Metcash Limited (ASX:MTS) is an Australian wholesale distribution and Marketing group supplying independent businesses across food, liquor and hardware markets. Its FY26 result showed contrasting conditions across the portfolio. Food recorded higher earnings, Liquor increased Revenue despite softer first-half trading, while Hardware & Tools continued to face weaker trade Demand in parts of Australia. Group Earnings were broadly stable, cash generation remained substantial and early FY27 trading showed an improvement after a softer start to the new financial year.

FY26 revenue reaches A$19.6 billion

Metcash reported group revenue including charge-through sales of A$19.63 billion for FY26, an increase of 0.7%.

Excluding tobacco, revenue growth was 3.8%, highlighting the continuing effect of lower tobacco volumes on the headline result.

Statutory revenue, which excludes charge-through sales, was A$17.35 billion.

Group EBITDA increased 1.9% to A$761.7 million.

Reported EBIT was A$503.7 million, down 0.8%. However, underlying EBIT excluding A$12.4 million of strategy and integration costs was A$516.1 million, representing growth of 1.6%.

This distinction corrects the original draft, which described A$503.7 million as underlying EBIT.

Underlying net profit after tax was A$268.8 million, while reported net profit after tax reached A$279.1 million.

Underlying Earnings Per Share were 24.5 cents.

Food remains the largest earnings contributor

The Food division delivered EBIT of A$261.8 million, representing growth of 5.4%.

Excluding one-off strategy and integration expenses, Food EBIT increased 7.0%.

Total Food revenue including charge-through sales was approximately A$10.5 billion, while sales excluding tobacco increased 5.4%.

The division includes Metcash's supermarket wholesale operations as well as its Foodservice & Convenience activities.

Independent supermarkets remain central to the business, with Metcash supplying the IGA network and other grocery customers across Australia.

The company reported that the pricing gap between larger IGA stores and major supermarket competitors had narrowed to 2.1%.

That improvement is important because independent supermarkets need to balance local product ranges and convenience with competitive shelf pricing.

Tobacco continues to distort headline Food growth

Tobacco remained a drag on reported Food sales during FY26.

Metcash therefore continues to disclose growth both including and excluding the category to provide a clearer view of activity across the rest of the grocery business.

The company noted some early improvement in tobacco sales during the second half in jurisdictions where enforcement activity increased.

However, tobacco remains a structurally different category from the broader Food operation because sales are affected by regulation, taxation and changing consumer behaviour.

Excluding tobacco, the performance of the Food pillar was materially stronger than the headline group revenue figure suggests.

This makes ex-tobacco sales an important measure when assessing underlying momentum in Metcash's grocery operations.

Foodservice and Convenience broadens the earnings base

Foodservice & Convenience continued expanding during FY26.

The Business includes operations such as Superior Food Services and Campbells & Convenience and provides Metcash with exposure beyond traditional supermarket wholesaling.

The company has been integrating acquired businesses while increasing sales to corporate, foodservice and convenience customers.

Foodservice & Convenience has become a more meaningful contributor to the group as Metcash seeks to diversify earnings across different customer channels.

This Diversification reduces the proportion of earnings coming solely from traditional wholesale activities.

It also introduces different demand drivers, with foodservice activity influenced by hospitality, institutional customers and out-of-home consumption rather than only household grocery spending.

Liquor revenue increases despite softer conditions

Metcash's Liquor division generated revenue of approximately A$5.4 billion in FY26, an increase of 1.0%.

EBIT declined 3.8% to A$100.1 million.

The weaker earnings result reflected softer first-half trading, followed by an improvement during the second half.

Metcash reported that its supplied network's Market Share reached 32.3%.

The division supplies independent retail and on-premise customers, meaning its performance is influenced by both household liquor spending and demand from hospitality businesses.

Revenue growth despite subdued consumer conditions indicated continued activity across the independent network, although the lower EBIT result showed that higher sales did not fully translate into earnings growth.

Hardware & Tools faces softer trade demand

Hardware & Tools recorded revenue of A$3.71 billion, representing growth of 4.3%.

EBIT declined 6.3% to A$177.3 million.

On a normalised basis excluding one-off integration and strategy expenses, EBIT was A$184.2 million.

Metcash said Hardware earnings were affected by softer trade conditions, particularly in Victoria and Tasmania.

This weakness was partly offset by Total Tools, where earnings increased 3.7%.

The division serves independent hardware stores, professional trades and other construction-related customers, making it more exposed to housing, building and renovation cycles than the Food business.

The different economic exposure helps explain why Hardware can weaken even when grocery activity remains comparatively stable.

Total Tools and Hardware integration completed

Metcash completed the integration of Total Tools and the Independent Hardware Group during FY26.

The company said duplicated functions had been removed and initial scale benefits were beginning to emerge.

The combined operation is now focused on improving margins as market conditions develop.

Integration can create efficiencies through shared procurement, logistics, technology and administrative functions.

However, the benefits still depend on underlying customer demand.

A more efficient business structure can reduce costs, but it cannot completely offset prolonged weakness in construction or trade activity.

For FY27, the performance of Total Tools and the wider Hardware network will therefore provide an indication of whether the second-half improvement can continue.

Cash generation remains substantial

Operating cash flow increased 3.5% to A$558 million during FY26.

Metcash's three-year average cash realisation ratio was approximately 104%.

The company reported net Debt of A$617 million and a debt Leverage Ratio of 1.0 times.

That leverage level was at the lower end of Metcash's target range of 1.0 to 1.75 times.

The Balance Sheet therefore retained flexibility for ongoing Investment and potential growth initiatives.

Metcash also moderated Capital Investment after a period that included Acquisition and infrastructure expenditure.

The company expects Capital Expenditure excluding acquisitions to reduce further during FY27 as several major projects move beyond their peak spending periods.

Dividend remains at 18 cents per share

Metcash declared a fully franked final Dividend of 9.5 cents per share.

This brought total FY26 dividends to 18.0 cents per share, unchanged from FY25.

The distribution represented approximately 74% of underlying net profit after tax.

This was moderately above Metcash's target Payout Ratio of approximately 70% of underlying profit.

The company also suspended its Dividend reinvestment plan until further notice.

Future distributions will depend on earnings, cash flow, investment requirements and capital-allocation decisions.

The relatively steady dividend reflects the group's cash generation even though underlying earnings across its operating divisions moved in different directions.

Early FY27 sales show improving momentum

Metcash reported a steady start to FY27 after softer conditions during May and a clearer improvement during June.

For the first seven weeks of FY27, total group sales increased 1.9%.

Excluding tobacco, group sales rose 2.4%.

Food sales increased 0.7% on a reported basis and 1.6% excluding tobacco.

Supermarket sales increased 1.2%, while Foodservice & Convenience sales rose 5.5%.

Liquor sales increased 1.3%.

Hardware & Tools recorded stronger early momentum, with combined Total Tools and Hardware sales increasing 5.8%.

Total Tools sales increased 9.5%, while Hardware sales rose 4.9%.

The update covers only a short period and does not represent full-year earnings guidance.

A$25 million cost program targets FY27 savings

Metcash expects its cost-reduction program to generate approximately A$25 million of annualised savings during FY27.

The initiative is intended to support earnings while some parts of the business continue to operate in challenging market conditions.

Cost management is particularly relevant in Hardware & Tools, where retail margins remain under pressure.

The company is also progressing its technology platform, including the Horizon enterprise-resource-planning program and broader digital capabilities.

These investments are designed to improve areas including inventory management, operational information and supply-chain efficiency.

Savings from internal programs can support margins, although the final group result will still depend heavily on sales volumes and conditions across each operating pillar.

What could shape FY27 performance?

Food remains the largest source of earnings and will depend on continued competitiveness across the independent supermarket network, ex-tobacco sales growth and the expansion of Foodservice & Convenience.

Liquor enters FY27 after a stronger second half, but consumer spending and activity across hospitality venues remain relevant.

Hardware & Tools has begun the year with improved sales momentum, although Metcash expects market conditions to remain challenging.

The A$25 million cost-reduction program provides another lever for earnings, while lower planned capital expenditure should affect cash requirements.

Metcash has not provided a numerical FY27 earnings forecast, meaning the early trading figures should be treated as an operating update rather than a full-year projection.

FY26 ultimately showed the value of having three different operating pillars. Food growth helped offset weaker earnings in Liquor and Hardware & Tools, while cash flow and the balance sheet remained comparatively stable. FY27 will show whether improving momentum outside Food can produce a more balanced earnings contribution across the group.