Corporate profit season
- The general sense is that the profit-reporting season has so far proved very mixed. And the numbers back it up. Figures produced from Bloomberg show that there have been 19 positive EPS (earnings per share) surprises from the 61 ASX 200 companies that have reported so far with 25 negative surprises.
- CommSec has assessed the results of the 61 companies from the ASX 200 that have so far reported halfyear (HY) results and 10 companies that reported for the full year (FY) to December.
- Of the companies reporting half-year results, aggregate profits are up 41.4 per cent on a year ago with sales up 13.6 per cent, outpacing a 10.6 per cent lift in expenses. Of the small number of companies
reporting profits for the 12 months to December, earnings are up 86.1 per cent on a year ago.
What do the figures show and what does it all mean?
- So far, the earnings season is almost a carbon copy of the last one. It has left analysts wanting more but the figures still show that Corporate Australia is in great shape.
- Focussing on the companies that have reported earnings for the six months to December, aggregate earnings are up a very healthy 41.4 per cent on a year ago. Sales have lifted almost 14 per cent, outpacing a near 11 per cent increase in cost of sales or expenses. Cash levels are up almost 51 per cent to $50 billion while earnings per share, on average, have risen by 17 per cent. And only 18 per cent of companies have reported lower earnings than a year ago.
- The other encouraging news for investors is that most companies have either increased or maintained dividends with only 16 per cent of companies reducing dividends compared with a year ago.
- So overall, there are good reasons to conclude that Corporate Australia is in solid shape. But figures from Bloomberg indicate that only 31 per cent of the ASX 200 companies that have reported results so far have beaten market expectations on EPS (that is, yielded positive “surprises”) with 41 percent of results under-shooting expectations (negative surprises) and 28 per cent of companies reporting earnings in line with expectations.
- Both basic materials and financials have been evenly divided with positive and negative surprises. Most disappointments have occurred in consumer goods, industrials and telecommunications with most positive surprises in the health care sector.
- The other concern for investors has been the generally cautious or downbeat profit outlook statements from listed companies. Clearly consumer-facing companies have expressed the greatest uncertainty about the next six months but even resources companies are worried about the potential for a hard landing in China as well as the ability to secure labour and resources to maintain production and progress with new projects.
Outlook:
- At the last profit-reporting season in late August 2010, we expressed caution about the year ahead. At that time we felt that the coming year would be more of the same – the economy getting back to “normal” growth with “normal” interest rates and “normal” profit growth. Clearly this is hardly the type of conditions that would prompt investors to take big bets on Australia. In August last year we forecast that the ASX 200/All Ordinaries would reach 5,400 by the end of 2011. We haven’t changed that call. Stocks are by no means cheap with the 16.07 historic price-earnings ratio above the long-term average of 15.5.
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