Metcash (ASX:MTS) Guides FY26 NPAT to $268m-$270m as Liquor Margins Recover

A second-half rebound, $25m of FY27 cost savings and disciplined cash management put the income story back on firmer ground.

Metcash (ASX:MTS) has given investors a preview of its FY26 result, guiding to underlying net profit after tax of $268 million to $270 million for the year ended 30 April 2026. Group revenue rose just 0.7%, but strip out the structural decline in tobacco and the underlying growth was a far healthier 3.8%.

The interesting part of this update is the second half. Liquor EBIT margins recovered back to long-term levels after the cost pressures we flagged at the November half, and Hardware & Tools showed improving sales momentum despite a soft trade market. Foodservice & Convenience grew 14% on a reported basis and 7.3% on a like-for-like measure.

Cash performance is the quiet star of this announcement. Cash realisation is set to exceed the company’s three-year 80-90% target, leverage is sitting at the low end of the 1.0-1.75x range, and capex came in around $30 million below guidance at roughly $170 million.

That combination of improving margins, tight capital management and a new $25 million annualised cost program for FY27 reframes the story we wrote about back in November, when the stock fell 9% on flat headline numbers.

Metcash tobacco drag is finally becoming a tailwind for the story

Food sales fell 0.6% on a reported basis but grew 5.4% excluding tobacco, with supermarkets up 2.6% and Foodservice & Convenience up 14%. Tobacco itself collapsed another 29%, but that is now working in Metcash’s favour rather than against it.

Lower tobacco mix is mechanically lifting food margins because tobacco is a high-revenue, low-margin product. Each year of decline shrinks the headline but improves the quality of earnings underneath.

Management also flagged that tobacco trends improved in the second half, helped by increased regulatory enforcement against the illicit market. We think investors who keep focusing on the reported food number are missing the actual operating story.

Liquor margin recovery and Hardware momentum change the FY27 setup

Liquor delivered EBIT of $98-101 million with margins back to long-term levels in the second half. That directly addresses the 4.8% EBITDA decline that worried investors at the interim result, and confirms the one-off cost drag has washed through.

Hardware & Tools is the more interesting watch. EBIT of $175-179 million still carries the weight of a soft trade market, but sales momentum improved in the second half and the bulk of the new $15 million labour cost program is targeted here.

With the residential building cycle widely expected to turn through 2026 and 2027, Metcash is cutting costs into a business that should see cyclical revenue recovery. That is better timing than it sounds.

Cash discipline is doing more work than the headline P&L

Capex of roughly $170 million came in around $30 million below guidance, and the company still found room to build approximately $80 million of precautionary inventory to insulate against Middle East-related supply chain risk. Leverage stayed at the low end of the target range.

Cash realisation above the 80-90% target range matters because it underpins the dividend, which is the entire reason most holders own this stock. A 5% fully franked yield only works if the cash is actually there.

The $25 million of FY27 annualised cost savings, with a payback inside 12 months on the $6 million restructuring spend, gives management a buffer if the trade market recovery slips into late FY27.

The Investors Takeaway for Metcash

When we last covered Metcash in November, the story was a defensive yield play with no obvious growth catalyst. This update modestly tightens that thesis. Margins are recovering in Liquor, costs are coming out in Hardware, and the tobacco drag is moving from headwind to mathematical tailwind on margins.

What we would still want to see at the 22 June full result is the FY27 outlook commentary, particularly on hardware trade conditions and whether management will translate the cash strength into a higher payout ratio or a buyback. The 70% payout target leaves some room. More ASX consumer staples coverage sits at stocksdownunder.

Our view is that this is still an income stock first and a growth story a distant second. But it is a noticeably better-quality income stock today than it looked six months ago.