Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 322

Why August company reporting season was poor

In Australia, most listed companies have financial years ending in June and they report their full-year results in August. Some companies have December years and they report their half-year results to June in August. There are also a small number of companies with financial years ending in other months – like September (notably ANZ, NAB, Westpac), March (notably Macquarie), July or February, and so their results are not included in the August reporting season wrap-up.

The overall results were poor

Across the 90 companies that reported out of the top 100, aggregate sales revenues grew by 4.6% over the same period last year, from $500 billion to $523 billion. This is no better than the aggregate growth in the local economy (nominal national income).

Aggregate reported profits grew by just +2.5% from $57 billion to $58 billion (excluding Wesfarmer’s $3.3 billion one-off gains from its sales of Coles and three other subsidiaries during the year, and also excluding Woolworths $1.2 billion gain from the sale of petrol stations). If we also exclude the profit growth from the commodities producers driven by windfall global commodities prices, profits for the rest of the market actually fell by 15%.

The main culprits were AMP, Telstra, Suncorp, Crown Casino, Bendigo Bank, Challenger, Ansell, Blackmores, Transurban, Sydney Airport, Aurizon, Qantas, REA, Bluescope, Orora, AfterPay and most of the property trusts. There is always a lot of fiddling and fudging that goes on in profit reports and this year was no exception!

How did the results announcements affect share prices? The first chart shows the results for these 90 companies, with share price growth for August (vertical axis) versus profit growth reported based on full-year results for companies with June financial years and half-year results for companies with December years (horizontal axis).

No short-term relationship share prices and profit growth

The chart illustrates that there is no relationship between profit growth and share price growth over short periods because share prices are driven largely by global sentiment. In August, share markets everywhere were hit by Trump’s escalation of his trade wars, currency wars and his criticisms of Fed Chair Jay Powell.

Several companies posted high profit growth, but their share prices fell (lower right segment of the chart) – including Origin, Fortescue, Seek, Worley, BHP, Oil Search, Brambles, Cimic (Leighton), Appen, a2 Milk, Link, Magellan and a host of others. Conversely, many posted profit declines but their share prices rose (upper left segment) – including LendLease, REA, Afterpay, Evolution Mining (gold), Crown Casino, GPT, Suncorp, Qantas and many others.

Aside from macro issues driving share prices, profits are backward-looking but share prices are forward looking. For example, iron ore producers RIO, BHP and Fortescue booked windfall profits from the iron ore surge this year after the mine closures in Brazil reduced global supply, but their share prices were hit when iron ore prices fell back 20% in August. A similar pattern in the oil price affected Origin, Santos, Oil Search, Worley and BHP. Oil prices surged 29% from January to July but fell back 6% in August.

Of course, one month is not a sufficiently long period to assess share price growth and profits, so the second chart shows the same profit growth reported per company, but this time compared to the total share price gains so far in calendar 2019 on the vertical axis.

Again, we see that there has been no relationship between profit growth and share prices this year.

Half of the companies posted profit declines (left half of the chart) but the vast majority of share prices have still risen this year (top half of the chart). It was once again due to global macro issues, with share markets everywhere rebounding in 2019 from the late 2018 global sell-off.

Other factors in play

The main driver has been the Fed’s switch from rate cuts last year to rate cuts this year and moves from other central banks toward more monetary stimulus –including two more rate cuts from the RBA. The sugar hits from more stimulus has overcome the negative effects of Trump’s trade wars and their possible impact on slowing economic growth – so far at least.

Another global factor at work has been the decline in bond yields everywhere, which have lifted share prices despite falling profits (upper left segment) in many of the ‘bond proxy’ companies that are often perceived to have relatively ‘safe’ dividends – Telstra, Transurban and the property trusts. (However, just ask any long-suffering Telstra shareholder how ‘safe’ their dividends have been in recent years).

Aside from the commodity stocks (which rise and fall with global commodities prices over which they have no control), the upper right segment of the second chart does highlight some local companies that have real value-adding businesses with rising profits being rewarded with above-market share price rises – including Seek, Magellan, Wisetech, Altium, a2 Milk, Goodman, JB Hi-Fi, Ramsay, ResMed, Cochlear and CSL.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is for general information purposes only and does not consider the circumstances of any individual.

 

RELATED ARTICLES

It’s the large stocks driving fund misery

How we have invested during COVID-19

Headwinds and tailwinds, a decade in review

banner

Most viewed in recent weeks

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Latest Updates

Superannuation

So, we are not spending our super balances. So what!

A Grattan Institute report suggests lifetime annuities as a solution to people not spending their super balances. The issue is whether underspending is the real problem or a sign of more fundamental failings in our retirement system.

Investment strategies

The two best ways to maximise dividend income

People often marvel at Warren Buffett now getting 60 cents in annual dividends on every dollar he invested in Coca-Cola 30 years ago. What’s often overlooked are the secrets to how he achieved this phenomenal result.

Taxation

The fetish for lower taxes has gone too far

Since the time of Reagan and Thatcher, most business leaders and investors have clung to a dogmatic belief that lower taxes bring higher profits and economic growth. The truth, as always, is far more complicated than that.

Superannuation

Meg on SMSFs: Winding up market linked pensions with care

Due to recently-introduced rules, many people with old style pensions, also known as legacy pensions, will look to wind them up this year. The temporary amnesty allowing these pensions to be stopped should be navigated with care.

Property

Why our Torrens title property system hasn't been adopted elsewhere

Far from an outdated relic, Torrens title appears to be the revolutionary, cheap, low-risk way to handle property dealings. Here's a look at why this Australian invention from the 1850s hasn't caught on more widely.

Property

DigiCo REIT and the data centre opportunity

Data centres offer compelling growth prospects. But their potential hasn't gone unnoticed, and DigiCo appears to be buying properties in a seller’s market, resulting in better opportunities being found elsewhere.

Retirement

The $1.2 trillion sea change facing Australian investors

Over the next decade, three million Australians will shift from accumulating wealth to living off it. Those taking part in the great migration need a sound strategy that delivers sustainable income and protection from market bumps.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.