Earnings season of discontent

While the gems such as Rio Tinto and Woolworths shine, the property trusts are bathed in red ink and the ”Bad Boys” such as Allco and ABC Learning are shaping up to deliver the proverbial bloodbath, the most vital characteristic of this reporting season is the deterioration in profit forecasts. Stock prices swing on profit forecasts so this is not good news. The pain is not across the board however. Resources profits have come in ahead of analyst estimates and there is the odd bright spot among the industrials such as JB Hi-Fi, Coca-Cola Amatil and Bradken. On the whole though, a little over halfway through the earnings season, the growth numbers are listless and indicate increasingly tough trading conditions in most sectors. Outlook statements are subdued and most are cautiously predicated on the fate of the economy. The likes of Qantas, Brambles, Suncorp, AXA and Wesfarmers have proved disappointing. But it is worth distinguishing between market expectations and actual results and forecasts. It is often the case that a stock rallies on a hundred million dollar loss or tumbles on a record profit, as Woolies did yesterday after reporting a 26% rise in net profit to $1.62 billion. It is also worth bearing in mind that last year marked the peak of a long profit cycle and as companies tend to beat market estimates on the upswing in...

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