We entered this market reporting period with trepidation since the recent confessions and earnings downgrades that occurred in May/June this year. Earnings overall have been flat in financial year 2013, but outside the resource sector the market earnings have actually grown approximately 7%.

Admittedly, although sales growth overall has been weak, the focus on cost cutting has enabled bottom-line profit growth; and while higher payout rates indicate less reinvestment, there’s scope for operating leverage to drive earnings in the near term.

The sound but still slightly mixed outcomes overall have been reflected across the market sectors. Resource earnings are down approximately 25% in financial year 2013, but stabilised somewhat in the June half. Bank earnings have continued to contribute a fair share of the growth in the rest of the market, as have the general insurers and other financials. In most other sectors, subdued demand has made growth more challenging particularly for mining services, construction materials, retailing and aviation.

The reporting season has now confirmed that companies have been achieving some growth, yet with a lot of effort and focus.

Looking now to financial year 2014, bottom up estimates look for growth again, with improvement in traditional industrial and consumer sectors as sales begin to pick up and more cost savings are targeted. Resource earnings are expected to lift as production ramps up and cost savings begins to flow through to the bottom line.

This recent reporting period looks much better than the previous two Augusts, when market earnings for the prospective year were downgraded 7-8%. The limited downgrades through results and updated outlooks could also be a sign that business conditions have bottomed, and with the decline in interest rates over the past two years, some general slowing of earnings downgrades seems likely over the months ahead.

© Power Tynan Pty Ltd