

BHP currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space include CalMaine Foods, Inc. CALM, Reliance Steel & Aluminum Co. RS and Teck Resources Ltd. TECK. CALM and RS currently sport a Zacks Rank #1 (Strong Buy), and TECK carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CalMaine Foods’ fiscal 2023 earnings per share is pegged at $16.75, suggesting 515.8% growth from the year-ago reported figure. Earnings estimates have moved 106.8% north in the past 60 days. CALM has a trailing four-quarter earnings surprise of 15.3%, on average. Its shares have gained 43.6% in the past year.

The Zacks Consensus Estimate for Reliance Steel’s earnings per share is pegged at $18.26 for 2023. Earnings estimates have been revised 7.4% upward in the past 60 days. RS has a trailing four-quarter average surprise of 13.4%, on average. The company has gained 41.7% in a year.

The Zacks Consensus Estimate for Teck Resources’ 2022 earnings per share is pegged at $6.89, suggesting 52.43% growth from the year-ago reported figure. Earnings estimates have moved 0.7% north in the past 60 days. TECK has a trailing four-quarter earnings surprise of 3.7%, on average. Its shares have gained 24.4% in the past year.

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