Metcash delivered $558 million of operating cash flow and 2.8% ex-tobacco sales growth in the first 18 weeks of FY27, but warned that cost inflation, adverse sales mix and tobacco changes will weigh on first-half earnings. The group also expects to spend a further $18 million to $20 million on its Horizon technology program.
- FY26 revenue rose 0.7% to $19.6 billion
- Underlying profit after tax reached $268.8 million
- FY27 group sales increased 2.8% excluding tobacco in the first 18 weeks
- First-half earnings face pressure from cost inflation and sales mix
- New Zealand wholesale liquor business to be exited in early FY27
FY27 sales growth meets rising earnings pressure
Metcash Limited (ASX:MTS) has started FY27 with sales moving in the right direction, but the company is warning that revenue momentum will not translate neatly into earnings. Group sales rose 2.8% excluding tobacco in the first 18 weeks, while management said first-half profit would be affected by cost inflation, an adverse sales mix and the cessation of an accelerated tobacco excise benefit.
The update came as Metcash reported FY26 revenue of $19.6 billion, up 0.7%, or 3.8% excluding tobacco. Underlying profit after tax was $268.8 million, underlying earnings per share were 24.5 cents and operating cash flow reached $558 million. Leverage stood at 1.0 times, at the low end of the company’s stated 1.0 to 1.75 times target range.
Food and hardware carry the trading update
Food sales excluding tobacco increased 2.6% in the opening 18 weeks, with Foodservice and Convenience up 2.8%. Total tobacco sales rose 11.7%, although the company said the end of the accelerated tobacco excise increase would reduce FY27 earnings by about $10 million, weighted towards the first half.
Hardware and Tools delivered the strongest headline sales growth, up 6.0%, led by a 9.8% increase at Total Tools. Like-for-like network sales were more restrained, rising 3.8% for Total Tools and 5.4% for Hardware. Metcash said the division was continuing work aimed at restoring margins towards mid-cycle levels, while market uncertainty remained a constraint on the sector.
The figures build on the group’s earlier FY26 pattern, in which Food EBIT rose 5.4% to $261.8 million while Hardware and Tools EBIT fell 6.3% to $177.3 million. Liquor sales increased 0.8% in the first 18 weeks of FY27, but wholesale sales to on-premise customers rose 5.1% while Australian wholesale sales to independent and contract retail customers were flat.
Technology investment adds to FY27 cost load
Metcash expects to spend a further $18 million to $20 million in FY27 on project costs for Horizon, its replacement of legacy Food and Liquor enterprise resource planning systems. The company also expects $22 million to $24 million of capital expenditure and a post-tax significant item of $15 million to $17 million, with the second major release now targeted for the first quarter of calendar 2027.
Management said the program had reached user acceptance testing, business readiness and cutover preparation. Horizon is being built around Microsoft and other cloud-based capabilities, with the stated aims of reducing system complexity, improving automation and creating an AI-ready data platform. Those benefits remain dependent on execution as the rollout moves from testing into live operations.
New Zealand wholesale exit narrows liquor footprint
Metcash plans to wind down its New Zealand wholesale liquor business over the coming months and exit fully in early FY27. The company estimates the earnings impact at about $2 million, excluding redundancies, while its New Zealand retail liquor operations through Allied Retail Group will continue.
The decision sits alongside a wider effort to reshape the earnings mix. Retail accounted for 14.1% of earnings in FY26, compared with 9.1% in FY20, while Foodservice and Convenience represented 10.1%, up from 3.2%. Metcash also said its Sorted B2B marketplace had reached $5.9 billion of sales, equivalent to about 30% of group revenue.
Balance sheet supports investment and dividends
The group’s financial position gives it room to fund the technology rollout while maintaining shareholder distributions. Total dividends for FY26 were 18 cents per share, fully franked, and the balance sheet ended the year with leverage of 1.0 times. Cash realisation remained strong, with operating cash flow equivalent to roughly 104% of underlying profit after tax adjusted for depreciation and amortisation.
Metcash also reported that it had sourced 100% renewable electricity for Australian operations from 1 November 2025 and achieved its interim 2030 emissions target ahead of schedule. Those milestones sit alongside the more immediate financial question: whether sales growth can outpace the cost base once tobacco-related benefits fade and mix pressures appear in the first-half result.
Bottom Line?
Metcash enters FY27 with better sales momentum and a low-leverage balance sheet, but the first-half earnings result will test whether growth can overcome cost inflation, tobacco changes and the Horizon rollout bill.
Questions in the middle?
- How much of the first-half cost pressure will flow through to group EBIT?
- Can Hardware and Tools convert stronger sales into a sustained recovery towards mid-cycle margins?
- Will Horizon’s staged rollout remain within its revised cost and timing expectations?