Flat corporate earnings fail to inspire

Wesfarmers chief executive Rob Scott. Illustration: Sturt Krygsman

Wesfarmers chief Rob Scott best described the central message from the corporate earnings season, saying “there is no sign yet of a fundamental pick-up in the economy”.

He added: “Cost-of-living and cost-of-doing business pressures are expected to continue, despite the recent easing of interest rates.

“Geopolitical developments will continue to present uncertainties to Australia’s economic outlook and market conditions in the 2025 calendar year.”

If the market was looking for upbeat chief executives to drive the equity rally higher, they didn’t come to the party, and with 70 per cent of companies now having reported, the overall tone was weak.

MST’s Hasan Tevfik said figures show downgrades to earnings at 0.8 per cent compared to the average 0.7 per cent.

The weakness he said was in cost control, with operating costs rising faster than sales and hence hitting margins. Sales improved but the increase was less than cost rises hitting operating margins.

In the 12 months to December earnings fell 3 per cent, which was better than the 9 per cent a year earlier but clearly not a stage for celebration quite yet. The corporate profits were OK, but that’s all.

Dividends have held up and buybacks are back on the agenda, including Telstra and Aristocrat, with Suncorp delivering on the promised return of the proceeds of the ANZ bank purchase totalling some $4.1bn.

AMP’s Shane Oliver said 59 per cent of companies lifted dividends, which was up from a year ago. In all, 39 per cent of results came in ahead of expectations against 32 per cent worse. Some 70 per cent produced better than year ago earnings compared to the norm of 56 per cent.

Heading into this season, the market was expecting earnings to climb 1 per cent for the latest half but 6 per cent for the full year after falling 5 per cent in the 2024 financial year.

All eyes then were on outlook statements, with the numbers not overly bullish but there was caution too.

Given the coming federal election, geopolitical turmoil, Trump chaos in the US and a stockmarket primed for perfection the abundant caution is not a surprise.

Yarra Capital’s Dion Hershan underlined Scott’s prognosis, saying the consumer was still cautious and the earnings reports were mixed along predictable lines, with banks slipping against inflated expectations and resources showing strong cost control but huge swings depending on the commodity, with gold strong and lithium weak.

The market this month is down 2.5 per cent but still up 2.2 per cent for the year, with some stocks such as Telstra having a day out, up more than 5 per cent on Thursday, representing the first one day 6 per cent gain since March 2020.

NAB by contrast slumped 7 per cent on Wednesday on weaker than expected quarterly earnings showing the impact of a higher-than-normal market price to earnings ratio of 20 times.

Priority issues

There is an eerily neat correlation between the cost-of-living election campaign issues and this year’s ACCC enforcement target list headed by a focus on supermarkets.

A cynic would say the competition regulator is playing politics but in her defence ACCC boss Gina Cass-Gottlieb sets the priorities based on market feedback and talks with the key lobby groups.

It is not surprising then that this year’s top five priorities are supermarkets No.1 and 2, essential service charges, aviation and greenwashing.

To show the changing priorities, last year’s top five were in order, greenwashing, scams, digital economy, unfair contracts and gas prices, and the 2023 year priorities were greenwashing, digital, Covid, essential services and car finance. The digital economy has slipped from a top-two priority to No.6 in the latest ranking.

The ACCC report on supermarkets will be handed to Treasurer Jim Chalmers next week and then the ACCC must release it publicly by March 28 unless directed otherwise by the government.

The report is destined to be election fodder for the government and used to kick the supermarket can further down the road.

Cass-Gottlieb played down concerns expressed in this column last week with ACCC figures showing a demonstrable slowdown in enforcement activities.

She said there was a full in-tray and the flow of actual public activity varied according in part to the complexity of the issues under consideration.

ACCC figures show the past three years under Cass-Gottlieb had a reduction in enforcement action, both in terms of actual cases and other enforcement measures including undertakings, compared with the average over the past decade.

In the 2024 financial year there were no competition court cases.

While talking up future action no mention was made about the long promised competition case against Google, also due to start this quarter.

Cass-Gotlieb used Thursday’s CEDA address to promise “to remain clear-eyed in our purpose to enhance competition across our economy, to promote the welfare of consumers and small businesses and to make markets work for all Australians”.

She added the ACCC would “exercise its enforcement powers independently, in the public interest, and with integrity and professionalism”.

There is no government timetable on when an exposure draft on the proposed new ex ante rules for digital platforms will be released, and given this will require legislation in an election year it would surprise if anything happened on this front any time soon.

The ACCC, Cass-Gottlieb said, was attracting good-quality staff including from the UK to handle the expected flood of merger clearance applications under the new mandatory notification rules, with an additional 81 people to bring merger department numbers to 146.

The government is yet to release details of the new clearance thresholds ahead of the voluntary start date for the new merger system on July 1.

Treasury has promised to release draft thresholds by the end of this quarter.

The ACCC this quarter will also release guidelines for the new merger system including transitional arrangements, new process guidelines and importantly new analytical merger guidelines.

The latter will lay down the factors the ACCC will consider on deciding whether to clear a merger.

The guidelines are expected to make it clear to all users just when and how the ACCC will consider a deal.

Cass-Gottlieb is well known as one of Australia’s best antitrust lawyers but less commented on is her role on the Payments System board on which she has served for 12 years or three terms.

Along with RBA boss Michele Bullock, who used to run the RBA payments division, this makes her something of a payments zealot.

No surprise then that proper disclosure of surcharges is high on the list of ACCC priorities lest retailers be hit with misleading advertising actions.

The RBA is investigating credit card and other surcharges and some, like McLean Roche’s Grant Halverson, want them abolished.

Next month the Federal Court will hear the ACCC’s allegations that MasterCard did deals with retailers to direct debit card transactions to it in exchange for deals on credit card surcharges.

Port in a storm

The NSW government’s botched Port of Newcastle sale netted taxpayers $1.8bn in 2014 but has resulted in a string of court complaints ever since, from what former ACCC boss Rod Sims singled out as one of the worst privatisations on record.

Disputes have gone to the High Court twice and on Friday Glencore was before the NSW Supreme Court fighting charges the port levies coal producers when they load coal on the facilities the coal companies own. The case will be heard on March 7.

The port charges the miners when the boats come into the port and then another levy when the coal is being loaded.

The latter charges is the one long-time litigant Glencore is fighting.