Mining tipped to again push top-tier profits lower as reporting season kicks off

Australia’s corporate sector is facing a “decisive test” from an imminent reporting season that will likely confirm a second consecutive year of weaker profit growth and uncertain dividends.

Analysts are tipping ASX200 annual company profits to be released over the next five weeks will show an average reduction of up to nearly 2 per cent off the back of another weak year for big miners and a sluggish national economy.

They’re warning that investors will want to see better if the share market is to push deeper into record territory.

UBS said while stocks had rallied hard since April, “the local equity market story hasn’t necessarily improved”.

“The economy is slowing, rate cuts have thus far been relatively un-impactful, and earnings are declining,” it said.

“The downbeat tones we expect to come from August results may not be enough to halt the markets ‘melt-up’ . . . but they should cause it to pause.”

Reporting season for the majors kicks off next week, with Rio Tinto and lithium miner PLS on Wednesday before hitting top gear in the last two weeks of August and a penultimate day on August 28, packed with Mineral Resources, Wesfarmers, IGO, Qantas, South32 and Sandfire Resources.

Analysts said investor focus was now switching from US President Donald Trump’s tariffs to companies’ ability to defy domestic economic conditions that have not received the expected boost from interest rate cuts.

The reporting season “arrives as the decisive test for corporate Australia’s earnings resilience, with company-specific fundamentals now taking precedence over macro considerations”, said Morgans, which has forecast a 1.2 per cent fall in ASX200 profits.

“While earnings and share prices have shown remarkable resilience despite global trade uncertainty since the February reporting period, the focus shifts to companies’ ability to maintain margins and drive growth amid subdued trading conditions.”

UBS, which is tipping a 1.7 per cent drop in profit for the 2025 financial year after the previous year’s 5.4 per cent decline, expressed concern that rate cuts have lost their power to stimulate economic growth, making it more difficult for companies.

Mining and energy companies are seen as the biggest drag on earnings, with their profits expected to be off another 17 per cent for the year on weaker commodity prices and persistent concerns about China’s economy.

Outside of resources, “things (are) look less bad, but still relatively lacklustre”, with the exception of tech (forecast 26.1 per cent rise), communication services (27.6 per cent), banks (7.8 per cent), healthcare and selected industrial companies, UBS said.

Morgans warned that final dividends may be smaller than some investors expect, after surprisingly good returns for the 2024 financial year as payout ratios recovered towards their 10-year average of about 72 per cent or 73 per cent.

“Payout expectations have eased through 2025, and we moderate dividend expectations slightly as boards note sluggish earnings growth and a nod toward conservative capital management,” it said.

UBS forecasts profits to return to growth this financial year, tipping a 5.3 per cent rise across the ASX200. Energy is the only sector seen missing out.

Morgans expects growth of 5.4 per cent for 2025-26, but cautions expectations are already slipping after forecast growth of 8 per cent in just April.