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Company show and tell: how they fared

Craig James
2 September 2013

by Craig James

The profit-reporting season is coming to a close with the bulk of the remaining companies to report their earnings results over Thursday and Friday. So how does Corporate Australia shape up? We think the best way to answer that is to add up all the results for companies in the ASX 200 index rather than to take the more subjective route of determining how many companies met, beat or fell short of analyst expectations.

Of the 119 companies that have reported earnings for the full 2012/13 financial year, total revenues have lifted by 3.3 per cent, ahead of the 2.9 per cent lift in expenses. As a result aggregate profits have lifted by 7.3 per cent. In other words, despite all the gnashing of teeth and pessimism of businesses, profits have grown over the past year.

But contrary to some reports, aggregate dividends have been trimmed, not increased – down by 2.2 per cent. Overall 55 companies have lifted dividends and only 28 have cut dividends but the reductions outweigh the increases.

And cash balances have also fallen, down by 1.6 per cent.

Interestingly, the overall results don’t change much if heavyweight stocks – BHP Billiton, Commonwealth Bank or Telstra are excluded. Revenues are up 4.6 per cent with expenses up 3 per cent and profits have lifted 6.1 per cent.

Of the 119 companies, only 17 (14.3 per cent) reported a loss over the past year. That is actually the lowest result (so far) since the 2009/10 year.

The week ahead

A strange quirk of the domestic economic calendar is that every change in season is ushered in with a barrage of fresh economic information. And so we have the “Spring Tsunami” where around a dozen key economic indicators are set for release over the coming week in addition to a meeting of the Reserve Bank Board. And to cap it all off, there is the Federal election next Saturday.

In the US, the ISM manufacturing and services gauges and non-farm payrolls (employment) dominate over the week.

In Australia, the week kicks off on Monday with four key indicators: the Performance of Manufacturing index; business indicators; the inflation gauge from TD Securities and the Melbourne Institute; and building approvals. The manufacturing gauge probably remained weak while the Bureau of Statistics (ABS) business indicators will likely show a modest 2 per cent lift in quarterly profits, underpinned by the financial sector. The inflation gauge will probably show price pressures remained benign in August. Meanwhile new home building approvals probably lifted by 4 per cent in July.

On Tuesday, the Reserve Bank Board meets, but it has already signalled that rates are on hold for now. On the same day retail trade figures are released together with quarterly government finance and balance of payments data. We expect no change in retail trade as cautious consumers hold fire on spending ahead of the election.

On Wednesday, the Australian Bureau of Statistics releases the economic growth figures for the June quarter within the National Accounts publication. While there are numerous pieces of the puzzle to be slotted in over Monday and Tuesday, overall we expect that the economy grew by around 0.5 per cent in the quarter and by 2.4 per cent over the year. Uncertainty about the election result has robbed momentum from the economy, keeping annual economic growth closer to 2.5 per cent, rather than the more “normal” rate of 3.00-3.50 per cent.

Also on Wednesday, data on tourist arrivals is issued with new car sales figures for August and the Performance of Services index. Just like the manufacturing gauge, there aren’t high expectations for an improvement in services sector activity this side of the election.

On Thursday the July trade data is issued. And while a trade deficit of $200 million is likely to have occurred in the month, the result will barely register on the radar screens of financial market participants or investors.

In the US, the week kicks off on Monday with the Labor Day holiday. And on Tuesday the ISM manufacturing survey is issued together with figures on construction spending. In July the ISM gauge spiked higher from 50.9 to 55.4 – the strongest result since June 2011. If the result was somewhat of a statistical fluke and activity eased in August then the Federal Reserve may have second thoughts about winding back monetary stimulus.

On Wednesday, the highlight is the release of the Federal Reserve Beige Book. The report is a qualitative assessment of economic conditions across Federal Reserve districts. And this month’s report takes on added importance as this will be one of the indicators that Fed officials will weigh up before deciding to trim monetary stimulus at the September 17 policymaking meeting.

Also on Wednesday the usual weekly data on mortgage transactions – purchases and refinancing – is issued together with auto sales and the July trade balance.

On Thursday the usual weekly data on claims for unemployment insurance is issued together with the ADP series on private sector employment, the Challenger job layoff series and the ISM services index.

And on Friday the most anticipated economic indicator is released – the August non-farm payrolls or employment report. After a 162,000 lift in jobs in July, employment is tipped to advance another 175,000 in August. The result will be crucial in determining when the Fed will start winding back stimulus.

In China the official purchasing managers’ index is issued on Sunday (September 1) while the HSBC variant is released on Monday.

Sharemarket, interest rates, currencies & commodities

On the Chicago Board Options Exchange there is the Vix – widely regarded as the “investor fear gauge”. The index is constructed from implied volatilities on a range of S&P 500 index options. When the Vix is above 30 then investors are perceived to be fearful or overly cautious. But readings in the 10-20 range tend to suggest that investors are feeling more relaxed.

In Australia there is also a Vix – the S&P/ASX 200 Vix. And it is constructed in a similar way to that of the US variant, defined as: “The mid of real-time bid/ask prices for S&P/ASX 200 (XJO) put and call options are used to derive a weighted average of the implied volatility being incorporated into the options.”

In the US, the Vix recently hit a 5-month low of 11.83 in early August as the sharemarket hit record highs. But worries about “tapering”, and more recently the crisis in Syria, have pushed the Vix to 16.49. While higher, the index is well off crisis type levels of 30-40 points seen in late 2011. In Australia, the Vix stands at 15.35, up from the 4-month low of 12.83 set on August 14 but off recent highs of 21.8 set on June 25.

Upcoming economic and financial market events

Australia

  • September 2 - TD Securities Inflation Gauge (August) - Timely measure of inflationary pressures
  • September 2 - Business indicators (June quarter) - Includes profits, sales, inventories and wages
  • September 2 - Building approvals (July) - “Lumpy” forward indicator of home building
  • September 3 - Reserve Bank Board meeting - No change in rate settings is expected
  • September 3 - Balance of payments (June quarter) - The “external” contribution to economic growth
  • September 3 - Government finance (June quarter) - The public sector contribution to economic growth
  • September 3 - Retail trade (July) - Consumers are still spending, but in different ways
  • September 4 - Economic growth (June quarter) - The economy probably grew 0.5 per cent in the quarter
  • September 5 - International trade (July) - A small $200 million deficit is expected

 
Overseas

  • September 3 - US ISM manufacturing index (August) - Economists tip a fall from 55.4 to 54.5
  • September 4 - US Beige Book - Released ahead of Federal Reserve meeting
  • September 5 - US ISM services index (August) - Expected to ease from 56.0 to 55.2
  • September 5 - US ADP employment index (August) - Analysts expect a 187,000 lift in private jobs
  • September 6 - US Non-farm payrolls (August) - Total employment tipped to rise by 175,000

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