Earnings season kicks into high gear

A swathe of big corporate names will report their results this week and those which disappoint “will be punished”.

Reporting schedule

Stockbrokers will earn their keep this week as the Australian corporate earnings season advances with 66 major companies due to report.

A swathe of the biggest names in the country, including BHP Billiton, CSL, Wesfarmers, Woodside Petroleum, QBE Insurance, AMP, Origin Energy, Lend Lease, DUET and IAG, will reveal their results for the past six months and hopefully give anxious investors at least a glimpse of the outlook for the year ahead.

Disappointments won’t be tolerated after the recent run-up in the sharemarket, as was evident with the sell-off in Commonwealth Bank, Telstra and AGL Energy.

According to brokerage Citi, some 70 per cent of the 20 biggest reporters so far have met earnings per share expectations.

The one-year forward price-to-earnings ratio on the benchmark S&P/ASX 200 is trading near a decade high, and its prospective dividend yield near the lowest point in six years.

“Expect disappointers to be punished severely,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital.

Still, after the downgrades since the last reporting season back in February, he feels the hurdle to avoid disappointment is now relatively low. “Consensus expectations for 2015-16 earnings are for an 8 per cent decline in profits driven by a 50 per cent fall in resources earnings and a 2 per cent fall in bank profits, leaving profits in the rest of the market up just 1 per cent,” Dr Oliver says.

“Key themes are likely to be: improved conditions for resources companies following a stabilisation in commodity prices; constrained revenue growth for industrials; cost cutting; continuing headwinds for the banks; and an ongoing focus on dividends. Sectors likely to see good profit growth are discretionary retail, industrials, gaming and healthcare.”

After a period of strong gains since February — particularly after the Brexit vote which ramped up expectations of lower-for-longer interest rate policies from central banks — shares are due to take a breather, according to AMP.

Weak seasonal factors for August and September along with risks around Italian banks, the Fed and global growth generally could be the drivers for a pullback, Oliver warns.

“However, after a one-or-two month correction or consolidation, we anticipate shares to trend higher over the next year helped by okay valuations, very easy global monetary conditions and continuing moderate global economic growth.”

June quarter wages data on Wednesday are expected to show wages growth at a new record low of 2 per cent year-on-year, reinforcing the downwards pressure on inflation.

Employment data on Thursday should show the unemployment rate remaining at 5.8 per cent with a 10,000 rise in jobs expected according to Bloomberg.

Minutes from the Reserve Bank’s August meeting are due tomorrow.