Analysts have delivered their half-time verdicts on the current profit season performance, saying Australian companies have beaten expectations despite immense pressures but asking if investors have been rewarded accordingly.
CommSec chief economist Craig James issued his scorecard on Monday before a blizzard of companies reported their latest results, saying that of the 78 ASX 200 firms that had already done so, more than 70 per cent had increased profits, while cash holdings had jumped 87 per cent to $178bn.
Nearly 92 per cent of companies had issued a dividend, but aggregate dividends were up just a measly 0.7 per cent.
More than 56 per cent of companies raised their dividends, 24 per cent cut them and 11 per cent left them stable.
Mr James said investors had braced themselves for soft earnings results given fears of widespread costs increases caused by supply chain disruptions, but the stronger-than-expected outcomes had been met with relief.
That was evident with the share prices of 55 per cent of companies climbing higher on the day their results were issued.
“When you consider the challenges over the past fortnight – rate fears in the US and geopolitics – it is an encouraging result,” Mr James said.
“While costs or expenses have risen over the past six months, as yet the pressures haven’t dramatically weighed on profitability.
“Profits remain healthy and Aussie companies remain cashed up, but more companies have chosen to cut dividends or to leave them unchanged compared with a year ago.”
Companies were being cautious, Mr James said, due to those supply chain-related cost pressures, central banks preparing to lift interest rates and geopolitical tensions.
Retailers were buffeted by lockdown-forced closures but helped by higher online sales, with the clever ones those that stocked up to get around supply chain woes – although Kogan was a key example of a company that went too far, incurring high storage expenses and demurrage fees.
“Over the last week we have seen Ansell, Breville, Carsales, Nearmap, Orora, Tassal and Treasury Wine Estates all cite ‘supply chain issues’ as negatively impacting on their operations and outlook,” UBS strategist Richard Schellbach and associate analyst Akash Biradar observed.
“To counter this, companies have been keen to highlight how their strategic inventory build will allow them to get ahead of any future shortages.
“Interestingly, UBS’s global economics team says there are reasons to believe that inflation bottlenecks are now starting to ease.”
But just as the outlook seemingly starts to improve for product flow, there are several reasons why consumers may put the brakes on spending, denting prospects for retailers and building-related companies, Mr James warns.
“More people will choose to fly overseas for holidays in preference to spending more on their homes or on themselves,” he predicted.
“Higher prices may also stifle the enthusiasm to engage in retail therapy.
“Once the backlog of home building is worked through, the risk is that there will be a hole on the other side of the wall. This poses a risk for builders, building material firms and homeware retailers.
“The federal election could also lead to a period of softer spending and investment until the uncertainty is removed.”
Mr Schellbach and Mr Biradar also said the reports so far had largely beaten expectations, outnumbering misses by a ratio of 4:3 as companies showed “impressive resilience”.
“This is an impressive showing given the Omicron hit the economy has taken over recent months,” they said.
“That said, this coming week could see a less rosy picture emerge as more domestic and consumer-exposed stocks release results.”
Among the results reported on Monday were Woolworths booze spin-off Endeavour Group, which reported its hotel business had been hit particularly hard by lockdowns, and homewares chain Adairs, which booked lower gross margins due to supply chain cost increases and higher delivery expenses to online shoppers.
But both enjoyed a spike in online sales, while Shaver Shop reported a whopping 177.4 per cent surge in web-based sales.
