Australia delivers good company earnings
The eagerly anticipated Australian corporate earnings season for the first half of the 2014-2015 financial year unfolded during February. Coming into the season, market analysts were expecting earnings forecasts for industrial companies to be realised, with declines in resources sector earnings offset by better growth among industrial companies. Overall, more companies have reported earnings growth in line with estimates and a lower proportion have disappointed the market.
55% exceeded earnings expectations (versus a norm of 43%);
66% have seen their profits rise from a year ago (in line with recent trends); and
62% have increased dividends from a year ago (also in line with recent trends).
The better performers during the season were beneficiaries of the continuing low interest rate environment such as banks, property and infrastructure companies, along with companies that generate significant revenues from offshore businesses. Efficiency gains from cost reductions also continued to be a common theme.
A key feature of this results season was significant increases in dividends, with many companies choosing to reward shareholders with additional returns of cash rather than reinvesting in their businesses. While this is good for shareholders, it does raise the question of management confidence in pursuing future growth opportunities.
Looking ahead to the full year results, companies that benefit from a weaker Australian dollar and exposure to strong growth opportunities outside of Australia should continue to do well, as will companies that can continue to deliver sustainable growth in dividends.