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The Australian June 30 reporting season gains momentum

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2023-08-14

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The Australian reporting season for June 30 is picking up steam this week, with over 60 ASX 200 companies set to release their final or interim results. While none may be as massive or significant as the Commonwealth Bank's $10 billion plus offering from the previous week, several will provide valuable insights into how the season will conclude.

One of the most closely watched reports will be CSL's full-year update, scheduled for tomorrow. A positive outcome for 2022-23 is anticipated, but analysts remain cautious about the outlook for 2023-24 following a less convincing update in June.

AMP Chief Economist, Shane Oliver, notes that consensus earnings expectations point to a 2% rise for the year ending June 30, a considerable drop from the 22.4% surge in 2021-22. This surge was fuelled by the Russian invasion of Ukraine, which boosted revenues and earnings for energy firms and miners in the final months of that financial year.

This boost persisted into the first half of 2022-23 and the initial months of this year before being curtailed by falling commodity prices. The impact of rising consumer prices in Australia, weakening demand, reduced household spending, and the cumulative effect of high interest rates from the Reserve Bank further contributed to the shift.

Dr. Oliver highlights several key issues to monitor: the extent of the impact on consumer spending, whether cost pressures are easing or shifting to an escalation in labour costs, whether rising interest rates are causing debt servicing problems for companies, the strain on profit margins, and the level of risk posed by sluggish growth in China for mining companies.

The upcoming week will see 64 major companies reporting, including Aurizon, Argo Investments, Beach Energy, JB Hi-Fi, Bendigo and Adelaide Bank, GPT (half year), Ansell, carsales, and Lendlease (today). Tuesday's reports will feature companies such as CSL, Cochlear, Seek, Temple and Webster, and Treasury Wines.

Wednesday is expected to be the peak reporting day with over 20 companies including Vicinity Centres, Seven West Media, Bapcor, Transurban, Mirvac, Endeavour Group, Dexus, and Fletcher Building. Thursday's releases will include results from Telstra, Amcor, Seven Group, Southern Cross, Evolution Mining, Goodman Group, Orora, Origin Energy, Sonic, Inghams, and Super Retail Group. Allkem will report on Friday.

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In the United States, the June 30 earnings season is nearing its conclusion, with 91% of S&P 500 companies having reported. However, a number of major retailers are set to announce their results this week, led by Walmart, Target, Home Depot, TJX Cos, and Ross Stores. Their reports will coincide with the release of monthly retail sales data on Tuesday, which could also influence the markets.

Dr. Oliver points out that 80% of the reporting US companies have surpassed earnings expectations (compared to the average of 76%), with an average beat of 7%. In aggregate, companies are reporting earnings 7.7% above expectations, a significant increase from the long-term average of 4.1% above estimates. Both the beat rate and surprise factor are at their highest levels since the third quarter of 2021.

However, for revenue, only 62.9% of companies have exceeded expectations, marking the lowest beat rate since the first quarter of 2020.

Overall, second-quarter earnings in the US are anticipated to have dropped 3.8% compared to the previous year, according to Refinitiv data cited by Reuters. This decline follows a 0.1% rise in the first quarter and a 3.2% drop in the fourth quarter of the previous year.

The outlook for results is expected to improve. Third-quarter S&P 500 earnings are projected to rise 1.3% year-over-year, followed by a 9.7% rise in the fourth quarter and a 11.9% increase for the full year in 2024, according to Refinitiv.

Consensus earnings expectations for the year ending in the June quarter have been revised upward from a 7% decline to a 4.7% drop, with the likelihood of ending up with a 4% fall. Non-US earnings appear stronger, at around +0.8%.

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