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Earnings Preview: Has BHP peaked its profit?

BHP

Australia’s largest miner, BHP, will report its 2023 fully-year result on 22 August. BHP’s share price fluctuated following the first half-year earnings report as declining profit caused a sharp selloff before a rebound in June, and its year-to-date performance is flat. While China’s faltering economic rebound and tepid commodity prices remain headwinds for Australian miners, whether the BHP can beat the market’s expectations for its profit growth, payout ratio, and export outlooks will be factors that drive its share’s near-term price actions.

2023 first-half review

In the first half of 2023, BHP’s total revenue fell 16% year on year to US$25.71 billion. Its underlying profit declined 32% to US$6.60 billion, with an interim dividend at US$0.9, down 40% from the same period last year. Both the profit and dividend were lower than the consensus data. At the same time, the miner’s net debt increased by 13% to US$6.9 billion from a year ago, sparking concerns about the company’s payout ratio, which was at 69 percent in the first half, lower than 78% in the first half of 2022. In addition, its net operating cash flow also decreased by 41% to US$6.77 billion. BHP mentioned that inflationary pressures would have a lagging impact on cost, and labour shortage also weighed on the business.

The reason that sank BHP’s profit was declining commodity prices, including iron ore, copper, and coking coal, due to the weakened demands of China. The country’s economic recovery was disappointing in the first half, and the Chinese government’s determination to cut steel production and reduce pollution had a major impact on iron ore demands. BHP’s shares slid about 7% following its first-half result in February to just above A$40 at the year-low in June and rebounded roughly 3.7% since then.

Business growing focus

While iron and copper’s production and demand outlooks remained focused on BHP’s growth trajectory, its lucrative dividend is a key measurement in its upcoming earnings report as macro headwinds may start biting into the miner’s profit margin. BHP downgraded its production guidance for the 2024 financial year in July as it sold 71.1 million tonnes of iron ore in the June quarter, less than the forecast of 73 million tonnes. The total sales were 280 million tonnes of Australian iron in full-year 2023, booking a sequential decline. BHP’s guidance for iron ore production is between 282 million and 294 million tonnes for the financial year 2024, which is in the lower range of institutional researchers. But the miner believes it can export 310 million tonnes of iron ore a year and reach 330 million tonnes in the longer term.

2023 full-year forecast by Bloomberg

Earnings per share: US$2.74, -45% annually

Revenue: US$54.644 billion, -19% annually

Operating profit: US$23.37 billion


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