The Australian June financial year earnings season gets underway this week with 13 major companies reporting.
Consensus expectations are for around 2% earnings growth for 2018-19 but this is mainly due to resources, especially from the likes of Rio Tinto (last week’s major release), BHP and Fortescue Metals.
So excluding resources, there will be a big fall in earnings – watch for a very weak performance from retailing.
Earnings warnings on Friday from GrainCorp (which has a September 30 full-year balance date) and Bega Cheese (June 30) give us a hint of what lies ahead for the reporting season from companies outside resources. Friday’s warnings were the second this year from both companies.
It’s no coincidence that the warnings came from major players in the drought-hit rural sector. More will follow from the small group of listed companies in this sector.
GUD Holdings, the Melbourne based industrial was also an early reporter late last month with a weak result and equally soft outlook for 2019-20.
Also included in the list of reporters are leading financials such as the Commonwealth Bank (Wednesday), AMP, IAG, IOOF, and Suncorp.
The Commonwealth, IOOF, and AMP will all reveal multi-billion-dollar hits to their accounts (through provisions, impairments, and write-offs) flowing from the Bank and Finance Royal Commission.
As well the infrastructure giants Transurban and Downer EDI and utility AGL are down to report (AGL has already warned of at least $100 million in extra costs and revenue losses from a major outage at a generating unit at a big coal-fired power station in Victoria in its 2019-20 performance)
Shopping Centres Australia (SCA) also reports and provide an early sign of the impact of the slowest retail sales growth in 30 years in the June financial year, according to the Australian Bureau of Statistics data released on Friday.
The Murdoch clan’s News Corp releases its 4th quarter and 2018-19 figures early Friday morning, Sydney time.
The continuing East Coast big drought saw Bega Cheese cut its earnings guidance for 2018-19 for a second time this year.
The drought has seen a massive fall in milk production and the increasingly aggressive competitive pressure rival processors, especially for the milk products export market has placed pressure on Bega’s margins and costs.
Bega also warned that the higher costs will continue well into the new 2019-20 financial year as a result.
Bega said it expected normalised earnings before interest, taxes, depreciation, and amortisation for 2018-19 to be in the range of $113 million and $117 million.
The company had previously indicated it saw normalised earnings before interest, taxes, depreciation, and amortisation would be at the lower end of the range between $123 million and $130 million.
“The Bega Cheese strategy is to be well-positioned to ensure the changes in the milk supply landscape are reflected in greater production and logistics efficiency and to retain and grow a loyal supplier base in addition to adding quality earnings from non-dairy streams,” the company said in a release.
The company said the downgrade came as it increased its milk intake by 41% to a record 1.06 billion litres in a market that contracted by 733 million litres amid the unprecedented dry spell. The increase came as Bega consolidates a plant in Western Victoria bought from Saputo
“There has … been greater competitive pressure from processors, and this pressure has never been stronger than in the last quarter of FY2019 and in setting the FY2020 milk price,” Bega Cheese said in Friday’s statement.
Bega shares fell 4.3% on Friday to $4.24 band lost 5.3% last week.
And shares in GrainCorp (GNC) fell on Friday more than 10% at one stage after the company warned that it was likely to post a loss in this year, thanks to the drought.
In a statement to the ASX GNC said underlying earnings before interest, tax, depreciation, and amortisation would come in at $65 million to $85 million for the 2019 financial year which ends in September.
Thanks to impairments and write-offs the net loss after tax of $70 million to $90 million.
That loss will be a significant turnaround from the drought-impacted net profit after tax of $71m recorded in 2017-18.
The shares closed down 5.3% on the day on Friday at $8.13 for a weekly loss of 4.4%.
The company said that it expected disruptions to grain production, due to drought conditions in parts of Australia and international trade tensions, to impact earnings before interest, tax, depreciation, and amortisation by up to $70 million for the full year, up from its last estimate of $40 million issued in April.
“This is an extremely difficult year for GrainCorp due to the significant disruptions we’ve seen in global grain markets, compounded by the drought in eastern Australia,” said Mark Palmquist, GrainCorp CEO in Friday’s statement.
“The extraordinary circumstances in eastern Australia are highlighted by the fact we expect to ship 2.3m tonnes of grain from South and Western Australia to meet east coast domestic demand.”
In May this year, Long Term Asset Partners withdrew a A$2.4bn bid to buy the company. GrainCorp is currently working to restructure its business, which includes spinning off its malts division and combing its grains and oils units.
Its attempts to sell its terminals business has been put on hold while the competition regulator, the ACCC, takes a closer look at the proposed sale.
