Metcash (ASX:MTS) clocks A$761.7m EBITDA as Food carries a Hardware drag

Tools and IHG integration is done, but Victoria and Tasmania trade is the FY27 line item to watch

Metcash (ASX:MTS) has delivered an FY26 result that looks quiet on the headline but tells a more interesting story underneath. Group sales nudged up 0.2% to A$17.35 billion and underlying EBITDA rose 1.9% to A$761.7 million. Strip out one-off strategy and integration costs of A$12.4 million, and EBITDA growth was actually 3.5%.

The Food pillar did the heavy lifting, with EBIT up 5.4% to A$261.8 million and ex-tobacco sales growing 5.4%. That is the number that matters because it tells investors the IGA network is finally clawing back price competitiveness, with the large-store price gap narrowing to 2.1%.

Hardware & Tools was the offset. Revenue grew 4.3% to A$3.7 billion, but EBIT fell to A$177.3 million as trade conditions in Victoria and Tasmania stayed soft. The board declared a fully franked final dividend of 9.5 cents, holding the full-year payout at 18.0 cents and a 73.6% payout ratio of underlying profit. They also suspended the dividend reinvestment plan, which is a small but worth-noting signal about how management is thinking about capital.

Food is doing the work the market was waiting for

The Food pillar is the cleanest part of this result. Ex-tobacco sales growth of 5.4% is meaningful for a wholesaler that has been fighting against the vertically integrated chains for years. Narrowing the large-store IGA price gap to 2.1% is the operational lever that drives that number.

Foodservice & Convenience also kept expanding, with the Superior Foods integration now contributing a full 52 weeks versus 47 in FY25. Management noted the first supermarket acquisitions completed in Q4, signalling a retail ownership strategy that goes beyond pure wholesaling.

The bear read here is that tobacco continues to drag and the conclusion of the 5% accelerated excise removes a strategic buying gains tailwind from FY27. But Food EBIT growth of 7.0% on a normalised basis suggests the underlying business can absorb that.

Hardware is the line item the bears will keep circling

Hardware & Tools EBIT fell to A$177.3 million from A$189.3 million, with the soft trade backdrop in Victoria and Tasmania doing most of the damage. Total Tools still grew earnings 3.7%, which keeps the trade end of the portfolio defensible, but the integration with the Independent Hardware Group is now complete and the scale benefits need to start showing up in the FY27 numbers.

We think the read-through here is more positive than the headline suggests. Management called out high single-digit growth in Total Tools into early FY27, and the merged entity is now targeting a return to mid-cycle margins ahead of the market. That is an ambitious framing.

The skeptical read is that Hardware has missed mid-cycle margins for two years running, and the cycle itself depends on residential housing activity that nobody can confidently forecast.

The Ritchies put option is the contingent liability hiding in plain sight

Net debt of A$616.6 million is up A$39.2 million on FY25, reflecting acquisitions and capital investment. With A$967.3 million in unused debt facilities, balance sheet capacity is not the issue.

What is worth flagging is the Ritchies put option. Metcash estimates the consideration payable to Ritchies shareholders, if exercised against the 2025 financial year, would have been between A$240 million and A$250 million. That is roughly a quarter of available facilities, and the timing is not in Metcash’s hands.

Program Horizon is also still consuming cash, with cumulative costs now at A$286.7 million and completion expected in FY27. The good news is the end is in sight, but the next 12 months still carry execution risk on that program.

The Investors Takeaway for Metcash

Metcash trades on a yield of around 6.4% based on the FY26 dividend and the closing share price of A$2.82, which is the kind of number that screens well for income investors. The question is whether Food can keep delivering 5%+ ex-tobacco sales growth without the strategic buying gains tailwind from tobacco excise.

Our view is that the FY27 setup is more balanced than the headline numbers suggest. Hardware momentum into May and June, Total Tools growth and the Ampol contract cycling in Food & Convenience all give the company multiple shots on goal. The watch items are Ritchies and the Victorian housing cycle.

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