BHP shares down on FY19 earnings: $3.9 billion dividend declared

BHP’s FY19 results revealed net profits that were 125% higher and a record final dividend of 78 cents. Even so, the mining giant still undershot analyst estimates in a number of key areas.

BHP Billiton Ltd’s underlying profits came in markedly below analyst expectations when it reported its FY19 results today – though the mining and metals giant is set to pay out a record $3.9 billion worth of dividends.

The reaction to these results was mixed, with BHP’s share price falling 0.8% – to A$35.96 per share as of 11:01 AEST.

Here are the most important things we learnt from BHP's 2019 results this morning:

Key financials power forward

Underscoring the strength of BHP Billiton Ltd’s FY19 results, the company’s Chief Executive Officer, Andrew Mackenzie commented that:

‘Our performance over the past five years has delivered an increase in volume of 10 per cent and a reduction in unit costs of more than 20 per cent across out major assets.’

Building on this steady performance, and in terms of overall income for the 2019 fiscal year, the mining giant saw full-year revenue figures come in strong: hitting a massive $44 billion.

Moreover, while production outages and volatile weather conditions did impact BHP’s volume output this year – coming in 2% lower – this was the case for all of Australia’s major mining companies, with Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG) both similarly impacted.

This volatility extended to the company's profitability. Here, the mining giant’s underlying profits came in at $9.12 billion, a sizable miss on the average analyst estimate of $10.02 billion, according to Bloomberg Data.

On the other hand, (NPAT) earnings soared in FY19, rising 124% to $8.3 billion.

Finally, BHP continues to prudentially manage its balance sheet – with the company reducing its net debt from $10.9 billion in June 2018 to 9.2 billion in June 2019.

Again, even though a good outcome on an absolute basis, analysts were expecting a more pounced reduction in the company’s debt during the year.

BHP share price: CEO thoughts

Speaking of these results, BHP Billiton Ltd’s Chief Executive Officer, Andrew Mackenzie further said that record production figures and robust commodity prices has put the company in a strong position to:

'Invest in attractive growth projects, advance our exploration program and increase returns to shareholders.’

BHP currently counts six major projects, across petroleum, copper, iron ore, potash, as major priorities.

Ultimately, with these results, Mr Mackenzie optimistically maintained that:

‘We enter the 2020 financial year with positive momentum and a strong outlook for both volume and cost.’

Shareholders win-win

Though BHP Billiton Ltd undershot analyst estimates in a number of key areas, the company has continued to place a particular focus on growing shareholder wealth.

With their full-year 2019 results, BHP announced a record dividend of 78 cents per share – worth $3.9 billion and up 24% from the year prior.

This will bring BHP's total ordinary dividends to $2.35 per share – or $17.1 billion for FY19.

BHP is set to pay its final dividend on September 25.

2020 outlook in focus

Finally, BHP has today flagged a number of uncertainties that are likely to impact the mining giant moving forward.

For one, steel production, according to BHP, has seen its growth profile become unbalanced in recent times.

Adding to further uncertainties around the iron ore outlook, the company noted that:

'We expect supply conditions will return to a more normal path on a one to three year timeframe, and prices are likely to be volatile as that adjustment takes place.’

Why these comments matter

Such comments are likely to be closely considered by investors given BHP’s reliance on the positive price movements of iron ore.

In the second half of 2019 for example, the company’s iron ore segment accounted for 48% of BHP’s earnings (EBITDA) – up from 41% during the first-half of 2019.

Mind you, even as such uncertainties loom, BHP continues to be an excellently run, highly profitable company, where the creation of shareholder wealth continues to be a key focus.

Though positive attributes, a challenging commodity outlook has indeed contributed to investor skittishness around the stock in recent times; with BHP seeing its share price fall as much as 13% since mid-July.

From this perspective, the minor sell-off, which saw BHP’s share price trade some 0.8% lower this morning, is hardly surprising.

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