The 7 big themes of ASX earnings season so far (and what lies ahead)

The good news is that we are halfway through reporting season. The bad news is that we are still halfway through reporting season. All kidding aside, the first two weeks have already created some interesting storylines. 

50% of the market has reported and for the companies that didn't beat analyst expectations, the sell-off has been absolutely savage. In contrast, companies that had very low expectations baked in by the market have seen their results rewarded. 

According to Rudi Filapek-Vandyck at FNArena, of the 98 stocks which have reported so far, we've seen 27 misses - and as a result - eight ratings downgrades by sell-side analysts.

But what have we actually learned beneath the share price movements and the broker notes? This wire will seek out seven broad themes we've learned so far - themes that will be worth keeping in mind for the second half of reporting season. 

Even low expectations have a floor to fall through

At Credit Corp (ASX: CCP), a 43% rise in its loan book was not enough to save the market's concerns about falling net profits. Its soft guidance didn't please analysts either. More broadly, Credit Corp noted in its results that Australian borrowers generally still have strong savings buffers and fewer arrears. However, the company also plays heavily in the US market, where delinquencies are already on the rise before the resumption of student loan repayments. Shares fell 15% on the day of the results.

In the tough global housing cycle, Fletcher Building (ASX: FBU) and Reliance Worldwide (ASX: RWC) have both learned that in-line or small earnings increases are not going to cut it in this environment. Fletcher finished its earnings day down 9% while Reliance Worldwide, which reported today, is down 7% as of writing. More broadly, it proves that people have spent more than enough on housing renovations during the pandemic. And if you didn't spend all that cash during COVID, a 6-7% mortgage rate (on average) is going to delay those decisions.

Industrials giant Amcor (ASX: AMC) couldn't even beat its own lowered earnings guidance. The second half of FY23 showed a worsening operating environment with demand softening considerably and cost inflation continuing to bite. Has this company lost its ability to pass on cost increases to its customers? The answer may have big implications for companies like Brambles (ASX: BXB) and the supermarket giants of Coles (ASX: COL) and Woolworths (ASX: WOW).

Even today, Iress (ASX: IRE) has suspended its dividend and will sell its managed funds business in a bid to pay down debt and stay on track through its "transformation" plans. Despite finding nearly $50 million in cost savings this past half, the share price is still down 20% as of writing. And in a market where investors are needing to find defence and income, a suspension of your dividend is not a good idea.

But low expectations are not always a bad thing

Just ask AMP (ASX: AMP) and Magellan (ASX: MFG). Both are victims of the 'unloved' trade and both experienced lasting share price rallies - albeit off multi-year lows.

AMP reported a first-half net profit that slightly beat expectations and executed on its cost-savings program. A new cost-out program should support the stock price but the company awaits further clarity on litigation matters. And even though it reported a measly interim dividend of just 2.5c/share, shareholders were just relieved things are going in the right direction. 

Similarly, Magellan reported profits and revenues that were in-line with analyst estimates. But it was a 30c/share special dividend and a big beat on operating expenses (FY24 guidance of $95-100 million vs. Goldman's forecast of $128.4 million) that really caught the market off-guard. Shares soared on its results day and Jarden have already upgraded the stock to NEUTRAL from underweight.

Companies like Domino's Pizza (ASX: DMP) and Appen (ASX: APX) have been in an earnings downgrade cycle for some time now. This means the market's expectations for its earnings are far lower than it used to be. Will investors find something to cheer in their results? 

When you're a darling, you better perform

ResMed (ASX: RMD), which reported an 18% rise in full-year revenues, couldn't convince the market that it was able to capitalise on its wide earnings moat. An 80bps fall in gross margins stunned analysts, sending its share price down hard. In light of the result, at least four sell-side analysts reduced their price targets on the stock while JPMorgan's David Low moved the stock from overweight to NEUTRAL.

And although coal stocks had a boon year in 2022, Coronado Global Resources (ASX: CRN) learned the hard way what it's like when you report a 25% drop in revenues and a 64% drop in net profits. More broadly, coal prices have halved since last year's peak - proving that if you're not a price maker, earnings are tough to come by in a slowdown. Shares fell 12% on the result and as of writing, has still not recovered all of its earnings day losses.

Several market darlings like Qantas (ASX: QAN), WiseTech Global (ASX: WTC), PEXA (ASX: PXA) and Allkem (ASX: AKE) are yet to report. Their numbers will make for fascinating reading.

The four C's: China, costs, consumers, conservative (guidance)

On China and the Chinese consumer, no story is better than A2 Milk (ASX: A2M). The company's share price is down more than 10% (as of writing), following a warning from management that its key market this year will be more challenging. A double-digit decline in value is expected due to fewer newborns. Retail sales and consumer confidence in China have also fallen sharply in recent months, making A2's job all that much harder. 

More broadly, BHP (ASX: BHP) and Fortescue Metals (ASX: FMG) have yet to report full-year earnings. Those two companies will give big clues to how Australian companies are handling a broadly lower iron ore price, a sinking Australian dollar, and more recently, the developments in the Chinese property market. Then again, one bout of stimulus from Beijing and all those worries could wash away like a low tide.

And finally, just because you do issue guidance, it doesn't mean shareholders will like what they read. At one end of the scale, Life360 (ASX: 360) shareholders were thrilled to see earnings guidance increased for the full-year thanks largely to a 50%+ rise in subscription revenues. But non-bank lender Solvar (ASX: SVR) said its final result will be heavily impacted by central bank rate hikes through a massive increase in funding costs. Shares fell 35% on the news. 

Catch all of our August 2023 Reporting Season coverage

The Livewire Team is working with our contributors to provide coverage of a selection of stocks this reporting season. You can access all of our reporting season content by clicking here.