What the profit reporting season barometer showed

- September 2, 2022 3 MIN READ
Profit reporting season - what do we know?

The manic profit reporting season of our listed sharemarket companies finished this week. Every day we were bombarded with so many results it’s hard to keep track. So now it’s over, what were the big-picture themes?

Investment news site FNArena monitored the proportion of companies that had beaten or missed consensus forecasts with their earnings results. They surveyed 260 stocks and found that 29.6 per cent of companies had reported results that had exceeded (beaten) analyst forecasts. Just over 41 per cent (41.5 per cent) of companies had issued results in line with forecasts and 28.8 per cent of earnings results had fallen short of analyst estimates.

It’s fair to say there were lots of factors affecting results, which impacted various sectors differently. For example, higher commodity prices, labour demand and rising interest rates were positive for some companies, but negative for others.

Revenues out-paced expenses

Overall, revenues out-paced expenses, with many companies opting to pass on higher costs to consumers. And that approach has served to support bottom-line profits.

In an aggregate sense, profits lifted by 56.3 per cent (excluding BHP, up 36.5 per cent). In fact, all but 8 per cent of full-year reporting companies made a statutory profit. And just under 63 per cent of companies lifted profits over the year (long-term average is 60 per cent).

According to CommSec, only 46 per cent of companies recorded higher cash levels than a year earlier as they prepared for the challenges ahead. Some have stocked up on inventories or equipment to protect their businesses from supply-chain difficulties. Some have increased employment and lifted wages. And others are lifting, or choosing to pay, dividends.

Of the full-year reporting companies, 84 per cent issued a dividend, close to the long-term average. But in aggregate (summing the dividends per share) dividends fell by 6 per cent. Only 61 per cent of companies lifted dividends.

But there are some worrying economic signs closer to home

This profit reporting season shows that the Australian economy is at a cross roads, with economic data sending mixed messages. It’s a classic economic cross roads, so don’t be misled.

Strong retail sales, high levels of job vacancies and low unemployment are all good signs. But there is some data indicating a downturn and the heat coming out of the economy.

While retail sales are high with consumers dipping into record savings levels, consumer sentiment (which is a forward expectation of spending) is falling pretty rapidly.

ANZ economists reported that consumer sentiment improved in both Queensland and South Australia last week, but pessimism increased in the big states of NSW, Victoria and Western Australia.

Spending growth is moderating

Then there’s the Commonwealth Bank’s internal credit and debit card spending data to August 26, which showed that spending levels remain high, but spending growth is moderating. In fact, spending on discretionary items, such as eating and drinking out has fallen since the peak in May. And spending growth on clothing and footwear has eased during August after strengthening in June and July.

This profit season reporting showed that another driver of the economy, and of inflation, has been the building industry – but the future looks pretty grim as can be seen by this graph.

Dwelling approvals (council approvals to build new homes) is a leading indicator of construction and it fell further in July – down by a massive 17.2 per cent. While building permits for detached houses held up, apartment approvals collapsed, plunging 43.5 per cent in July to a 10½-year low and the lowest number since January 2012. And just yesterday it was announced that July had the biggest drop in home loans in 26 months.

The fall in apartment approvals was widespread with the biggest falls in Western Australia (-86.5 per cent), Victoria (-48.7 per cent), Queensland (-41.8 per cent) and NSW (-30.0 per cent).

The sharp increase in interest rates has curtailed housing demand with home prices and sales both falling sharply. HomeBuilder stimulus-induced demand for new housing construction has faded. And soaring building costs and labour shortages have weighed on the ability of builders to commit to new projects.

Elevated input costs, supply and labour shortages and rising interest rates point to a continued contraction in residential construction activity.

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