With the interim earnings season building to a crescendo, the overall view appears to be one of surprised relief, that it has been much better than feared.
According to Citi, 47% of companies – representing 61% of market capitalisation – have posted results, with 30% beating earnings forecasts, 44% matching forecasts and 26% coming in below expectations.
Shane Oliver at AMP Capital reckons 53% of results have bettered expectations (against a norm of 44%), 69% have increased profits compared to a year ago and 68% have lifted their dividends relative to a year ago (against a norm of 62%). Oliver says the better-than-feared nature of the results to date has been reflected in the fact that 64% of stocks have seen their share price outperform the market on the day their results were released.
There have been some standout performances, led by the likes of Bellamy’s Australia (BAL), The Reject Shop (TRS) (which saw its shares surge by 26%), Pacific Brands (PBG) (the first dividend in two years), Mineral Resources (MIN), Domino’s Pizza (DMP), A2 Milk Company (A2M), Orora (ORA), CSL (CSL), Folkestone Education Trust (FLK), Boral (BLD), Challenger (CGF), Cochlear (COH), JB Hi-Fi (JBH), Newcrest (NCM), Pacific Brands (PBG), Sydney Airport (SYD), Star Entertainment (SGR), Cochlear (COH) Amcor (AMC) and AGL Energy (AGL).
Disappointments include Computershare (CPU), Tabcorp (TAH), Henderson Group (HGG), Aurizon (AZJ) and Ansell (ANN).
Major themes emerging to boost profitability are the lower Australian dollar, growing in-bound tourism, strong consumer spending, a surge in housing construction and a boost to infrastructure commitments.
Chinese consumers are driving the health of an elite group of stocks, including Bellamy’s Australia, A2 Milk Company, Star Entertainment, Sydney Airport and hotel group Mantra. Sydney Airport said its Chinese passenger numbers increased by 18% – the largest market except for Australians: seven mainland Chinese carriers now serve the airport, more than any other long-haul outbound destination in the world. Similarly, Mantra said spending from Chinese visitors rose by 43%, to be the largest inbound market by spending.
This week, attention turns to the results of, BHP Billiton (BHP) (Tuesday), Qantas Airways (QAN) (Tuesday), QBE’s full-year (QBE) (Tuesday). Wesfarmers (WES) (Wednesday), Fortescue Metals (FMG) (Wednesday), Scentre Group (SCG) (Wednesday), Blackmores (BLK) (Thursday) Westfield Corporation (WFD) (Friday) and Woolworths (WOW) (Friday).
BHP Billiton will not impress: the market is conditioned by the dire commodity-price environment to expect net profit to be down at least 80% on last year’s interim profit of almost $US5 billion – with some analysts forecasting an interim loss.
The company is taking a $US7 billion write-down to its US shale assets (about US$4.9 billion after tax) and BHP is also likely to slash its dividend as it moves away from its “progressive” dividend policy. This policy – under which the dividend never falls – has been in place since the BHP-Billiton merger in 2001.
BHP will follow Rio Tinto (RIO), which earlier this month announced that it would scrap its progressive dividend policy next year, after reporting a full-year loss of $US866 million ($A1.2 billion). But analysts believe BHP will end the policy this week, by cutting its interim dividend: UBS, for example, expects BHP to halve its interim dividend, to 31 cents, saving the company $US1.65 billion.
Qantas, however, is expected to produce one of the highlights of the reporting season, with a profit of about $920 million, at the higher end of its guidance range. That would be not far short of the $975 million full-year profit in 2015, underscoring the extent of Qantas’ profit recovery since its record $2.8 billion loss in FY2014. Qantas is also expected to both lift its interim dividend and possibly add a special dividend.
The company’s $2 billion “transformation” program of operational efficiency is delivering handsomely, as are lower fuel prices. Qantas shareholders would also have been pleased to see Sydney Airport’s traffic numbers, which provide a strong pointer to Qantas’ own results.
QBE will deliver one of the season’s full-year reports and on analysts’ consensus the insurance heavyweight is expected to lift 2016 earnings-per-share (EPS) by 12% to 62.5 US cents, and pay 38.2 US cents in total dividend, up 3.2%.
On Wednesday, Wesfarmers is expected to deliver a first-half profit in line with last year’s interim result, which was just under $1.4 billion. The Coles and Bunnings operations will be the main drivers of earnings.
Despite troubled iron ore prices, Citi is forecasting an interim profit for Fortescue Metals (FMG) of about $US235 million, down from $US331 million a year ago.
Rounding out a big week of earnings results will be Westfield Corporation – another beneficiary of the weaker $A, with 86% of its revenue coming from the United States, with the remainder coming from the UK and Europe – and the beleaguered Woolworths.
Woolworths gave first-half profit guidance in its first quarter trading update in October, for an interim profit in the range of $900 million–$1 billion, which would represent a fall of 28 to 35% from the interim a year ago.
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