Metcash delivers solid FY26 result, enters FY27 with growing momentum

Metcash (MTS) delivered a solid, resilient FY26 result in a tough retail environment, with sales and profits holding steady, along with strong cash generation and a healthy balance sheet.

FY26 at a glance

• Sales revenue up 0.2% to $17.3bn vs $17.39bn ests (in-line)

• Underlying EBIT of $503.7m vs guidance of $501-505m and $500.3m ests (1% beat)

• Underlying NPAT down 2.4% to $268.8m vs guidance of $268-270m and $270.3m ests (1% miss)

• Underlying EPS down 2.4% to 24.5c

• Operating cash flow up 3.5% to $558 million and the cash realisation ratio hit ~104% (well above target)

• Leverage sits at 1.0x, the bottom of the target range

• Total dividend of 18 cps vs. Morgan Stanley ests of 16 cps (12.5% beat)

Metcash CEO Doug Jones was buoyant about the results: “Our FY26 performance demonstrates the strength and resilience of the Metcash business model. Despite mixed trading conditions across our markets, we delivered solid earnings, strong cash generation and continued progress on our long-term strategic priorities.”

The stock opened flattish, but down 2.5% ($3.10) heading towards market close.

Divisional breakdown

Metcash is the country's largest supplier to independent supermarkets such as Foodland and IGA. It also operates a number of hardware businesses including Total Tools and Mitre 10.

• Food performed well with EBIT is up 5.4%, ex-tobacco sales up 5.4%, and the IGA network is now more price-competitive than it's been with the price gap to the majors narrowing to 2.1%. 

• Liquor was resilient at the top line, with revenue up 1% and market share lifted to 32.3%, but EBIT slipped 3.8% because the first half was soft. 

• Hardware & Tools was the weak spot, with EBIT down 6.3%, dragged by soft trade demand in Victoria and Tasmania. Second-half momentum improved and Total Tools grew earnings 3.7%, and the Total Tools integration is now complete.

Challenging retail environment

Back in March, Morgan Stanley saw Metcash facing pressure on two fronts. The first was a structural headwind in groceries, where Coles and Woolworths were using their scale to fund a price war and slowly win share off smaller players like Metcash. The second was a cyclical headwind in hardware, where soft commercial construction was set to weigh on earnings, though that was expected to recover in time.

Against that backdrop, the broker kept its equal-weight rating but cut its price target to $3.30 from $3.50. Morgan Stanley lowered its FY26 earnings-per-share forecast by around 2.8%, citing higher group operating costs on top of weaker food and hardware earnings.

The company’s share price has reflected the challenging retail environment with volatile movements since last year's earnings, at one point falling 38% from its September 2025 highs. It has since recovered 20% from those lows in early May.

Looking ahead

The Group has made a steady start to FY27, with a softer May giving way to a clear improvement in June. Food and Liquor had a subdued May as consumer sentiment weakened on geopolitical uncertainty and cost-of-living pressures, but both recovered well through June to trade in line with FY26 growth levels. 

Hardware & Tools has carried its improved second-half momentum into early FY27, led by high single digit growth in Total Tools, though market conditions are expected to stay challenging and retail margins remain under pressure. 

Overall, a fairly admirable FY26 result given the consumer-related headwinds and intense competition across the sector. The stock has de-rated substantially since August 2025, down around 25%, and despite a flattish open now sits 2.5% lower on the day. The market may have already priced in much of the optimism from the May low bounce, leaving an in-line result with little fresh upside to justify a further re-rate. That is particularly true with hardware margins still under pressure and the grocery price war showing no signs of easing.