Investors look for brighter outlook after dip at end of reporting season
The local reporting season wrapped up last week and while it wasn’t terrible, we saw a lacklustre set of releases and company updates.
Many of our listed companies are still doing it tough against the backdrop of a sluggish economy, high interest rates and waning consumer demand.
This has been reflected in the performance of our sharemarket of late.
The NZX 50 index fell 1.1 per cent in February, which sees it down slightly in 2024 and 13.4 per cent below the record high from January 2021.
That’s in stark contrast to world shares, which rallied more than 20 per cent last year. They are up another 5.5 per cent in 2024 and have been hitting fresh all-time highs.
Most of the companies that missed expectations or provided disappointing guidance during February are in sectors that are more sensitive to economic activity.
Retailers Michael Hill and KMD Brands (which owns Kathmandu and Rip Curl) are facing obvious challenges as consumers tighten their belts amidst a high cost of living.
Fletcher Building’s woes are more company-specific, although there were also signs of weakness from Steel & Tube, which is exposed to the construction sector too.
The share prices of Air New Zealand and Tourism Holdings suffered as higher costs and weaker demand led both businesses to downgrade their earnings expectations for the upcoming period.
Skellerup also noted its annual profit would be lower than hoped, with the company’s agricultural division feeling the brunt of destocking from European customers.
Amidst falling sales of new units and lower margins on existing stock, retirement village heavyweight Ryman Healthcare slashed its earnings guidance in an update.
As with Fletcher Building, this might tell us more about Ryman than the sector overall, as some indicators trend higher on the back of a more stable housing market.
Interestingly, Summerset (the other big retirement sector player) produced one of the better results of the reporting season.
Another that stood out was a2 Milk, which upgraded its revenue guidance after market share gains in infant formula as well as improvements in its United States business.
While a2 Milk is a very long way from its glory days of 2020, shareholders will be pleased to see things getting back on track.
Other companies to deliver strong numbers included Delegat Group, Scales, Sky TV and Auckland Airport.
Vista, Freightways, EBOS Group and Mercury NZ not only met expectations but also left the market with more upbeat outlook commentaries than expected.
Looking ahead, a smaller batch of results will arrive in May, then in August we’ll hear again from the same companies that reported last month.
With these two sets of results covering the six months to the end of March and June respectively, it’s likely they’ll still look subdued.
However, there might be some bright spots on the horizon by then, so hopefully we’ll hear some more positive comments about the outlook.
Although cost pressures are still high, wage growth has been slowing and it’s become much easier for employers to find staff.
If financial markets are correct, we could see the first cut to the Official Cash Rate in August or October, with more to follow.
This would take the pressure off borrowers, while it could also be an important turning point for consumer confidence and investor sentiment.
Our listed corporate sector is good shape, despite the challenges that were so evident in last month’s earnings releases.
Balance sheets are strong across the board, the steady dividend payers have continued to deliver, and there have been some encouraging bright spots elsewhere.
We’ve weathered the worst of the storm, which puts many of these businesses in a strong position to perform as the headwinds ease.
Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.