Bell Direct analysis found that more companies beat market expectations for their result, than met or missed expectations. The biggest surprises came out of the retail sector.

So, let’s dive into what the latest reporting season said about the state of Australia’s economy, operating environment and outlook. 
 

Earnings growth and the economy

This reporting season revealed a stronger and more robust operating environment for our listed companies than was anticipated at the end of FY24. 

Heading into February 2025, markets expected single-digit earnings growth across the board amid elevated inflationary pressures, subdued demand, a cost-of-living crisis and global economic uncertainty. 

Whether it was a conservative approach for all companies to guide investors to expect single-digit earnings growth due to lack of operational clarity, or whether it was truly believed that conditions would be tough in 1H25, Bell Direct has been surprised at upside across most sectors. 

Double-digit earnings growth, elevated profits and some key tailwinds fuelled strength this reporting season for first-half FY2025 (1H25).

However, many companies reported elevated costs eating into their profit margins. Those who stood out and posted double-digit earnings growth went into 1H25 with stringent cost management and cost-reduction plans, which paid off in dividends – literally – for investors. 

Australia’s economy, despite lots of fear-focused news and noise in markets, has been relatively strong compared to other developed economies. It continued to grow throughout the first half which may have contributed to boosted earnings growth for many of our sectors.

All-in-all, the results of 1H25 were nowhere near as bad as Bell Direct initially expected. However, based on the results Bell Potter has analysed, we are anticipating a weaker second half, where elevated cost pressures could persist and this could occur in the context of a deflated demand environment.
 

What we learnt about dividends

While earnings were better than expected, dividends were always a concern heading into this reporting season. 

Debt repayments and investments in growth strategies saw some companies reduce dividends. Strict cost management and elevated demand in China saw other companies issue an inaugural dividend. 

Overall, dividends announced in this earnings seasons were a mixed bag. 

Infant milk and dairy producer A2 Milk Company (ASX: A2M) rose more than 19% on release of its first-half results, including the declaration of an inaugural dividend of NZ8.5 cents per share (cps). 

Telstra Group (ASX: TLS) also raised its interim dividend with a payout of 5.6% to 9.5 cents per share, amid a profit lift in 1H25 that beat analysts’ expectations.  

On the other hand, mining giant BHP Group (ASX: BHP) reduced its dividend by 30% to US50 cents per share, which just beat market expectations, but was a sign of the results overall being a decline across most metrics. Elevated costs and subdued demand ate into BHP’s margins and profits. 

Rio Tino (ASX: RIO) also cut its dividend this reporting season, taking full-year dividends paid to the lowest level since 2017. This was again due to the depressed commodity price environment of the first half. 

The chart below shows the decline in the average dividend yield on the All Ordinaries Index since mid-2022.
 

Chart 1: Average dividend yield (%) on All Ords

Source: Market Index. At 20 February 2025.
 

Which sectors outperformed

Some of the niche retailers remained resilient and reported better than expected results despite strong headwinds of elevated input costs, inflationary pressures and depleted demand faced in 1H25. 

Discretionary spending eased with the latest reading for December in Australia showing a fall of 0.1%. However, during the first half of FY25, retail sales remained strong, which fuelled unexpected tailwinds for ASX-listed retail stocks. 

While the Reserve Bank of Australia (RBA) announced the first rate cut of the cycle in February 2025, this usually takes a few months to flow through to eased cost-of-living pressures for Australians. 

Therefore, as alluded to by the retailers in their 1H25 earnings reports, we may see subdued demand and depleted consumer spend in the discretionary space in 2H25 eat into profits at least for the first months of 2H25. 

Elsewhere, artificial intelligence (AI) datacentres and some technology stocks continued to perform, with investors driving up valuations on high-growth expectations, amid expectations of further rate cuts. 

Goodman Group (ASX: GMG) announced a $4 billion capital raising, its first in 12 years, to grow its datacentre expansion. This was welcomed by investors, amid rising market interest in AI and datacentres. 

The materials sector faced strong headwinds in 1H25 due to depreciated key commodity prices, thanks to subdued demand out of China and heightened geopolitical tensions. 

Some big mining names cut dividends; BHP posted its lowest dividend in eight years amid a 23% fall in profits. Woodside Energy Group (ASX: WDS) issued guidance that higher costs were set to impact its dividend payout over the same period. 

In Bell Direct’s view, the gold sector impressed this reporting season. Strong results were underpinned by the current gold price bull run that has seen the spot price of gold hit US$2900/ounce for the first time. 

The financial sector had been on a run over the last 12 months, thanks in part to the elevated interest rate environment. Commonwealth Bank of Australia (ASX: CBA) shares hit a record high in February 2025. 

Bell Direct’s view is that the outlook for the banking sector is becoming more constrained due to net interest margins [the difference between interest received and paid] peaking and interest rate cuts eating into bank profit margins. 

For utilities, elevated competition levels, an uncertain outlook and elevated cost pressures weighed on utilities sector this reporting season. Bell Direct expects these headwinds to persist into 2H25. 

In summary, retailers reported better than expected results, as did gold miners. Materials stocks pushed through the pain of tough operating conditions to mostly meet or slightly beat expectations, and financials may have a tougher road ahead as further rate cuts are likely. 
 

Sharemarket outlook

Bell Direct’s view is that earnings growth was generally stronger than expected in the first half, but this may not be repeated in H2. The high cost of living and elevated inflationary pressures will continue to hurt corporate profit margins and demand for at least the next few months. 

When shares underperformed expectations this reporting season, investors were very fast to hit the sell button, given that valuations across key sectors have been rising over the last 12 months. Double-digit sell-offs were not uncommon after disappointing results. 

As for the outlook for 2H25 so far, Bell Direct has seen a broad picture painted for key sectors such as utilities companies to continue facing inflation cost pressures, while retailers are expecting subdued demand to continue into the second half. 

Bell Direct’s view is that materials companies, on the other hand, might potentially benefit from an improvement in key commodity prices thanks to increasing demand from China. 
 

Key risks to consider

The second half of FY25 could present challenges that include:

• continued input-cost inflation eating into company profit margins
• foreign exchange pressures
• tariff implications on global inflation, earnings growth and cost of operating both at home and in the US. 

Clearly, there are many risks for share investors to consider. 

Bell Direct’s view is that uncertainty on a global scale will likely see conservative guidance forecasts from companies for full year FY25. However, investors might potentially be surprised by the strength and resilience of our listed entities come August reporting season. 

As it was this reporting season, companies were quick to narrow and even lower guidance ranges to ensure investor expectations are not overly optimistic come the end of the fiscal year. 

DISCLAIMER

This information is for educational purposes only and does not constitute financial advice.  Independent advice should be obtained from an Australian financial services licensee before making investment decisions. It has been prepared without considering your financial situation, objectives or needs. Before making any investment decision, consider its appropriateness, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions. Bell Direct is the trading name of Third Party Platform Pty Ltd ABN 74 121 227 905, AFSL 314341.