Profit season report card

How do you interpret the latest profit reports for our biggest companies? If you were reading all the analysts reports you could be excused for thinking Corporate Australia has underperformed!

Most analysts think growth has only been achieved  by cost cutting and not from higher sales. They are disappointed that many companies have failed to meet analysts’ forecast and forcefully point out they are disappointed that many ASX 200 companies are paying out higher or bonus dividends instead of reinvesting in the business and anchoring in future profit growth.

They are not alone here with the Reserve Bank pushing the line that business needs to invest more to take up the slack left behind by the end of the mining investment boom.

But the numbers need to be canvassed carefully as it seems that Corporate Australia – following years of austerity since the global financial crisis – has the capacity to do both reward shareholders clamoring for better returns, and to also look for growth through further internal innovation or merger and acquisitions opportunities.

According to my friends at online broking arm CommSec, Australian companies  are in good shape. Despite the challenge of the federal election, a ‘tough’ Budget and the slowdown in the mining sector brought about by falling resource prices, “companies have maintained their focus on controlling costs, boosting productivity and working hard to lift revenues. “ reports CommSec.

To prove their point CommSec has assessed the results of the 141 companies that have reported full-year earnings to June 30. Almost 69 per cent of those improved their profit results – the best result since the 2009-10 financial year. And 76 per cent of those companies lifted or maintained dividends. And cash holdings by all ASX 200 companies that reported earnings lifted by 24 per cent over the year to $112.6 billion.

And as for the perception that companies have sharply lifted dividends, CommSec reports that actually more companies have chosen to pay dividends – rather than lift dividends sharply – as companies compete for the affections of investors.

The more pervasive trend is still for companies to hold cash rather than invest or look for M&A opportunities but that could change.

CommSec says the companies in its survey grew grew revenue grew 4.1 per cent to $584.9 billion while expenses rose 3.2 per cent to $477.9 billion, leading to a 31.4 per cent lift in net profit to $51.5 billion. And average earnings per share rose by 11.6 per cent. Cash holdings lifted by 31.1 per cent to $80.2 billion (around 1.6 times current profits) with a number of companies using some of the proceeds to lift dividends. Dividends rose by 11.2 per cent.

CommSec concedes that the numbers are slightly skewed by a few larger companies but the trendline is similar. Behind those dividend numbers a significant number of companies lifted final dividends (83 companies) than those that cut (16 companies). And 25 companies left dividends unchanged while 16 didn’t produce a dividend at all.

All in all a good result for shareholders, but not for analysts who obviously wanted to see a little more effort from Corporate Australia.

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