Shane Oliver's update on the reporting season
The Australian June half earnings reporting season has kicked off on a relatively ordinary note with so far only 37% of companies exceeding expectations (compared to a norm of 45%).
However, 71% have seen their earnings rise on a year ago, 52% have seen their share price outperform the market the day results were released and 93% have either maintained or increased their dividends. It’s also still early days with less than 20% of results out so far.
What to watch in the coming weeks
The June quarter earnings reporting season will ramp up in Australia as we move into the two busiest weeks for reports with 66 major companies due to report in the week ahead including JB HiFi, BHP, Wesfarmers, CSL, QBE, Origin, AMP, IAG, DUET, Lend Lease and Woodside Petroleum.
After the downgrades since the last reporting season back in February the hurdle to avoid disappointment is now relatively low.
Consensus expectations for 2015-16 earnings are for an 8% decline in profits driven by a 50% fall in resources earnings and a 2% fall in bank profits leaving profits in the rest of the market up just 1%.
The key themes are likely to be:
- Improved conditions for resources companies following a stabilisation in the iron ore and oil price
- Constrained revenue growth for industrials
- Ongoing cost cutting
- Continuing headwinds for the banks
- An ongoing focus on dividends.
Sectors likely to see good profit growth are discretionary retail, industrials, gaming and healthcare. Expect disappointers to be punished severely with sharp share price falls.
About the author
Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.