Australian company profits surge 18.9pc
SYDNEY: Australian business profits advanced in the three months through June by more than three times the amount estimated by economists as earnings surged at mining companies, builders and banks.
Gross operating profits rose 18.9 percent in the second quarter from the previous three months, when they climbed a revised 4.3 percent, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg News was for a 5.8 percent gain.
The biggest jump in company profits in nine years adds to evidence of resilience in Australia's economy, which is forecast to accelerate next year as firms led by resources companies such as BHP Billiton Ltd. boost investment to meet China's demand for iron ore and energy. A separate report to be published this week will show the economy grew for a sixth straight quarter, according to a Bloomberg News survey.
"Australia is enjoying a sizeable boost to national income from a sharp rise" in earnings from coal and iron ore exports, said Bill Evans, chief economist at Westpac Banking Corp. in Sydney. "Miners, responding to the high level of commodity prices, plan to sharply boost investment" in the 12 months through June 30, 2011, he said.
The Australian dollar was at 90.18 U.S. cents at 12:20 p.m. in Sydney, and earlier reached 90.32 cents, the strongest since Aug. 18. The two-year government bond yield gained 0.01 percentage point to 4.37 percent.
Profits at mining companies surged 62.7 percent in the second quarter, builders advanced 30.5 percent and banks and insurers climbed 28.9 percent, today's report showed. Profits advanced 27.5 percent in the second quarter from a year earlier.
Australia's four largest lenders, Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd., this month reported increased earnings after stemming losses from loans after the financial crisis.
Melbourne-based BHP reported last week a doubling in profit to $6.59 billion for the six months ended June 30 after earnings at the metals unit of the world's largest mining company jumped more than threefold in the full year.
Woolworths Ltd., Australia's biggest retailer, forecast on Aug. 26 that earnings will rise as much as 11 percent and announced it would buy back A$700 million ($631 million) of shares, more than double the amount purchased earlier this year.
Robust company earnings were among reasons central bank policy makers led by Governor Glenn Stevens raised borrowing costs six times from October to May, the most aggressive round of monetary policy tightening by a Group of 20 member.
Stevens left the benchmark overnight cash rate target at 4.5 percent on Aug. 3 for a third straight month, citing concerns that the world's largest economies, including the U.S. and Europe, may be slowing.
U.S. hiring and manufacturing probably cooled in August, indicating companies are scaling back as that nation's recovery shows signs of stumbling, analysts said before reports this week. Private payrolls that exclude government agencies rose by 47,000 this month after a 71,000 gain in July, while the unemployment rate rose to 9.6 percent, according to the median estimates economists surveyed by Bloomberg News. Factories expanded at the weakest pace in almost a year, an Institute for Supply Management report is forecast to show. Australian sales of newly built dwellings declined 7 percent in July from June, the Canberra-based Housing Industry Association said in a report e-mailed to Bloomberg News today.
Still, the expansion in Australia's economy, now in its 20th year, will boost inflation pressures in coming years, central bank Deputy Governor Ric Battellino said this month.
"History tells us that inflation can be a problem during resources booms, and while there are grounds for thinking it will be less of a problem this time than in the past, we need to remain alert to the risks," Battellino said Aug. 20.
Australian companies forecast investment of A$123.3 billion in the year ending June 30, 2011, which is 17.5 percent more than they estimated three months earlier and 24.3 percent more than the corresponding forecast last year, a report showed last week. All 23 economists surveyed by Bloomberg News late last week predict policy makers will keep the benchmark rate unchanged on Sept. 7. Inventories held by companies fell 0.5 percent. Economists forecast a 0.4 percent increase.
Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign-exchange gains or losses. -Bloomberg