Rio Tinto's half-year underlying earnings jumped 43 percent to $US6.85 billion, marking its best result in four years. This surge in surplus extraction for mining capital comes as analysts warn of a “decisively negative” period for earnings momentum across other sectors, with “cost-of-living pressure” impacting working families.
Hundreds of Australian companies, including Commonwealth Bank, BHP, and CSL, will disclose their annual profits in the coming weeks. Market watchers anticipate significant swings in share prices, with some companies experiencing sharp rises or falls based on investor expectations. Analysts forecast an average 12 percent earnings per share growth for the 2025-26 financial year. Australia’s largest 200 companies have grown earnings by about 12 percent in the past financial year, according to market analysts. UBS equity strategist Richard Schellbach noted this as “the strongest aggregate growth rate in four years,” well above the market's long-run annual average of approximately 4.5 percent. However, when profits from the mining and financial sectors are excluded, this aggregate earnings growth rate plummets to 2.5 percent.
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Schellbach stated that “earnings momentum in Australia has turned decisively negative.” Profit forecasts are being revised lower across all 11 major ASX sectors, including resources, which previously provided much of the market’s positive revision support. This “broadening downgrade cycle raises the hurdle for companies to outperform during August,” he explained. Results will need to meet reported-period expectations and provide “sufficient guidance confidence to arrest further reductions to forward estimates.”
Mining companies are expected to post solid results. Rio Tinto's recent report showed its half-year underlying earnings surged, aided by higher commodity prices and a significant increase in profits from its copper division. Copper demand has soared due to the energy transition and robust demand from US tech giants Amazon, Microsoft, and Google. These corporations are rapidly building massive AI data centers globally, driving up resource prices. Oil companies and refiners like Ampol, Santos, and Woodside Energy are also likely to reveal strong results. Much higher oil prices, exacerbated by the Iran war, are driving their profits.
Ten Cap lead portfolio manager Jun Bei Liu expressed “most excitement” about industrial stocks, data centers, and businesses in the AI supply chain, such as copper miners. NextDC, DigiCo Infrastructure, Goodman Group, Macquarie Technology, and Megaport are among the data center companies listed on the ASX. Schellbach highlighted companies providing “the cabling, the processing equipment from a technology point of view, the cement, the energy and even the financing” to data centers. He said these sectors are “in a sweet spot right now to deliver strong earnings growth.”
The Burden on Workers and Consumers
AMP’s chief investment officer, Anna Shelley, noted that the reporting season serves as “a very good indicator of how the Australian economy is faring.” Most super funds, including AMP, hold about a 25 percent weighting in Australian shares, making corporate performance crucial for superannuation returns. Shelley warned investors to expect “huge swings” in some share prices. 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 percent on the day of their announcements, according to CommSec analysis.
Shelley predicted stronger results from mining companies and “softer results” from banks, where the housing downturn is beginning to take effect. BHP, with a market value of $307 billion, recently surpassed Commonwealth Bank as Australia’s most valuable company. Commonwealth Bank will announce its full-year results later this month, while Westpac, NAB, and ANZ will provide quarterly trading updates. BHP is expected to announce strong results later this month.
Liu is monitoring how business and consumer confidence has been affected by the Albanese government's decision to increase capital gains tax and significantly restrict negative gearing for property investors. She expects “domestic-facing businesses to give a much more conservative outlook” this reporting season. Schellbach observed that “although the consumer is not collapsing, the rate hikes, tax changes and souring sentiment around the housing cycle have really changed the story.” Companies exposed to the housing cycle are likely to report materially softened activity levels.
Retailers such as JB Hi-Fi, Nick Scali, Baby Bunting, Temple & Webster, and Breville are scheduled to report earnings. REA Group, Mirvac, and Lendlease may post strong results for the past year but still warn of weak trading conditions ahead. Healthcare companies are likely to deliver “mixed” results due to “cost-of-living pressure on customers,” Liu explained. This pressure is affecting sales for Cochlear's implants and albumin sales for CSL.
Capital's Outlook
Looking beyond the reporting season, Shelley stated that “the backdrop generally is not as strong as it was.” Concerns persist regarding the elevated oil price and unresolved uncertainty in Iran. Liu believes that while “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 anticipates “a pretty tough slog for markets and the economy over the next six months.”