NZ companies ‘ close to peak profit margins’
New Zealand’s biggest companies may start to feel the downside of strong economic growth as costs rise and margins are squeezed, says Pie Funds chief executive Mike Taylor.
The solid but unspectacular reporting season reflected a good economy underpinned by record immigration numbers, Taylor said.
Reviewing the corporate reporting season on the Market Watch video show, Taylor highlighted the fall in Air New Zealand’s profits as an example of a company that had reached peak margins.
“In a buoyant economy where the labour market gets tight and interest rates start going up then that will start to impinge on com- pany margins,” he said. “So if we’re not there now we must be very close to peak profit margins in New Zealand.”
Air NZ certainly seemed to have reached peak profitability for this economic cycle, he said.
The national carrier reported a 24 per cent fall in profits — despite it delivering one of the strongest earnings results of the season.
The company cited increased competition and rising fuel costs for the fall.
Corporate results had been solid but they had not fired up the New Zealand sharemarket, which has been drifting sideways since late last year.
Meanwhile, United States markets have soared and are hitting record highs.
The NZX was looking fully valued, Taylor said.
But there was also ongoing downward pressure as international investors shifted money back to the US on the back of rising interest rates.