Reasonable earnings expected despite slowing economy

WELLINGTON: The economy is slowing, business and consumer confidence is struggling to get out of the basement, Covid19 is ravaging workforces and supply chains, and rising interest rates and inflation are squeezing spending.

So why are the country’s top companies on the stock exchange expected to report a reasonable set of earnings when the season starts in earnest next week?

‘‘Given the lack of confessions or poor trading updates in recent months it suggests there’s still earnings strength out there among our listed companies,’’ Milford Asset Management portfolio manager Sam Trethewey said.

Analysts at Forsyth Barr expect revenue among reporting stocks to grow about 8.7% for the past six months, and operating earnings rising just under 3%, although they also noted their forecasts were skewed by a small number of large companies.

‘‘We have a slight bias to the upside with regards to our expectations going into the June earnings results.’’

All analysts are looking at the results of companies directly exposed to the domestic economy to see the impact of slowing activity, disruptions, and rising costs.

‘‘We will pay particular attention to comments on current demand by Spark, Fletcher Building, and Freightways,’’ Forsyth Barr analysts said.

‘‘Of the three, we are most cautious on Freightways as its demand profile tends to be early cycle. Inflationary cost pressures may eat into margin expansion, and earnings growth expectations for financial year 2023 may need to be moderated.’’

They also see risks for dairy companies Synlait Milk and A2 Milk Company, and are not expecting any reassurance from either at the results, while financial stocks NZX and

Jarden Securities senior analyst Adrian Allbon is not expecting any surprises in the Fletcher Building result, which the company has indicated should be a pretax profit of about $750 million, and with continued talk of a strong forward order book of work.

‘‘We expect focus to be applied to Tiwai negotiations, now under way again, along with current and new build cost, escalation and delays,’’ Allbon said.

For Mr Trethewey, the Air New Zealand and Auckland International Airport results matter not just for the bottomline numbers, but also for what their outlook points to for the economically important tourism sector.

Air New Zealand has already signalled an underlying loss of no less than $750 million, but recently has also reduced capacity heading into summer to lessen delays.

Other tourismrelated stocks, such as Sky City Entertainment and Tourism Holdings, are also attracting interest. — RNZ