INVESTORS are bracing themselves for the worst profit season in nearly two decades, with earnings set to fall sharply and dividends still under pressure as corporate Australia takes a buffeting from the global economic crisis.
Analysts expect profits to be up to 20 per cent lower than last year with few prospects for growth in the next 12 months.
For more on profit guidance and the reporting season, go to our special index
But this reporting season should contain fewer shocks than last year when there was a barrage of profit warnings and dividends were cut as the sharemarket went into free fall.
There has been a notable absence of bad news before this reporting season compared with the most recent round of results, according to chief equities strategist at UBS, David Cassidy.
"The environment has [now] stabilised to some extent relative to expectations, whereas back in November, December and even January, there was just a run of profit warnings," he said. "The actual numbers will be very weak but I think the market factored that in some time ago."
The listed property sector is also facing its toughest reporting season on record. Investors expect nearly all property trusts to report bottom line losses, thanks to write-downs in asset values of more than 40 per cent, rising gearing levels and a massive fall in share prices.
Although property trusts have raised more than $15 billion through rights issues in nine months, most of it has been used to shore up the balance sheet rather than provide spending for the new financial year.
Oil was at a five-week low of $US64 a barrel yesterday, a harbinger of the grim profit season likely for resources companies, and a far cry from their profit outlook at this time last year.
The shining light in the sector has been gold stocks as investors turned away from the volatility of the market to a safe haven. The rest of the resource stocks should take a hit year on year.
Tim Schroeders of Pengana Capital said resources were expecting a dismal reporting season. "Some are just going to get obliterated," he said. "The oil sector is going to look pretty awful. BHP and Rio are not going to look that flash."
Also hit is the aviation and transportation sector, although Qantas will be one of the few world airlines to report a profit.
But the consensus earnings forecast for Qantas of just over $85 million is still a big turnaround on 2007-08 when it posted a record $969 million profit. Without a $216 million profit in the first half of last financial year, Qantas's bottom-line result for the full year would be much worse because the slump in travel demand hit only in February.
The second half of the past financial year is expected to be the weakest period in Australian advertising history, and metropolitan TV ad dollars were likely to be down 15 per cent.
In the retail sector Myer, David Jones and JB Hi-Fi have issued profit upgrades before the reporting season but others have witnessed spiralling sales and share prices. Myer and David Jones recorded bumper sales in the June quarter.
Analysts will be watching closely to see how Telstra handles the mooted national broadband network, uncertainty at board level and trouble with its IT transformation.
- with staff reporters
