Hundreds of Australian companies, including Commonwealth Bank, BHP and CSL, are about to hand over their profit numbers to the market over the next several weeks, and analysts say the reporting season is entering a "decisively negative" stretch for earnings momentum. The people at the bottom — workers, customers, super fund holders, and anyone tied to the market’s mood swings — will wear the fallout while the bosses and investors wait to see who beats expectations and who gets punished.
Who Has the Power
UBS equity strategist Richard Schellbach said earnings momentum in Australia has turned "decisively negative." That’s the language of the market apparatus when profit forecasts start slipping across the board. He said profit forecasts are being revised lower across all 11 major ASX sectors, including resources, which had previously provided much of the market’s positive revision support. "This broadening downgrade cycle raises the hurdle for companies to outperform during August," he said. "Results will need not only to meet reported-period expectations, but also to provide sufficient guidance confidence to arrest further reductions to forward estimates."
Analysts are forecasting 12 per cent earnings per share growth in the 2025-26 financial year on average, and market analysts say Australia’s largest 200 companies will have grown earnings by about 12 per cent in the past financial year. Schellbach said that would be "the strongest aggregate growth rate in four years, and sit comfortably above the market's long-run annual average of approximately 4.5 per cent." But strip out mining and financials, and that growth rate falls to 2.5 per cent. The headline numbers look shiny. The rest of the economy gets the crumbs.
Anna Shelley, AMP’s chief investment officer, said the reporting season is "a very good indicator of how the Australian economy is faring." She said most super funds, including AMP, have about a 25 per cent weighting to Australian shares, making company performance important for superannuation returns. That means the retirement savings of ordinary people are tied to the same profit machine that keeps demanding more.
Who Gets Crushed
Shelley said investors should expect "huge swings" in some share prices, and noted that one-fifth of companies that reported profits during the last reporting season in February saw their share price surge or plunge by more than 10 per cent on the day of their announcements, according to CommSec analysis. That’s not stability. That’s a casino with a corporate logo.
She said, "Most people are expecting to see stronger results out of mining companies, and perhaps some softer results out of companies like banks, where the housing downturn is starting to take effect there." She said BHP, with a market value of $307 billion, has recently overtaken Commonwealth Bank to become Australia’s most valuable company. Commonwealth Bank will announce its full-year results on August 12, while Westpac, NAB and ANZ will provide quarterly trading updates. BHP is expected to announce strong results on August 18.
The article said miners are expected to post solid results, with Rio Tinto having reported last week that its half-year underlying earnings jumped 43 per cent to $US6.85 billion, its best result in four years, helped by higher commodity prices and a surge in profits from its copper division. It said copper demand has soared in recent years because of the energy transition and strong demand from US tech giants Amazon, Microsoft and Google, which are racing to build massive AI data centres around the world.
What They Call Growth
The oil companies and refiners Ampol, Santos and Woodside Energy are also likely to reveal strong results and trading updates over the next few weeks because of much higher oil prices. Jun Bei Liu, Ten Cap lead portfolio manager, said this will be the first reporting season to show the flow-on impact from higher interest rates. She said companies will also reveal the extent to which the Iran war and higher oil prices have driven up their costs of doing business.
Liu said she is watching for signs of how much confidence has been affected for businesses and consumers after the Albanese government's decision to increase capital gains tax and significantly restrict negative gearing for property investors. She said, "This reporting season, we expect domestic-facing businesses to give a much more conservative outlook." Schellbach said, "Although the consumer is not collapsing, the rate hikes, tax changes and souring sentiment around the housing cycle have really changed the story." He said companies exposed to the housing cycle are likely to report that activity levels have softened materially.
Retailers JB Hi-Fi, Nick Scali, Baby Bunting, Temple & Webster and Breville are among those due to report earnings in the coming weeks. REA Group, Mirvac and Lendlease may post strong results for the past year but still warn of weak trading conditions ahead. Liu said healthcare companies are likely to deliver "mixed" results because of cost-of-living pressure on customers. "Cost of living is hitting the likes of Cochlear's implants as well as quite a lot of pressure in terms of albumin sales for CSL," she said.
Liu said she is "most excited" about industrial stocks, data centres and businesses in the AI supply chain such as copper miners. NextDC, DigiCo Infrastructure, Goodman Group, Macquarie Technology and Megaport are among the data centre companies listed on the ASX. Schellbach said, "We're probably more focused on a lot of the companies that provide the cabling, the processing equipment from a technology point of view, the cement, the energy and even the financing [to data centres]." He said, "So there's many different channels that feed into the data centre investment cycle in Australia, and they really are in a sweet spot right now to deliver strong earnings growth."
Looking beyond reporting season, Shelley said, "the backdrop generally is not as strong as it was." She said there are concerns about the continued elevation of the oil price and that uncertainty in Iran has yet to be resolved. Liu said, "some sectors might be going through a bit of issues such as the likes of our banks, but the rest of the market absolutely is going to outperform." Schellbach said, "From here on forward, we see a pretty tough slog for markets and the economy over the next six months."