BHP Turns In Strong Net Profit -- WSJ
February 20 2019 - 3:02AM
Dow Jones News
By Rhiannon Hoyle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 20, 2019).
SYDNEY -- BHP Group Ltd. chalked up an 87% rise in first-half
net profit, but sounded a warning over the U.S.-China trade
conflict.
This should be another solid earnings season for global mining
companies, whose investor returns and stock prices have been helped
by elevated prices for some commodities -- but markets have been
jumpy, largely over concerns about the world's two biggest
economies.
BHP, the world's largest listed miner by market value, posted a
profit of $3.76 billion for the six months through December, its
best first-half number in four years and up sharply from the
year-earlier $2.02 billion. That figure, though, was weighed down
by $2 billion in one-time items, mainly linked to the U.S. tax
overhaul.
Commodity sales have yet to be hit directly by the U.S.-China
trade conflict, said BHP Chief Executive Andrew Mackenzie, although
the company considers a further rise in protectionist policies as a
risk to its 3.25%-3.75% forecast for global growth this year. As
negotiations resume this week, the U.S. is seeking broad economic
changes from Beijing and holding up the threat of higher tariffs. A
deepening dispute would likely depress the global economy and hurt
commodity markets over the longer run, Mr. Mackenzie said on a call
with reporters.
"Free trade does tend to lift all boats," he said.
For the U.S. economy, BHP cited concerns after a strong 2018:
"The expansionary impact of tax cuts will progressively fade and
trade policies remain unpredictable."
BHP forecast China's economic growth to slow modestly in 2019,
with weaker exports partly offset by easier monetary and fiscal
policy.
Hurt by some production disruptions, underlying profit from
continuing operations fell 8% to $4.03 billion -- missing the $4.21
billion median estimate of analysts polled by The Wall Street
Journal. Still, BHP continued to generate solid cash flow from its
mines and oil fields and kept its interim dividend unchanged at 55
cents a share, eclipsing analyst expectations. Late last month it
paid a special dividend of $1.02, funded from the sale of its U.S.
shale operations -- mostly to BP PLC, for more than $10
billion.
Mining companies' improved earnings in recent years have given
them firepower to cut debt, spend on deals and new projects, and
boost dividends. Investors are expecting a continuing cash bonanza
as more reports roll in.
Glencore PLC and Anglo American PLC are due to post 2018
earnings in the coming days, and BHP's Anglo-Australian rival Rio
Tinto PLC next week. Vale SA delayed the release of its earnings
until next month after one of its waste dams burst last month,
killing more than 160 people.
South32 Ltd., the metals- and coal-mining company spun out of
BHP in 2015, last week raised its midyear payout and said it will
hand out another special dividend. Higher commodity prices drove a
17% rise in its first-half profit.
The trend has given mining stocks a lift this year. BHP's stock,
up 8% in 2019, on Tuesday reached its highest price since 2011. The
most recent driver has been a sharp rise in the price of iron ore
-- which accounts for roughly two in every five dollars BHP earns
-- as an output cut by Vale after the dam disaster spurs supply
concerns.
That won't be reflected in BHP's earnings, though, until it
reports full-year numbers in August. Its first-half engine was
stronger petroleum markets. Crude oil rose sharply during 2018 on
concerns of looming shortages, and BHP said its average first-half
oil price was up 29% from a year earlier.
BHP's large oil-and-gas division, which typically accounts for
one-fifth of earnings, sets it apart from its global mining
rivals.
Some operational setbacks in other divisions capped first-half
profits. Disruptions including a train derailment in a remote part
of Australia, an acid-plant outage at the company's Olympic Dam
copper mine in Australia and a plant fire at its Spence mine in
Chile meant a productivity hit totaling $460 million.
With those unplanned outages, BHP said it now expects
productivity to be broadly flat in the current fiscal year -- but
will strive to lift it through technology and automation
improvements, increased equipment utilization and a reduced
reliance on temporary staffers.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
February 20, 2019 02:47 ET (07:47 GMT)
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