Economists at a major share broker say profit reporting season shows most major Australian companies are in rude health.
Twice a year, the economists at CommSec put together an overview of earnings results from the ASX 200 companies which report during the main reporting seasons in February and August.
The February report covers 165 of Australia’s top 200 listed firms that reported either half or full-year results last month.
CommSec says 93 per cent of the 138 companies reporting half-year results were in the black, while around two-thirds had grown their profits – the best result since the 2009-10 financial year.
The rise in profitability left a lot of cash lying around, and 69 per cent of companies lifted their interim dividends, while cash holdings also grew 6 per cent to $111 billion.
CommSec’s chief economist Craig James says he has been surprised by the strength of corporate profits.
“The profit-reporting season has been astounding and clearly the earnings results stand in marked contrast to the doom and gloom portrayed about the economy in the media,” he noted in the report.
Companies reporting full-year results did not perform as well as those unveiling half-year results, Rio Tinto being the notable exception.
Craig James says this reflects the stronger trading conditions in the second half of 2013, and most large firms seem well-placed to continue growing this year.
“The latest earnings results should confirm – especially to those who needed confirmation – that corporate Australia is in strong shape and well placed to handle any challenges that lay ahead,” he said.
“Companies are sitting on significant cash reserves and are well placed to invest, employ and embrace future opportunities such as mergers and acquisitions. Indeed investors will want to know how Aussie companies plan to utilise cash reserves to lift future returns.”
This picture of profit growth was confirmed in official Bureau of Statistics business indicators data released yesterday.
The figures show gross operating profits up 1.7 per cent over the December quarter, seasonally adjusted, and up 10.7 per cent over the past year.
Mr James says businesses have boosted profits by adapting to the subdued economic conditions.
“Listed companies have responded to the ‘tough’ times by cutting costs, increasing productivity and efficiency – and more importantly, competing harder to boost revenues and bottom-line profits,” he added.
That appears to be borne out in the wages figures, which show employee pay rose 1.1 per cent last quarter but was up just 2.8 per cent over the past year, well below profit growth.