The current reporting season for listed companies is well
through and there have been some highlights, reflecting the
growth in the New Zealand and global economy. Business editor
Dene Mackenzie talks to industry observers about the next six
Air New Zealand and other New Zealand companies have had a
rise in their earnings during the present reporting season.
One of the major changes in the current reporting season
for listing companies was the re-emergence of forecasts and
guidance, Craigs Investment Partners broker Chris Timms says.
When the global financial crisis hit in 2007-08, companies
took guidance off the table as their profits were hit hard
and uncertainty reigned.
''If companies didn't meet their guidance targets they were
punished and their shares were hammered. Now, they are
feeling more confident and positive about giving a heads-p.
Economically, they are dealing with more stable operating
conditions and have a handle on where they see their business
That was great news for investors but more risk for the
companies, Mr Timms said.
The risk was still concerning companies not meeting their
targets and seeing their shares punished in return.
Air New Zealand, which reported a record profit on Thursday,
gave a full-year guidance but like others reporting earlier
in the week, it took a conservative approach.
''They say they will meet or beat expectations, not they will
`absolutely whip' them.''
The companies posting further strong gains highlighted the
good health of the corporate sector as earnings expectations
were met in the majority of cases, he said.
The reporting season had so far provided comfort that
although the New Zealand market had strong gains and, in some
cases, was trading at above-average multiples, earnings
growth was solid and gaining momentum.
There were more good results than bad during the period.
Among the standouts were Steel and Tube, Auckland
International Airport, Fletcher Building, Fisher and Paykel
Healthcare, NZX, Ebos, Trade Me, Meridian, Freightways,
Summerset, Air New Zealand and Port of Tauranga, Mr Timms
Telecom, Contact and Nuplex were the only stocks to weaken
off in the wake of their results.
''If we look at current consensus earnings estimates,
compared with the beginning of February, there have been a
healthy number of upgrades for the coming two years.''
NZX50 stocks that had had consensus earnings upgrades for
both the 2014 and 2015 financial years since the start of
February included Auckland International Airport, Ebos, FPH,
Meridian, Skellerup, Meridian, Precinct Properties, Vector
and Vital Healthcare.
''Increasing dividends and forward guidance being provided
included mention of better economic conditions.''
Asked what had changed for New Zealand-listed companies, Mr
Timms said since the GFC, companies had worked on reducing
debt and taking costs out of their businesses.
Not all the gains were driven by sales, most were driven by
''Now they have done all the hard work, any improvement flows
straight to the bottom-line. They took the hard knocks early
and it is paying off now.''
The lack of debt gave companies such as Auckland Airport the
ability to return capital to shareholders from a ''lazy
balance sheet'', he said.
One of the notable features was the lift in share prices
as the opinion polls continued to show National having the main
support and prospects of forming the next government, Mr Timms
The threat of a Labour-Green government introducing more
regulation had taken its toll on some companies. But a poll
last weekend showing National well ahead of a combined
Labour-Green result, gave a lift to share prices this week.
Harbour Asset Management adviser Christian Hawkesby said
February provided a test for markets as companies provided
earnings results and profit outlook statements.
This year, companies had generally provided earnings
marginally better than expected with outlook statements
resulting in some upgrades to future profit expectations -
particularly in Australia where expectations had been low.
The lead for New Zealand and Australia often came from the
United States where quarterly earnings statements came out a
week or two earlier.
The US earnings season is drawing to a close and, on average,
companies have delivered profits 3% better than expected, he
said. Most of the improvement had come from better margins
which now touched about 12.5% - not far from previous peaks
of 13% and above a 11.6% long-term average. US resource
companies, property, industrial and financial services
companies did the best while the bank and retail sectors were
disappointing, Mr Hawkesby said.
In New Zealand, for the market as a whole, aggregate profits
were about 1.5% lower than expected because Telecom, Contact,
Trade Me, Sky City and Nuplex pulled down more positive
results coming from Sky Network TV, Meridian, Auckland
International Airport and several smaller companies.
''The outlooks for 2014 earnings were also evenly balanced,
with those signalling upgrades offset by others downgrading
expectations. A key theme in most profit statements has been
New Zealand companies still had plenty of margin upside given
the strong growth outlook. Additionally, margins were not as
stretched relative to historic norms as was the case abroad.
At the same time, most companies with Australian operations
had noted challenging conditions and currency impacts.
Mr Timms said it was difficult to look ahead at where
currency movements would go in the next six months.
The higher interest rate differential between New Zealand and
Australia - where New Zealand had a rising environment and
Australia had a flat environment - meant the NZ dollar would
stay higher for longer.
Against the US dollar, a fall could be expected as the US
economy strengthened and US investors kept their money at
home because of the better returns being offered, he said.
Low interest rates meant people had moved from having
money in banks to investing in the sharemarket where they had
received both income, through dividends, and growth in value of
''I don't think interest rates will return to the heady
heights of 2007-08 but if people can get 5% in the bank, they
may move back. But getting income of 6% to 7% and a bit of
growth in shares hasn't been all bad,'' he said.
Relative to expectations, the Australian reporting season had
been one of the best in years, Mr Hawkesby said. Profits were
3% better than expected, with 58% of companies beating
expectations and 47% upgrading profits.
''These are impressive numbers because companies had not
reset the bar lower with downgraded guidance going into the
The improvement in Australian earnings growth signalled a
possible reversal of prior weakness relative to New Zealand
and broader global markets, he said.
While the big miners did well, domestic Australian companies
continued to deliver mixed results. Most of those connected
to the building sector and the technology sector provided
positive announcements and many saw large upgrades.
Markets always looked ahead, Mr Hawkesby said.
Now, investors appeared to be retaining a very cautious tone
to a recovery in Australia and remained strongly attached to
both a global recovery and strong New Zealand growth.
''We concur with the consensus regarding the world and New
Zealand. However, this February we have seen some Australian
companies beginning to lift profits through cost management
and productivity. The miners, banks, builders and tech
companies have led the way. We will be watching closely for
signs a broader lift in margins can be sustained in
• February was a test market for corporates.
• Good health of corporate earnings.
• Currency issues remain.
• Forecasts and guidance provided.