COMMSEC: If you really want to understand Australia's earnings season you have to ignore BHP

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Reporting season on the Australian Stock Exchange is winding down this week as we come to the end of August.

There are still plenty of companies to report but CommSec has done a preliminary analysis and says the outcome is far better than the average would suggest.

Writing over the weekend, CommSec chief economist Craig James and his colleague, economist Savanth Sebastian, wrote in a note Sunday that, “so far, 128 companies from the S&P/ASX 200 have reported profits for the year to June. Including all companies, profits fell 15.1 per cent over the year to $30.4 billion.”

But that aggregate result has been distorted by BHP Billiton’s results, the pair say. That means the overall impression is misleading.

“The mining heavyweight swung from a profit of US$1,910 million to a loss of US$6,385 million. To include BHP Billiton in the aggregate results would present an incorrect picture of the
earnings season,” the pair said.

Their high-level takeaways for the key results are:

  • Excluding BHP Billiton, aggregate profits rose by 8.5 per cent to $36.8 billion.
  • Average earnings per share rose by 2.2 per cent.
  • Aggregate sales were up by 2.9 per cent over the year; aggregate costs/expenses were up by 2.7 per cent.
  • All but 11 companies recorded a profit for the year to June: 85.9 per cent of companies recorded a profit.
  • 64.8 per cent of companies increased profit over the year; above the long-term average near 60 per cent.
  • Aggregate cash holdings rose by 0.9 per cent to $72.8 billion.
  • Aggregate dividends rose by 7.9 per cent over the year.
  • 92.2 per cent of companies (118 of 129) paid a dividend.
  • Of companies paying a dividend, 67.8 per cent lifted profits; 16.9 per cent maintained dividends; and
  • 15.2 per cent of companies cut dividends.

James and Sebastian say that “investors need to take care to ensure they know the full story” of earnings season, not just the headlines.

They also highlight that there is often a focus on how companies perform compared to “expectations” which might also be problematic for a true picture of how companies are actually performing.

“While it is reported that earnings results have fallen generally fallen short of so-called “market expectations’, that may reflect the quality of expectations as well as the small number of analysts providing forecasts,” they say.

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