The June 30 profit reporting season is now over and while weaker quality result appeared in the final week last week (Qantas and Virgin Australia), overall it was solid.
As observed on last year, on some measures, such as exceeding expectations, the reporting season was the best in nine years.
Dividend increases dominated the reporting season, along with the odd buyback – the $1 billion repurchase announcements from Telstra and Wesfarmers stood out.
The growth in aggregate earnings growth in 2013-14 was a bit slower than forecast, thanks to misses by some large cap stocks (notably BHP Billiton). But at around 12% it was still solid with around two thirds of companies seeing gains in profits on a year ago.
The AMP’s chief economist, Dr Shane Oliver says the rising level of dividend payouts (led by the CBA, Rio Tinto, BHP, Wesfarmers, Harvey Norman and more) suggest that the corporate sector is reasonably confident in the outlook.
He said that higher level of future confidence stood out, compared to the nervousness ahead of the results being released.
Overall, he said (see graphs below), 54% of companies exceeded expectations (compared to a norm of 43%), which is the best result in nine years; 68% of companies have seen their profits rise from a year ago (compared to a norm of 66%); 65% of companies have increased their dividends from a year ago (up from around 60% in the last two years).
As well 59% of companies have seen their share price outperform the market on the day they released results, which is the best result in four years.
"Key themes have been strong profit growth for resources (notably Rio, although BHP disappointed, especially without the much forecast buyback), banks doing well (with a good result from CBA) but no better than expected, ongoing cost control making up for still soft revenue growth and strong growth in dividends reflecting investor demand for income and corporate confidence in earnings prospects," Dr Oliver said.
"Resources led with a 27% gain, followed by banks up 9% and the rest of the market up around 5%.
"Consensus expectations for the current financial year remain for 5% earnings growth, but this looks a bit low," Dr Oliver added.
Earnings season better than forecast, even after Qantas, Virgin losses
Source: AMP Capital
The Commonwealth Bank’s CommSec tracked all the earnings results of ASX 200 companies reporting and found a solid performance as well.
"So far 120 companies have reported results for the twelve months to June. And in aggregate, profits are up 40.5 per cent on a year ago — clearly a very strong result. Interestingly, if Telstra, CBA and BHP Billiton are excluded, profits are up an even stronger 77 per cent," Comsec said.
"So the good results aren’t influenced by heavyweight stocks. In fact 67.5 per cent of all companies recorded higher profits over the year while 92 per cent (all but 10 companies) recorded a profit for the past financial year.
"While aggregate revenues only lifted 4 per cent over the year, they still outpaced a small 2 per cent lift in cost of sales or expenses. Clearly efficiency and productivity have been watch words over the past year," Comsec added.
