Corporate Australia is gearing up for another reporting season, but analysts expect their half-yearly financial results will deliver milder numbers, weighed down by the cost of doing business.
"Expectations coming into this result period have been very low," said UBS equity analyst Richard Schellbach.
"We looked across the last 30 years and what we were able to conclude a few months ago was that we had never before seen a period where analysts across the street were so downbeat on their profit growth estimates for Australian corporates."
In an environment of higher interest rates, a higher cost of doing business and a wary consumer, some companies are expected to reveal small, or even negative, numbers.
"That low hurdle which has been set means that it shouldn't be too difficult for most companies to exceed it," Mr Schellbach added.
Big businesses in Australia faced many of the same challenges households did in the first half of the 2024 financial year – with another two interest rate rises brought on by the Reserve Bank, as the effect of the 11 hikes before it moved through the economy.
High prices meant the cost of doing business is also weighing on some companies' bottom lines.
A mixed bag for retailers
This time last year, the two major supermarkets came under fire for increasing their margins, as they passed on rising prices to consumers.
With inflation now half what it was a year ago, those margins aren't expected to be as large.
Woolworths and Coles are currently under scrutiny by the Australian Competition and Consumer Commission, which is examining supermarket prices amid allegations of price gouging, uncovered during last year's reporting season.
Analysts think the supermarket giants will be mindful of consumers when they announce their results.
"It is a sensitive issue, so I don't think either of them will come out with kind of blow away, you know, fantastic results necessarily," said Barrenjoey equity analyst Tom Kierath.
"I think there'll be a lot of focus this year on the ACCC inquiry into grocery prices.
"Our thinking is there's not a whole lot the ACCC can do. I think the supermarkets have been pretty responsible, but that's obviously up to them (the ACCC) to decide that, and obviously the supermarkets are pretty aware and sensitive to that issue at the moment."
Wesfarmers, which owns Kmart, Target, Priceline, Bunnings and Officeworks among its retail portfolio, is often a key company to assess how the economy is performing.
Recent results have shown shoppers in search of better value for money have increased their spend with the conglomerates stores.
"Because it has so many different parts of their business, exposed to different parts of the economy, that's one that's always really topical and interesting because it's across so many different sectors," Mr Kierath added.
JB Hi-Fi (which also owns The Good Guys) is another bellwether stock for Mr Kierath.
"Their results are out on Monday next week, so that usually sets the tone for the rest of the retailers," he said.
"They're probably the two big ones that we'll get a really good guide of how the retailers are doing and how the broader economy is doing at the moment."
Bank profits probably won't be as big
Rising interest rates have been good for the banking business.
In last year's half-year results, Commonwealth Bank and Bendigo and Adelaide Bank revealed their net interest margins rose.
(Other lenders like ANZ, NAB and Westpac report their results in May.)
But competition is tightening up, with CBA losing market share, as borrowers switch to other lenders with more competitive interest rates.
"The CBA will report their numbers on the 14th of this month, and there's going to be a lot more competition for market share so that will be reflected in net interest margins, as banks compete more aggressively for home loans, and also for business loans," said Roger Montgomery of Montgomery Investment Management.
"Importantly, we've just had some statistics released that showed distressed sales have increased over December and also over January, and in some cases quite significantly."
He said banks will increase the fight for customers.
"That means more intense competition for the banks to try and grow their loan books."
Other types of companies exposed to the housing sector will give an indication if the house prices growth through the country during the six-month reporting period will be sustained.
REA Group (which owns realestate.com.au) was the first cab off the rank, and reported a 37 per cent fall in profit to $127 million.
With thousands of building businesses going bust, analysts will also be looking to other companies linked to housing and construction, like Domain, Boral and BlueScope, for an indication as to whether those economic conditions are changing.
"It's really important to understand that for the real estate firms, it's not house prices that drive their results, its turnover," said Mr Montgomery.
"So, if distressed sales are increasing as a proportion of all sales, and also increasing compared to the past, then it could mean higher turnover for these businesses."
Moves among miners will weigh on the market
Results from mining heavyweights like BHP, Rio Tinto and Woodside could affect the entire share market when they report.
With demand for resources down, commodity prices are much lower than they were for the same reporting period a year ago, so profit comparisons are likely to be lower.
"The resources sector and miners have received a lot less attention over the last year than has usually been the case in Australia; the Chinese economy is really on the backfoot, and expectations for any improvement there have totally dissipated," said Mr Schellbach.
With confidence in China slumping to pandemic levels, Mr Montgomery said things could will probably get worse.
"That economy is potentially in a deflationary trap, and deflation is terrible because people don't buy anything, expecting prices to be cheaper in the future, and it becomes a self fulfilling prophecy," he said.
He said that will translate to companies spending less.
"I expect we'll see companies reduce investment in projects, they may even hold on to cash, meaning we won't see an increase in dividends from some of those big miners," he said.
Mr Montgomery said it's not just iron ore companies that will present conservative outlooks.
"The nickel price has dropped, so we're seeing companies like South 32 and BHP reduce their capital expenditure or even stall some of their projects," he said.
"While on the lithium side, the price of lithium has halved in the last three months, as a result of EV sales declining and expectations of future EV sales declining even further."
Don't expect big dividends
Australian companies generally reward shareholders with comparatively high dividend payments.
But with companies likely to hold on to cash, there's broad consensus that those payments won't grow this reporting season.
Portfolio manager at Ausbil Investment Management, Michael Price, expects dividends to be broadly in line with last year.
He added that while dividends remain strong in resources, media, and consumer discretionary firms, he expects them "to be lower than the previous financial year."
"Conversely, we expect dividends to grow across a number of key areas in the economy, like general insurance and other diversified financials, quality real estate linked to warehousing and automated logistics, select online services, key pharmaceutical and biotechnology leaders — though we do not expect these dividends to be high," he said.
Overall, Mr Montgomery said if companies kept their dividends in line with last year's, it would be a positive sign for investors.
"I think if companies are able to maintain or increase their dividends, then investors can confidently look through some of the conservative outlook statements that management might be making," he said.
Share price run up to reporting season will be hard to beat
Recent share price moves haven't reflected the challenging conditions many businesses have faced.
"Only last week, the market hit a record high as measured by the ASX 200," Mr Montgomery said.
"That means that it could be difficult for some companies to impress."
Mr Schellbach agreed the lead up to this half-year reporting season has been surprising.
"Since the ASX 200 low point on the 30th of October, the index is up 13 per cent," Mr Schellbach told The Business.
"Over that time, we've had no earnings growth, and the macro data hasn't necessarily been much better."
He said it will be hard for share prices to improve on recent gains, given this reporting season is expected to be somewhat muted.
"For the equity markets go higher from here would require earning support of quite a meaningful amount," he said.
"We're sceptical as to whether or not that can be delivered."
Where to from here?
Despite the RBA governor saying the central bank couldn't rule out the possibility of another rate hike after its first meeting of the year, most analysts expect the volatility of interest rates has come to an end, and the next move will be down sometime later in 2024.
That may provide some certainty in doing business for the next six months, with investors searching for positive signs as the economy appears to slow.
But analysts predict that few company bosses will give too strong a forecast in their assessment of the second half of the business year.
"This is not necessarily an environment where either corporates or investors want to get ahead of themselves in terms of thinking that all the challenges are behind us," said Mr Schellbach.
Even with some signs of stability, there may still be bumps in the road ahead for corporate Australia.
For your diary
Here's when Australia's biggest companies will be reporting this month.