Profit warnings scarce at Macquarie conference

Blue chip companies look to be delivering mostly positive updates at the annual Macquarie Australia Conference.

Qantas CEO Vanessa Hudson speaking at the Macquarie Australia conference. Picture: Supplied

There has been the odd shocker, but the main takeaway from the 26th annual Macquarie Australia Conference is that blue chip companies look to be delivering positive updates.

This is significant because May tends to mark the start of a two-month “confession season” for corporate Australia ahead of the June half-year reporting season in August.

Macquarie’s long-running conference is typically an important catalyst for corporate updates.

This year, there are 113 of Australia’s biggest ASX-listed companies presenting at the conference this week.

But two thirds of the day through the guidance has been overwhelmingly positive.

There have been many more positive updates from a range of companies including AGL Energy, ARB, AUB Group, Goodman Group, Medibank Private, Polynovo and Qantas. But Sims warned that its underlying earnings for the second half of fiscal 2024 would be marginally lower than its first half earnings of $13.4m, which was a major disappointment for investors.

Equity strategists were understandably cautious going into the Macquarie conference this week.

Apart from the half-yearly reporting months of February and August, May usually sees the most profit downgrades of any month as companies update their full year guidance after their fiscal third quarter trading. About 20 per cent of stocks typically endure a cut of more than 3 per cent in their consensus earnings per share estimate in the month, according to Goldman Sachs.

About 40 ASX-listed companies gave trading updates between the end of March and the first week of May. Their share prices lagged the market by an average of 3.7 per cent on the day. Only Challenger, Bank of Queensland, Amcor and ResMed surprise meaningfully on the upside.

Thus, it was tempting to conclude that market expectations for full-year earnings were too high.

However, this trend hasn’t been borne out at Macquarie’s conference this week.

But a positive picture was flagged by Macquarie’s Australian equity strategist, Matthew Brooks.

Since last October, when the rate of decline in the consensus estimate for corporate earnings bottomed out, there were net upgrades during the AGM season in November.

“The trend continued in February reporting season, where there was also a rare net beat,” said Macquarie’s Brooks. “The improving trend has continued.”

Since February, there was a modest 1.5 per cent fall in the consensus estimate for aggregate earnings, due to downgrades for large companies in the mining sector in particular.

However, there was a 5 per cent net upgrade of earnings per share forecasts in terms of the number of companies in the index in March and a net upgrade of 8 per cent in April.

Mr Brooks said the positive EPS revisions in March and April were strong relative to the average for this time of year when there were usually net downgrades.

“The unseasonably strong earnings revisions are another positive sign for the near term earnings outlook,” he said. “Given the positive revisions trend, plus the cost cuts initiated by many companies, we see potential for further net guidance upgrades before full year results in August.”

“While often seen as a downgrade Conference, this year we expect to see a net positive surprise at the 2024 Macquarie Conference.”

It comes after a strong US quarterly reporting season where a net 42 per cent of S&P 500 companies beat estimates for earnings per share, up from 32 per cent at the same point in the previous quarter.

But exactly how this improving translates to the share market outlook is unclear.

While an improving trend in earnings per share estimates should tend to support the share market, the S&P/ASX 200 index is already trading on a relatively “full” price-to-earnings multiple of about 16.6 times, which is about 10 per cent above its long-term average.

The S&P/ASX 200 closed flat 7,804.5 points on Wednesday, after hitting a four-week high of 7814.9 earlier in the trading session. The market has risen 3 per cent in the past four-days amid cooling fears of another interest rate hike in the US and Australia.