Strong earnings, higher dividends and plenty of surprises featured in this year’s August reporting season, but the headline numbers only tell part of the story.
While resources and healthcare emerged as clear winners, banks faced a tougher outlook and consumer-facing businesses continued to feel the effects of a more cautious economy. The result is an increasingly selective market, where company fundamentals are increasingly separating winners and losers rather than broad market trends.
Strong results, softer outlook
At first glance, reporting season was impressive. Earnings exceeded expectations by around 15%, while dividends came in more than 20% ahead of forecasts, supported by healthy cash generation.
However, many companies had already lowered the bar through trading updates earlier in the year. More importantly, around 30% of companies downgraded their outlooks, leaving earnings growth expectations for FY27 at a modest 4%.
The message is clear: the recent results were strong, but companies are becoming more cautious about what lies ahead.
Resources lead the charge
Resources were the standout sector, driving much of the market's earnings growth.
Strong prices for copper, iron ore, oil, gas and gold, boosted profits across the sector, with companies such as BHP, Rio Tinto, Santos and Woodside delivering strong results and generating significant cash flow.
Copper was a particular highlight, reflecting growing demand linked to electrification and the energy transition, while elevated gold prices continued to support both major and mid-cap gold miners.
Banks lose momentum
The picture was less positive for banks.
While margins continued to benefit from higher interest rates, profit growth came in below expectations. More concerning was a sharp decline in mortgage applications, with major banks reporting falls of between 12% and 20%, and even larger declines among investors.
Banks remain well capitalised and bad debts remain low, but slower lending growth points to a more challenging earnings environment ahead.
Healthcare shines
Healthcare delivered one of its strongest reporting seasons in years.
ResMed, Fisher & Paykel Healthcare and Pro Medicus all reported strong growth, while CSL enjoyed a significant share price recovery as investors gained confidence that its earnings outlook is improving.
What stood out was the breadth of strong results across the sector, reinforcing the resilience of high-quality healthcare businesses.
Winners and losers in technology and retail
Technology remained a stock-picker's market. Leaders such as REA Group, CAR Group, Pro Medicus and NEXTDC continued to perform strongly, while companies that fell short of expectations were quickly punished.
Retail painted a mixed picture. Coles and Woolworths delivered solid growth as consumers continued spending on essentials. In contrast, discretionary retailers such as JB Hi-Fi and Harvey Norman reported softer trading conditions, reflecting more cautious consumer spending and a slowing housing market.
The key takeaway
August reporting season reinforced an important lesson for investors: not all sectors, or companies, are moving in the same direction.
Resources and healthcare continue to benefit from powerful tailwinds, while banks and consumer-facing businesses face growing challenges. In a market where performance is increasingly driven by company-specific factors, identifying quality businesses with resilient earnings and strong competitive positions remains critical.
First Sentier Investors (Australia) Ltd are a sponsor of Firstlinks. This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Listen to the full podcast episode here.