Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Signals point to a lacklustre earnings season

Signals point to a lacklustre earnings season for listed companies

By Jenny Ruth

Aug. 5 (BusinessDesk) - The upcoming earnings season is likely to be a more lacklustre period than recent previous seasons and the global backdrop will probably be more volatile.

“I would expect this reporting season will be a bit more mediocre than we've seen recently,” says Mark Lister, head of wealth research at Craigs Investment Partners.

New Zealand shares some of the same dynamics at work in the United States' earnings season which is starting to wind down now.

Despite the earnings outlook, share markets have been soaring as central banks cut interest rates and because “there's nowhere else to go in terms of investment options,” Lister says.

“Some of our more domestically focused companies will be feeling the pressure,” he says, pointing to the universally bad ANZ business confidence survey and then its consumer confidence survey, both showing downward trends.

“Things have slowed quite substantially in recent months. Some of those domestic exposures will tell us quite a bit about where the economy is.”

Certainly, the news from Australia, where building products company Adelaide Brighton slashed its earnings guidance 30 percent and cancelled its dividend, doesn't bode well for New Zealand-based companies with struggling Australian operations such as Fletcher Building and Metro Performance Glass.

Given how high share prices are, the bar has been set particularly high. “That's a global theme. Markets have been very expensive for some time but they just keep getting more expensive,” Lister says.

But developments on the trade front look like they will get worse before they get better.

Last week, US President Donald Trump surprised markets, just as talks with China over the two nations' trade disputes had resumed, by threatening further 10 percent tariffs on another US$300 billion of imports from China from Sept. 1.

The US has already imposed 25 percent tariffs on about US$200 billion of Chinese imports and the new tariffs could also be ramped up to 25 percent if Trump is dissatisfied with how China responds.

China has already said it is considering “necessary counter-measures.”

“Our reporting season could potentially happen in the midst of increasing volatility offshore – any negative result could face even more of a negative reaction because of that,” Lister says.

“I wouldn't be surprised if we're going into quite a messy period for global financial markets.”

Much of the Northern Hemisphere is heading into their summer holidays period now, which is also likely to be conducive to thin trading volumes and therefore higher volatility.

The US reporting season isn't necessarily much of a guide to how New Zealand's reporting season will play out, but with 77 percent of the S&P 500 Index companies having reported so far, 76 percent of them have beaten analysts' earnings estimates and 59 percent have exceeded sales forecasts.

Nevertheless, earnings on average fell 1 percent, the second quarter of negative growth, and that hasn't happened since 2016.

That's better than the 2.7 percent earnings decline the market was expecting at the end of June.

The outlook isn't great – analysts are expecting another negative quarter with earnings on average falling 2.2 percent before resuming growth in the fourth quarter.

“Earnings growth going backwards isn't a good thing but last year there were quite strong results so it was a tough act to follow,” Lister says.

Companies were riding high on the corporate tax cuts passed in late 2017 and the US dollar in the June quarter of last year was about 5 percent lower than it was in the June quarter this year.

“That has quite a big impact on some sectors – about 40 percent of S&P earnings come from outside the US,” particularly technology stocks which derive about 60 percent of revenues from outside the US.

(BusinessDesk)

ends

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

New Reports: Flood Risk From Rain And Sea Under Climate Change

One report looks at what would happen when rivers are flooded by heavy rain and storms, while the other examines flooding exposure in coastal and harbour areas and how that might change with sea-level rise. More>>

ALSO:

Super Fund/Canada Bid v NZTA: Tow Preferred Bidders For Auckland Light Rail

The two preferred delivery partners for Auckland light rail have been chosen and a final decision on who will build this transformational infrastructure will be made early next year, Minister of Transport Phil Twyford announced. More>>

ALSO:

9.3 Percent: Gender Pay Gap Unchanged Since 2017

“While it has remained flat since 2017, the gender pay gap has been trending down since the series began in 1998, when it was 16.2 percent,” labour market statistics manager Scott Ussher said. More>>

ALSO:

Ex-KPEX: Stuff Pulls Pin On Media Companies' Joint Ad-Buying Business

A four-way automated advertising collaboration between the country's largest media companies is being wound up after one of the four - Australian-owned Stuff - pulled the pin on its involvement as part of a strategic review of its operations ... More>>