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Four lessons from reporting season

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Right, that’s that done for another six months. It’s been a mixed bag, with some big winners and losers and a few surprises along the way. Here’s a look at some of the big themes from the past month’s reporting season.

Flying roo bounces back
Wesfarmers profits hit $1.3bn
Fairfax profits down 86 per cent

There’s no room for disappointment

The stock market can be brutal at times, just ask shareholders in any company that fell short of profit expectations or lowered their guidance in February.

“If you’ve changed your guidance to the downside you’ve been hurt and hurt badly,” IG market strategist Evan Lucas said.

Woolworths became probably the most high profile example on Friday, with its share price dropping eight per cent after abandoning its previous profit forecast.

Another examples is IAG, which reported a 10 per cent slide in its first half profit and disappointed analysts with its outlook for the year, sending its share price more than eight per cent lower.

Everyone loves a buyback

But shareholders can forgive even a dismal result on the promise of some extra cash.

Just look at Seven Group, which reported a 74 per cent profit slide but saw its share price lift almost ten per cent after announcing it would buy back almost 18 million shares.

“If you’ve returned capital to shareholders by an increased dividend or share buyback you’ve done very well,” Mr Lucas said.

Other companies to soar after announcing buybacks include Nine (up 8.5 per cent), Rio Tinto, and Fairfax.

No one is looking for growth

Companies spend a lot of time talking about cost cutting during February, but outside of a notable few – think Dominoes and Telstra which are actively expanding overseas – growth was not on the agenda.

“There is not what you would call overly optimistic themes coming out of the market,” Mr Lucas said.

“It’s all about consolidating their current operations and making sure they are as efficient as possible.”

This is an extension of a theme that’s been going on for several years now as businesses focus on getting their house in order, rather than risk taking in what some see as an unwelcoming economic climate.

Debt is a dirty word

Instead of investing in new growth, many companies are paying down debt as quickly as practicable.

This is especially true for mining companies, which have ramped up spending over the past decade to take advantage of surging demand from China and are now trying to wind it back quickly.

“Look at Rio, look at BHP, look at most of the mining space, look at the energy space, they’re all looking to reduce capital expenditure, they’re all looking to bring debt down,” Mr Lucas said.

– AAP

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