Australian companies exceeded earnings expectations for the first time in four years during the August reporting season, a significant turnaround from previous periods. This positive performance was largely attributed to resilient profit margins, boosted by effective cost control and strong commodity prices. The S&P/ASX300 total index returned 1.6% in August, outperforming global peers in Australian dollar terms, marking the fifth consecutive month of gains.
While overall earnings growth reached between 10% and 12%, this was heavily skewed by the mining and energy sectors, which saw approximately 30% growth. Without these resource companies, earnings growth for the rest of the market was closer to 5%. The healthcare sector also performed strongly, with gains of 19% in August, including significant increases for CSL (nearly 40%) and Cochlear (12%). Conversely, consumer discretionary companies and banks faced challenges, with retailers like JB Hi-Fi, Wesfarmers, and Harvey Norman experiencing significant declines due to slowing sales and interest rate hikes. Commonwealth Bank and NAB also saw drops of 10% and 9% respectively.
Despite the better-than-feared results, analysts noted cautious guidance from many companies regarding the year ahead. The consensus EPS growth outlook for FY26 has been revised down to 8.1% from over 12% a month prior, and the FY27 outlook stands at 9.3%. According to Ord Minnett, 61% of companies suffered downgrades to their outlook, while only 35% received upgrades. The Australian economy is showing a two-speed trend, with a struggling household sector contrasted by a stronger investment economy in areas like business lending, infrastructure, and mining services. This dynamic suggests that while the "rear-view mirror looks good" in terms of past earnings, the future outlook remains uncertain, especially with the prospect of further interest rate hikes.
