The second last full week of interim profit reports this week and we are going to see a repeat of the two speed (maybe three speed) reporters.
The top speed mob are the miners, so BHP Billiton’s interim will be huge, just as Rio Tinto’s were last week (and Newcrest on Friday).
Besides BHP, about 60 major companies are due to report including AXA, Brambles, BHP Billiton, CSL, Westfield, Qantas and Fortescue Metals, Wesfarmers, Fosters and Leighton. (See the Diary below.)
The AMP’s chief strategist Dr Shane Oliver says the results are likely to continue to reflect the two speed Australian economy with resources and related stocks doing very well on the back of the surge in commodity prices but non-bank industrials are likely to be much more constrained.
A further, lower speed, might be apparent among retailers and perhaps property players where there’s a risk of further earnings downgrades, reflecting the slowing housing and retail sectors and the strong $A.
The impact of the strong dollar is being felt throughout the retailing and consumer discretionary sector, and clipping earnings of the resources stocks.
But such has been the surge in commodity prices (gold, copper, coal, iron ore) that the impact of the higher currency has been overwhelmed by the impact of the higher prices on revenue and earnings growth. Rio Tinto and OZ Minerals were perfect examples last week.
Dr Oliver said that up to last Friday, the December half earnings reporting season has kicked off on a relatively solid note, with good results from companies such as Boral, Commonwealth Bank, Stockland and Rio.
"So far 47% of companies have come in above expectations compared to a norm over the last seven years of 46% and 73% of companies have reported a rise in profits on a year ago.
"However, it’s early days yet with only 35 major companies having reported."
Two themes are readily apparent. First, the outstanding strength of the resources sector compared to non-resources stocks.
Second, several companies announced plans to return capital to shareholders via increased dividends and share buybacks.
Argo. Rio, JB Hi-Fi, Stockland and the CBA are among companies to have lifted rates. OZ Minerals lifted dividend and announced a capital return and buyback and Rio revealed a $US5 billion buyback that disappointed the greedy institutions and analysts.
With corporate cash holdings at record levels and gearing low, there is plenty of scope for further increases in dividends and buybacks going forward.
On Friday Macquarie’s team of analysts cut their estimates of earnings per share growth to 19% from 20.2%.
That of course was boosted by the bonanza being enjoyed by the resources companies.
As Dr Oliver pointed out, Macquarie said industrial companies were the tough area: three months ago Macquarie saw industrials enjoying EPS growth of 12%, now it’s 6.1%.
Revenue growth is down to around 5% from the previous estimate of 8.6%.
