Incitec Pivot posted first-half FY17 group underlying earnings before interest and tax of $242.8 million, some 4.3% short of Ord Minnett's forecast of $253.6 million, largely stemming from fertiliser earnings as Phosphate Hill sank to a loss in the period.
Despite the miss, the result demonstrated the company’s ability to offset pricing headwinds through continuous improvement under its efficiency program, with Incitec achieving an increase of $64 million in earnings before interest and tax on a year ago due to the program’s initiatives.
The latest savings bring cumulative benefits under the so-called BEx Organisation Focused Improvement Program to $80 million, $16 million having been delivered in FY16.
The results commentary noted that the target for FY17 is more than $100 million, but management guided to a further $64 million in the second-half of FY17, implying overall benefits of $128 million in FY17. This equates to a cumulative uplift in earnings before interest and tax of $144 million over FY16 to FY17.
We have applied only modest changes to our estimates, which average 1.6% at the net profit line over FY17–19. Ord Minnett maintains its Buy recommendation on Incitec and its target price of $4.25.