Corporate Profit Reporting Season (preliminary figures)
Each ‘earnings season’ or ‘profit-reporting season’ CommSec tracks all the earnings results of ASX 200 companies to obtain a comprehensive picture of the aggregate health of Corporate Australia.
There are still around 20 companies to report full-year results. In the ASX200 index group, 139 companies have a June 30 reporting date and 33 companies have a December 31 year-end. So far 119 of the ASX 200 companies have reported full-year earnings.
It has been a good, but not great earnings season. Around 90 per cent of full-year reporting companies have produced a profit – above the 87 per cent long-term average, but down from 94 per cent in the February 2017 reporting season.
Overall, 91 per cent of full-year reporting companies have elected to pay a dividend.
Cash levels are up sharply. For all ASX 200 companies reporting full-year results, cash levels are up 23.5 per cent to almost $108 billion.
The Profit Reporting Season
Every six months CommSec tracks the earnings of Australia’s largest listed companies. Some analysts track whether companies have met broker expectations. That tells you little about the financial performance of companies. And unfortunately only a few brokers are surveyed. Also broker expectations have proved too pessimistic in recent times. Other analysts just track the earnings of those companies they ‘cover’ – the companies they have detailed information on. CommSec includes all ASX 200 companies in its macro (big picture) assessment of the reporting season.
In short, the earnings season has been good, but not great. The February 2017 reporting season was better – very close to a great result. At that time only eight companies from the ASX 200 produced a statutory loss for the six months to December. That is 94 per cent of companies recorded a profit. And excluding BHP, profits were up 36 per cent.
So far in the August 2017 earnings season around 90 per cent of full-year reporting companies have made statutory profits. And ex-BHP earnings have lifted 20 per cent. Although if CBA and Telstra are also excluded, earnings are up by 41 per cent. Statutory earnings by all full-year companies are up 67 per cent on a year ago.
The strongest sector performers have been:
Mining & energy companies (benefited from cost-cutting and favourable commodity prices)
Packaged foods and meats (favourable demand and prices)
Housing market dependent companies (more homes built and bought)
Real Estate Investment Trusts – best performers have been those responsive to changing times
CommSec has analysed all results from ASX 200 companies. Traditionally brokers or analysts focus on smaller subsets of results. And some merely focus on just whether companies have met or fallen short of “market expectations”.
So far 119 of the ASX200 have reported full-year earnings. The earnings season effectively ends on August 31.
Some of the key results:
In aggregate, revenues are up 6.4 per cent on a year ago; expenses are up 1.0 per cent; profits are up 66.7 per cent; dividends are up 10.6 per cent and cash is up 27.4 per cent.
Excluding BHP, CBA and Telstra, profits are up 40.9 per cent on a year ago.
The following points relate to those companies that have reported full-year results (FY reporting companies).
On revenues, 78 per cent reported increases and 22 per cent reported declines.
On expenses, 73 per cent reported increases and 27 per cent reported declines.
On profits, 90 per cent reported a profit.
Of all FY companies, 60 per cent reported a lift in profit and 40 per cent a decline (long-term average 61.4 per cent).
Of those reporting a profit, 65 per cent lifted profits and 35 per cent reported a decline.
Of all FY reporting companies, 91 per cent have issued a dividend and 9 per cent haven’t.
Of those reporting a dividend, 69 per cent lifted the dividend, 16 per cent cut and 15 per cent were unchanged.
Of all companies reporting full-year earnings, 64 per cent lifted cash holdings over the year and 36 per cent cut cash levels.
Cash holdings of both full-year and half-year reporting companies stood at $108 billion at June 30, up 23.5 per cent.
As noted above, the mining and energy sectors have been supported by favourable commodity prices. Resource companies have also been active in trimming costs. For instance the iron ore companies now have cash costs near US$10-20 a tonne (Fortescue US$12.16 in June) whereas the spot iron ore price is near US$75 a tonne.
The Aussie dollar hasn’t done miners any favours though, also impacting other exporters and import-competing companies. On average the Aussie dollar lifted from US72.9 cents in 2015/16 to US75.4 cents in 2016/17. And at June 30 the Aussie was near US77 cents.
Retailers continue to express difficulties in dealing with a number of challenges. Traditional ‘bricks and mortar’ retailers are being forced to adjust. And they also have to prepare for the entry of Amazon into the retail landscape. Even Amcor and Brambles noted challenges and opportunities with the entry of Amazon.
The major retailers like Woolworths and Wesfarmers have to determine where the discount supermarkets sit in this brave new world. And there is also a re-assessment of price-cutting strategies.
Understandably the retailers as well as shopping centre owners are more focussed on customer experiences. Greencross, Woolworths and Scentre Group have all highlighted the importance on getting the customer experience right – it is not just about selling a good or service at the lowest possible price.
Dividends remain in vogue. But as has been apparent for the last few reporting periods, there is a re-assessment by companies about just blindly paying a dividend at all costs. Scentre Group and Westfield are reconfiguring and redeveloping shopping centres to improve consumer experiences and ultimately attract more people to their centres. Telstra also is in the process of adjusting pay-out ratios, ploughing more money back into the company than just issuing dividends.
A raft of companies also announced share buy-backs in order to support share prices and ultimately retain the affections of investors. Amongst those are MYOB, Qantas and McGrath while South32 expanded its buyback.
Many companies took the opportunity to write down assets given solid balance sheets and strong underlying earnings. Spotless, Nine Entertainment, Vocus and Village Roadshow were amongst those with write-downs.
A number of companies highlighted the increase in energy costs, some with justification, and some as an excuse for performance. BlueScope, Newcrest, Evolution Mining and Wesfarmers were some to highlight energy costs.
What are the implications for interest rates and investors?
Corporate Australia remains in strong shape. And that lines up with survey evidence. A significant majority of companies reported a profit for the past year; most lifted profits; most paid a dividend; cash holdings are high and indeed have lifted over the year; and companies have been successful in raising revenues and trimming expenses.
Overall, companies are well placed to deal with the challenges ahead such as disruption, uncertain global politics and low inflation.
Companies have been understandably reluctant to provide much in the way of guidance – and with good reason given the fluky winds of consumer sentiment and significant technological change. The good news is that slightly expensive sharemarket valuations have been validated by good earnings results. The lagged price-earnings ratio stands at 17.08, above the long-term average of 15.
The economy is poised to grow at a faster pace, underpinned by home construction, exports and infrastructure developments. The outlook for global economies is also brighter, especially with improved numbers coming out of Europe and Japan.
CommSec continues to look to the All Ordinaries trading in a 5,900-6,100 point range by the end of calendar 2017 with the ASX200 around 50 points lower than the stated range.
Total returns on shares are currently around 7 per cent higher than a year ago with share prices up just over 3 per cent, the remainder being dividends. Dividends will remain fundamental to sharemarket returns over the coming year, meaning that accumulation indexes (prices plus dividends) should have greater importance in investor thinking. The current dividend yield sits at 4.12 per cent, well above the 1.5 per cent cash rate.
We are currently witnessing one of the most significant demographic transformations in Australia’s history. Over the next decade, an estimated 2.5 million Australians are expected to enter retirement[1]. This article, [...]
Trend following strategies aim to generate returns by capturing sustained price movements across a diverse range of asset classes. Unlike traditional investment approaches that rely on valuation or forecasting, trend [...]
Data from the Australian Institute of Health and Welfare (AIHW) shows that Australia’s population aged 65 and over is projected to reach 22% – or 8.8 million people – by [...]
Regulator scrutiny of AI governance just got serious In years to come, they may well call it the ‘Mythos effect’ – the point in early 2026 where all the concerns [...]
Australia’s great wealth transfer is well underway. An estimated $5.4 trillion is expected to pass from those aged 60 and over to younger generations within the next two decades.[1] In [...]
