Company reports cautious

Suzanne Kinnaird
Suzanne Kinnaird
The New Zealand and Australian company reporting season was marked by many companies being "gun-shy" about providing earnings guidance because of uncertainties at home and in offshore markets.

Craigs Investment Partners broker Chris Timms said that was not surprising, especially for those exposed to the high New Zealand and Australian currencies.

The strong NZ dollar was a key theme for the reporting season. The company hurt the most was Fisher and Paykel Healthcare, which did not actually report a result but did hold its annual meeting during which it had to downgrade the 2012 guidance it gave back in May.

"While F&P has been taking steps to try to limit the impact of the high dollar, including accelerating the ramp-up of production at its new plant in Mexico and increasing billing in domestic currencies, it doesn't have much place to hide at the moment, even with strong underlying sales growth," he said.

The New Zealand reporting season delivered a few positive surprises with some of the more cyclical stocks starting to see the benefits of a recovering local economy.

Transport and logistics companies Freightways and Mainfreight delivered some of the best of the results among the New Zealand stocks as an improving operating environment provided some top-line growth for operations that were made extremely lean during the extended period of slow demand, Mr Timms said.

Infrastructure companies Port of Tauranga and Auckland Airport reported good results, with the port benefiting from demand for New Zealand exports and the airport profiting from the completion of capital spending to improve its retail operation.

The key negative result from the New Zealand reporting season was Contact Energy, which failed to hit even Craigs' bottom-of-the-market 2011 forecasts.

Weak wholesale pricing persisted during the second half of the year because of high hydro lake inflows and levels.

Demand remained weak due to the relatively warm autumn, early winter and reduced demand in Christchurch, Mr Timms said.

"The Australian reporting season was probably a little better than we had feared and was certainly no worse than the market had been pricing.

"On a sector basis, it was a very familiar theme: resources were strong, banks were solid and industrials were patchy."

The impact of the high Australian dollar on export earnings and margins was a clear theme for companies with substantial export earnings or offshore operations, he said.

Industrial stocks could see further earnings downgrades.

Full-year 2012 forecast margins had been cut substantially during the results season but a large improvement in full-year 2013 was being anticipated.

"This reflects an ongoing theme of analysts pushing out the earnings recovery rather than reducing its magnitude.

With many companies expected to provide or update guidance at annual meetings in coming months, we expect further forecast downgrades or delays in recoveries," Mr Timms said.

Forsyth Barr broker Suzanne Kinnaird said there was plenty to worry about going into the Australian reporting season but the market overdid it on the down-side.

Consensus numbers were too high but the market had already allowed for that. Consequently, 18% of companies surprised on the up-side, while only 12% surprised the market on the down-side.

Earnings continued to be downgraded and analysts remained too optimistic although the level of buy-backs suggested corporates remained more confident than the guidance delivered, she said.

"There were more companies that fell short of their target than beat it but there was an improvement on last reporting season. The improvement was an encouraging sign but outlook statements and guidance remain cautious."

 

 

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