Key takeouts from reporting season

An underwhelming profit season from Australian companies is an indication the impact of higher interest rates and inflation is still playing out across the economy. Cost pressures meant a number of companies missed expectations and all-important outlook statements reflected the uncertain operating environment for ASX listed entities.

Half-year earnings fell 2.2% in nominal terms relative to the same period last year and earnings per share revisions (EPS) for the market have turned negative for both financial year 2023 and financial year 2024.

The growth outlook was also revised in light of the results. Consensus expectations for earnings growth for the S&P/ASX200 Index are now +5.0% for financial year 2023 and +3.0% for financial year 2024, according to fund manager Ausbil.

AUSIEX asked experts to share their perspectives on the profit season – and what might lie ahead.


David Bassanese, Chief Economist

On the downside

“Sales growth was still quite solid, which was consistent with the official data on retail sales throughout 2022, indicating consumer spending has to date been resilient to interest rate hikes from the Reserve Bank of Australia.

“On the other hand, the COVID-related increase in goods demand, such as furniture, clothing and the rush to online shopping is being wound back as more normal spending patterns re-emerge. As a result, many goods retailers experienced slowing profits,” 

On the upside

“Despite facing significant cost pressures, corporate Australia was able to pass most of its higher costs onto consumers via price increases. Overall profit margins were crimped but did not collapse.

“In particular, the energy sector has been one of the strongest performers in terms of profits over the past year on the back of higher oil and gas prices, and we’ve all felt that in terms of the electricity prices in Australia.”

What it all means

“One way or another, the local economy needs to slow, and a likely US recession only dampens the outlook for corporates.

“While an easing in cost pressures should support profits in the year ahead, revenue growth is likely to be more challenged as the economy slows.”



Ryan McCaugherty, Research Analyst 

On the downside

“As inflation continued its blight on corporate costs, the impact on free cash flows was felt across the market, with downgrades larger than expected.

“Working capital remains a significant concern with many companies reporting higher inventory and raw material costs as they work through destocking and supply chain normalisation. 

“Further, there were significant capex budgets revisions due to the higher costs and a weaker $A. BHP increased its FY23 capex guidance by approximately 3% and other names such as Qantas revised costs up by as much as 17%. 

“The cashflow weakness may explain why there were less buyback announcements, with 14 announced in August 2022 but just 5 during the February 2023 reporting season.”

On the upside

“The economic backdrop was stronger than analysts expected, with the revenue outlook for non-financials upgraded almost 4% due to a combination of resilient volumes and strong inflationary price increases. The largest upgrades were across commodity producers that benefited from a weaker $A. 

“Households continued to spend accumulated savings during the reporting period, with a marked shift from goods to services. Recovering migration also assisted overall sales growth. 

“Forecasts for stronger sales growth will likely subside as interest rates begin to impact consumers, with many goods retailers such as Nick Scali (ASX: NCK) and Harvey Norman (ASX: HVN) reporting like for like sales contractions over January.”

What it all means

“For equity markets to begin to re-rate, central banks around the globe will need to pause hiking interest rates. Inflation data and unemployment figures will be the key drivers of when central banks pivot their strategies.

“Goods inflation has largely peaked, with commodity prices falling towards longer term averages, and costs from freight and supply chains have begun to normalise, putting overall downward pressure on inflation.

“Services, however, will be the key figure to watch with consumers who have been locked up beginning to spend again – companies like Qantas (ASX: QAN) are a key beneficiary.

“Companies that are resilient throughout an economic cycle and have been able to maintain margins will be likely outperformers over the next six months.”


Adam Conigliaro, Director of Research

On the downside

“S&P/ASX 200 earnings were downgraded by just 0.4% over the course of February so, on aggregate, there were few surprises.

“The biggest downside surprises were in situations where investors had overestimated a company’s ability to pass on higher costs from inflation to customers.

“A good example was Domino’s Pizza (ASX: DMP). It recently raised pizza and delivery prices and customers responded by buying less pizza. DMP reported a surprise decline in sales volumes which saw its shares slump by 23.8%. 

“In the financials sector, AMP (ASX: AMP) shares declined 13.4% after it disappointed on margins owing to product fee cuts, competitive loan pricing and a high-cost base.”

On the upside

“Companies which displayed earnings resilience despite industry challenges were rewarded with positive share price reactions.

“Sonic Healthcare (ASX: SHL) shares surged 14.3% after reporting a respectable result against a backdrop of declining COVID testing revenues. Investors were relieved the margin pressures experienced by Australian competitor Healius did not also impact SHL’s global operations. 

“Building and construction group Boral (ASX: BLD) also surprised investors with a better-than-expected profit result in difficult macroeconomic conditions of high inflation and higher interest rates and its shares gained +12.8%.”

What it all means

“At a tactical level, the full extent of interest rate hikes will become apparent in the next 6-12 months. This may see a re-basing of earnings expectations for more economically sensitive companies and provide a buying opportunity. 

“We currently favour companies less exposed to the economic cycle and more able to protect their margins in a slowdown – such as healthcare companies where demand is inelastic.”



Dilan Ashton, Head of ESG

On the downside

“A lack of technology, inflation challenges and labour shortages are hampering ESG progress generally.

“On the environmental front, Rio Tinto (ASX: RIO) was forthcoming that its decarbonisation plans have been slower than expected due to resourcing constraints and constructions delays. 

“Data security was in focus following the Medibank (ASX: MPL) and Optus breaches, with 42 mentions of data security across the S&P/ASX200 or more than double the 20 mentions in the previous reporting season in August.”

On the upside

“Companies are shifting from simply committing to net zero to providing detailed decarbonisation plans and giving progress updates. In some cases, companies are bringing targets forward.

“More than 57% of companies provided an ESG update, up from 44% in the corresponding period last year. There is also much more detailed information in reports than previously.

“Companies are talking about increasing their defences against cyber-attacks through higher spend and employee training.”

What it all means

“We expect reporting on ESG to move forward as a result of both investor demand and regulation. 

“It’s likely that reporting based on the International Sustainability Standards Board framework will become mandatory in Australia and perhaps phased in over time as we gain pace with Europe.”


Andrew Zenonos, Portfolio Manager 

On the downside

“Investors would do well to pause and take stock after reporting season rather than over-react to the relatively benign results from Australian companies.”

“The biggest takeaway from the results was that the full impact of inflation and rising rates on the consumer is not yet evident and may not be apparent for another 6-12 months, albeit signs of slowdown have started to emerge.”

“Outlook statements issued by management highlighted the extent to which inflation and stubbornly higher costs for companies are creating downside risks for margins in a slowing economy. Harvey Norman’s result is a good example of this theme, missing profit and dividend expectations and noting a growth in inventories.”  

“In this context, the slightly disappointing results at the aggregate market level were not unexpected and instead a signal to the market to remain in “wait and see” mode until the risks that have dominated markets for more than a year play out.” 

On the upside

“Dividends from the materials sector were a bright spot, with BHP’s expected yield just under 7% despite a disappointing result driven by softening commodity prices and 40% cut to its interim dividend. Rio Tinto was also among the top dividend payers.”

“The insurance sector provided another highlight with companies such as Suncorp, QBE and Medibank both beating profit expectations as a result of higher written premium and the tailwind provided to insurers by higher interest rates.” 

What it all means

“The best tack in the current environment is to stay focused on quality – or companies that demonstrate pricing power, reasonable gearing and strong profitability. There is also a case to pull back on cyclical stocks that are more directly linked to the overall state of the economy and will come under pressure if the latter slows.”

"Volatility will remain heightened as the market adjusts from the conditions that prevailed during the height of COVID to those that are dominant today. The big question now is how quickly, and high interest rates will rise."