The half-yearly profit reporting season is in full swing, but the messages from the top end of town are decidedly mixed.
Take this morning, for example.
We’ve seen Westpac impress the market with a 33% increase in first quarter cash profit to $1.6 billion, as the spectre of bad debts starts to fade from the balance sheets of the big banks. The company’s shares are up 4.3% this morning.
On the other hand, Fosters’ missed analyst profit predictions for the first half, with net profit down 13.5% and revenue off 4.7%. The company has been hit by weak economic conditions (particularly in the US) and the strong Australian dollar, which has particularly dented wine sales overseas.
On the positive side, Primary Healthcare produced a brilliant result, with profit climbing five-fold in the first half to $76.6 million. Even more importantly, the company flagged strong growth from its medical centres over the next few years, which is always a big boost for investors.
But on the downside, Australia’s second biggest steelmaker, OneSteel, unveiled a shocker, with profit halving in the first half and management telling investors that things won’t improve much for the rest of the year, thanks primarily to higher input costs.
Four very different sectors, four very different results. So how should entrepreneurs interpret the reporting season?
The key message we’re getting from the big end of town is that things remain patchy.
While Australia’s economy continues to outperform most of our big trading partners, we’re not completely immune from the global troubles that are plain to see in Europe (where the markets seem to be waiting for Greece or another indebted country to default) and the US (where unemployment remains stubbornly high).
And while businesses are confident, this is not necessarily flowing through to the sales and profits quite yet.
Entrepreneurs looking to expand need to do plenty of research and pick their target sectors carefully. Try and get intelligence on how your customers are actually tracking, not just whether they’re talking up their own growth plans.
Follow the money and make sure you’re getting a slice.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
