[Editor’s Note: Do not read the following commentary as a recommendation to invest in any companies mentioned in this article. Like all investment strategies, investing in shares has risk. A positive or negative earnings result from a company might already be reflected in its share price. Also, much depends on how the company’s result compared to the market’s expectation for that result. This article provides an update on a small selection of company earnings results. It should not be viewed as a definitive summary of earnings season, which still had a week to run as this information was compiled. Do further research of your own or talk to a licensed financial adviser before acting on themes in this article. Visit ASX Company Announcements to search for the company’s earnings result and accompanying presentation and read the information for yourself.]
 

The Australian earnings season was a mixed bag. There have been some surprising results in sectors that were expected to underperform, while other sectors continue falling out of favour with investors in 2023. 

Investors have been quick to punish companies that failed to provide a quantitative outlook (numerical earnings guidance) for FY24 despite exceeding market expectations in FY23.

In Bell Direct’s opinion, the retail sector stood out, with key names excelling in FY23. This was much to the market’s surprise amid cost-of-living pressures impacting consumer spending. 

The market expected underwhelming results from retailers, but that hasn’t been the case for majority of the companies that have reported thus far. The exception is some concentrated retailers exposed to discretionary retail spending that did underperform. 

JB Hi Fi (ASX: JBH) rallied after reporting its FY23 results. These included total sales up 4.3% to $9.6 billion, inventory down 8.3% to $1.04 billion, and net cash of $127.5 million up from $66.2 million in FY22. A final dividend of 115 cents per share (cps) was declared, down 24.8% but full-year dividends for FY23 were 312cps, down just 4cps from FY22.  JB Hi-Fi’s Board said it will continue to review the Group’s capital structure with a focus on maximising returns to shareholders. 

JB Hi-Fi did not issue quantitative guidance (earnings targets), possibly due to uncertainty about consumer spending in the coming months. But the tech retailer said July sales were in line with the Group’s expectations.
 

Autos, alcohol 

And just when we thought demand for cars would begin to slow, Carsales.com (ASX: CAR) delivered a result ahead of market expectation, according to Bell Direct analysis. 

Investors responded accordingly as consumer appetite for car purchases remains strong. Shares in the online vehicle sales platform rose 6% after the company reported pro forma revenue rose 18% to $942 million, pro forma underlying earnings (EBITDA) was up 19% to $496 million and adjusted after-tax net profit rose 43% to $278.2 million. 

Carsales.com’s final dividend rose 33% to 32.5 cents per share. The company attributed the result to record private seller ad volumes, growth in key regions like Brazil and Korea and the extension of market leadership positions in all key regions delivering a global unique audience of more than 42m people per month.

Endeavour Group (ASX: EDV) is one major name that investors sold out of on the week of reporting results, despite the company beating expectations across key metrics. Group sales were up 2.5% to $11.9 billion, earnings before interest and tax (EBIT) were up 10.7% to $1.023 billion, and after-tax net profit was up 6.9% at $529 million. A full year dividend of 21.8cps was announced, a rise of 7.9%. 

Of particular note was the company’s hotels business, which traded well in the current environment despite macro headwinds as cost-of-living pressures rise, in Bell Direct’s opinion. The hotels business’s earnings before interest and tax (EBIT) rose 35.98% in FY23 to $428 million. 

The alcohol and hotels giant did not issue any guidance for FY24. Guidance is an area that investors are paying closer attention to in this reporting season. Failing to issue guidance sparks investor concerns of potential headwinds, uncertainty about earnings or possible events that may impact the bottom line of a company.
 

Technology 

In the technology market, Life360 (ASX: 360) was a tech name that surprised on the upside (in Bell Direct’s opinion) as the location tracking hardware and software company edges closer to profitability. 

360 reports on a calendar year, and for the first half, the company reported a 39% rise in total revenue to $138.9 million and issued guidance expectation for revenue between $300-$310 million.

Annualised monthly revenue excluding hardware also rose 43% to $248.7 million and the company’s net loss decreased from $58.2 million in H1 FY22 to $18.5 million in H1 FY23. Subscriber numbers gained momentum with the company having more than 54 million monthly active users. 
 

Healthcare

Healthcare has been the sector that investors have fallen out of love with this reporting season and in 2023, in Bell Direct’s opinion. The earnings outlook has slowed and companies in the sector have been trading at higher valuations over the past year, according to Bell Direct analysis.

During COVID-19, healthcare stocks had higher earnings growth outlooks, especially those companies producing vaccines and complementary products. Fast forward to 2023 and the growth outlook for these companies is easing, in Bell Direct’s opinion. 

Margin contraction is another area where investors have been disappointed with healthcare companies this reporting season. An example is ResMed (ASX: RMD), which reported that its margins contracted 80 basis points to 55.8%. This indicates that the cost to make products has risen faster than the sales price, according to Bell Direct analysis.
 

Financials

On the financials front, National Australia Bank (ASX: NAB) released third-quarter results, which met with market approval, and there was little share price movement after the release of the report. As expected, following a price peak late in 2022, NAB’s net interest margin fell 5 basis points to 1.72%, reflecting higher home lending competition alongside higher deposit costs. NAB also reported statutory net profit of $1.75 billion, $1.9 billion unaudited cash earnings, and it announced a $1.5 billion share buyback.  
 

Conclusion

What can we take away from this reporting season? Investors are very reactive to a lack of earnings guidance; high valuations with a slower earnings outlook are causing a pullback in healthcare; and investor appetite for technology continues to grow.