Confusing data from Corparate Australia

The wild swings on the share market have been dominating the headlines, but it’s the patchy reported earnings from Corporate Australia that should have been the centre of investors’ attention.

Many had been hoping that companies would surprise on the upside, but with economic growth forecast to be in the bottom of the 2-3 per cent range, that was never going to happen.

The best guess was that no matter what happened most companies – if possible – would maintain their dividend payments and try and keep shareholders happy in an era of tight comparative yields.

So what did we learn? Well that all depends whether you’re a ‘glass half full’ or a ‘glass half empty’ type of person.

You can see the problem from the data, which has kindly been supplied by the team over at CommSec who have assessed the results of the 143 companies reporting full-year earnings to June 30.

Unfortunately only 117 of 143 companies (81.8 per cent) reported a profit – below the long-term average. But of companies reporting profits this season, 71.7 per cent lifted profits, and just short of 61 per cent of all companies actually improved bottom-line results.

The good news was that 85 per cent of (FY) companies lifted or maintained dividends. Which could be a pointer for the future, or perhaps it indicates that they were too scared of being punished by the market if they trimmed the payout.

Apart from the lift in the variability of bottom-line earnings one interesting trend was the number of companies that chose to take “impairments” to bottom line. This is known as ‘clearing the decks’ or getting all the bad news out of the way all at once, thus giving next year’s results an early ‘leg up’.

CommSec reported that stripping out these ‘outliers’, estimates for underlying aggregate revenues rose by 2.0 per cent, expenses rose by 2.2 per cent and aggregate profits fell by 3.0 per cent.

The really good news was that those companies that reported interim results – for the six months to June 30 – experienced better trading conditions, meaning the second half of those companies reporting FY earnings were showing some improvement.

“Over the past six months, consumer spending has been above average and housing activity has been strong. Also late in that first half of 2015, operating conditions, confidence and spending all improved in the business sector. The Aussie dollar has also come down, improving the outlook for globally-focused companies,” reported CommSec.

As we know resource and energy stocks have been smashed as China’s economy slows down and the oil glut becomes more pronounced. But as CommSec points out, “Consumer-focused companies have had fewer reasons to complain. And companies dependent on home building have done well.”

In fact it was obvious from the individual reports that retail was staging a partial revival based on low interest rates and lower petrol pricing.

Even if some companies were in recovery mode it was good to see sector leaders like Billabong, Coles’ parent Wesfarmers, Flight Centre, Harvey Norman and JB Hi-Fi experiencing more consumer spending. Even the recently delisted David Jones reported a sharp turnaround. And in home building Boral led a bullish sector only to get punished for admitting it would be hard to repeat the effort in 2015-16.

This was another theme from the reporting season – the lack of definitive forecast earnings brought about by ‘challenging’ conditions.

In my view it wasn’t a bad effort by Corporate Australia, not outstanding, but generally OK in a tough earnings environment.

The trick now is to see where growth is going to come from in the future. Most successful Australian companies are still cashed up but worried about committing to growth. They can only keep cutting back on costs for so long before that in itself starts to impact on profits.

Leadership is called for both in the business community and in Canberra but as the recent Reform Summit in Sydney demonstrated everyone is happy ‘to talk the talk’, but no one ‘wants to walk the walk’.

Go Back