Signals point to a lacklustre earnings season for listed companies
By Jenny Ruth
Aug. 5 (BusinessDesk) - The upcoming earnings season is likely to be a more lacklustre period than recent previous
seasons and the global backdrop will probably be more volatile.
“I would expect this reporting season will be a bit more mediocre than we've seen recently,” says Mark Lister, head of
wealth research at Craigs Investment Partners.
New Zealand shares some of the same dynamics at work in the United States' earnings season which is starting to wind
Despite the earnings outlook, share markets have been soaring as central banks cut interest rates and because “there's
nowhere else to go in terms of investment options,” Lister says.
“Some of our more domestically focused companies will be feeling the pressure,” he says, pointing to the universally bad
ANZ business confidence survey and then its consumer confidence survey, both showing downward trends.
“Things have slowed quite substantially in recent months. Some of those domestic exposures will tell us quite a bit
about where the economy is.”
Certainly, the news from Australia, where building products company Adelaide Brighton slashed its earnings guidance 30
percent and cancelled its dividend, doesn't bode well for New Zealand-based companies with struggling Australian
operations such as Fletcher Building and Metro Performance Glass.
Given how high share prices are, the bar has been set particularly high. “That's a global theme. Markets have been very
expensive for some time but they just keep getting more expensive,” Lister says.
But developments on the trade front look like they will get worse before they get better.
Last week, US President Donald Trump surprised markets, just as talks with China over the two nations' trade disputes
had resumed, by threatening further 10 percent tariffs on another US$300 billion of imports from China from Sept. 1.
The US has already imposed 25 percent tariffs on about US$200 billion of Chinese imports and the new tariffs could also
be ramped up to 25 percent if Trump is dissatisfied with how China responds.
China has already said it is considering “necessary counter-measures.”
“Our reporting season could potentially happen in the midst of increasing volatility offshore – any negative result
could face even more of a negative reaction because of that,” Lister says.
“I wouldn't be surprised if we're going into quite a messy period for global financial markets.”
Much of the Northern Hemisphere is heading into their summer holidays period now, which is also likely to be conducive
to thin trading volumes and therefore higher volatility.
The US reporting season isn't necessarily much of a guide to how New Zealand's reporting season will play out, but with
77 percent of the S 500 Index companies having reported so far, 76 percent of them have beaten analysts' earnings estimates and 59 percent
have exceeded sales forecasts.
Nevertheless, earnings on average fell 1 percent, the second quarter of negative growth, and that hasn't happened since
That's better than the 2.7 percent earnings decline the market was expecting at the end of June.
The outlook isn't great – analysts are expecting another negative quarter with earnings on average falling 2.2 percent
before resuming growth in the fourth quarter.
“Earnings growth going backwards isn't a good thing but last year there were quite strong results so it was a tough act
to follow,” Lister says.
Companies were riding high on the corporate tax cuts passed in late 2017 and the US dollar in the June quarter of last
year was about 5 percent lower than it was in the June quarter this year.
“That has quite a big impact on some sectors – about 40 percent of S earnings come from outside the US,” particularly technology stocks which derive about 60 percent of revenues from
outside the US.