BHP Reports Mixed Results Amidst Record Production
Overview:
BHP Group (ASX: BHP) published its fiscal year 2025 results, revealing a complex financial landscape. While the company registered record outputs in copper and iron ore, profits suffered significantly due to falling commodity prices.
Key Financial Figures for FY25:
- Revenue: Declined 8% to US$51.3 billion, slightly below the US$51.6 billion estimate (1% miss)
- Underlying EBITDA: Decreased 10% to US$26.0 billion, closely aligning with the expected US$25.9 billion
- Underlying Profit: Fell by 26% to US$10.2 billion, matching forecasts
- Total Dividend: Reduced by 25% to 110 US cents per share, surpassing the 101 cents estimate (9% beat)
- Capital Expenditure: Increased by 6% to US$9.8 billion, significantly lower than the US$13.8 billion target (29% beat)
- Free Cash Flow: Dropped 55% to US$5.3 billion, above the anticipated US$4.2 billion (28% beat)
- Net Debt: Rose by 43% to US$12.9 billion, outperforming expectations of US$14.8 billion (13% beat)
Operational Success despite Financial Pressure:
CEO Mike Henry acknowledged BHP’s operational successes, noting, “FY25 was another strong year for BHP, marked by record production and disciplined capital allocation.” BHP achieved unprecedented copper production exceeding 2 million tonnes for the first time, marking a 28% increase over three years. The company also maintained its status as the lowest-cost major iron ore producer, with a record 290 million tonnes produced from Western Australia.
Economic Outlook:
Henry maintained a cautiously optimistic outlook on global commodity demand. He foresees global economic growth easing to around 3%, although demand from China and India remains robust. “Chinese copper demand surpassed expectations in FY25, while iron ore demand held steady, driven by ongoing infrastructure investments and manufacturing activities in China,” he remarked. BHP anticipates a positive trajectory in potash markets supported by population growth and sustainable agriculture needs.
Analyst Reactions:
Macquarie highlighted the positive aspects of BHP’s performance, particularly the strong dividend exceeding market expectations, driven by enhanced free cash flow and the disposal of non-core assets. They praised the company’s decision to raise its net debt target range, believing it paves the way for future returns. Macquarie increased its target price by 5% to AU$43.00 while keeping a neutral rating on the stock. They also pointed out optimistic cost guidance for FY26 across all key commodities.
However, concerns linger regarding the substantial capital investment in copper and the Jansen potash project. The exposure to these sectors has significantly increased, which may challenge near-term returns.
Capital Allocation Strategy:
BHP faces the ongoing challenge of funding expansion while retaining operational flexibility. Macquarie believes that BHP can manage the anticipated capital expenditure peak through FY29 within its broader debt ranges, even as new supply pressures iron ore prices.
In contrast, Citi adopted a more conservative view, downgrading BHP to Neutral due to apprehensions surrounding the capital intensity associated with growth projects.
Future Expectations:
BHP is undergoing substantial changes, increasing its copper production while scaling down on coal and nickel operations. The transition aims to position BHP as a significant potash producer by FY27-28. This transformation has caused net debt to rise sharply from US$9.9 billion in FY23 to US$12.6 billion in FY25. Despite challenges linked to capital expenditures and commodity prices, BHP continues to deliver commendable operational results.
Macquarie anticipates moderate earnings growth for FY26-27 and expects dividends to stabilise around the low US cent range, yielding approximately 3.8-4.4%.
| Financial Metrics | FY25 | FY26e | FY27e |
|---|---|---|---|
| Revenue (US$m) | 51,262 | 46,497 | 44,249 |
| Attributable Profit (US$m) | 8,963 | 9,093 | 7,924 |
| Net Debt (US$m) | 12,635 | 12,139 | 12,057 |
| DPS (US cents) | 110 | 117 | 101 |
| Dividend Yield (%) | 4.1% | 4.4% | 3.8% |
BHP exceeded market expectations with its FY25 dividend and underscored its commitment to a minimum payout ratio of 50%, deciding to distribute 60% of earnings due to strong operational outcomes.
Conclusion:
In summary, BHP continues to deliver solid operational results and retains its status as a diversified player in the iron ore and copper markets, despite facing economic headwinds and changes in the commodity landscape.
