‘Soft side’ profits, disappointing outlook commentary leave analysts underwhelmed by earnings season so far

Analysts are decidedly underwhelmed by earnings season as it advances past the mid-way mark with more companies than expected being downgraded.

With reporting now about 60 per cent complete, AMP chief economist Shane Oliver said numbers were “on the soft side”, with profits narrowly based on a bounce-back in mining sector earnings, confirmed by BHP this week.

“Profits are seeing a rebound after three financial years of falls, but it remains subdued compared to the AI-enhanced profit boom being seen in the US, where profits are up more than 30 per cent, and elsewhere,” Dr Oliver on Friday said.

There had been solid growth for financials, although concerns about slowing housing finance weighed on banks, and the rest of the market would likely only see growth of 2.5 per cent, he said.

Heavyweights including Woodside, Woolworths and Wesfarmers are yet to post results.

Betashares chief economist David Bassanese said the overall tone of results had been underwhelming so far, which was perhaps not a surprise given the weakening economic backdrop, agreeing the vast majority of strength was in the mining sector.

“At this stage, moreover, the 10 per cent expected growth in earnings for FY’26 seems hopelessly optimistic given the backdrop of a slowing economy,” Mr Bassanese said.

Morningstar senior equity market strategist Lochlan Halloway said it had been “a fairly soggy start” to the season, with his company doing more fair value estimate downgrades for the near-200 Australian stocks it covered than usual.

Perhaps the most remarkable figures had been double digit declines in big bank mortgage applications, with the Federal budget, weak sentiment around the property market and interest rate rises all playing a part.

The collapse in applications was “a clear headwind for housing credit growth”, Mr Halloway said. And yet, the share price for Commonwealth Bank — the second largest stock in the index and the bellwether for the ASX’s most important sector — had only dipped, he said.

Healthcare was the worst performing industry by far on the eve of reporting season, but blockbuster results came this week from CSL and Cochlear, which combined account for about half of the sector’s value.

“Both cleared the bar, which is to say both met an outlook they had already downgraded early in the year,” Mr Halloway said.

As the cost of living crisis drags on, Dr Oliver said, stocks exposed to housing and consumers like JB Hi-Fi and Temple and Webster had difficult results.

Other analysts said key numbers had been in line with or slightly ahead of expectations, but outlook commentary and guidance had been the biggest disappointment, with less than half of companies providing outlook as anticipated.

Reports set to drop from companies next week include Coles, Qantas, Mineral Resources, NEXTDC, WiseTech Global, Domino’s Pizza and Harvey Norman.