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Key points
- The earnings season has kicked off and experts are watching a couple of key details
- Disappointing results from the likes of Ansell point out the importance of sustained margins this earnings season
- An ability to pass on inflationary pressures will be desired among ASX investors
ASX shares are gearing up for a busy February earnings season, with plenty of companies set to release their latest financial results.
This year is expected to be a challenging one for businesses, with supply chain and inflation issues taking centre stage. However, there could still be some opportunities to be had.
To get prepared for the inundation of results, we take a look at what should be on the radar of investors, according to some experts.
Heavy focus on the bottom line for ASX shares
While the market has been attempting to price in the ramifications of prolonged supply chain issues, the earnings season will pull back the curtain on the real damage toll. Already, we have seen the devastation that a poor earnings report can wreak on shareholders this season.
Yesterday, Ansell Limited (ASX: ANN) published a trading update for its latest half-year. Unfortunately, a sizeable reduction in profits and a slashing of its earnings guidance resulted in the ASX share being punished with a 14% sell-off.
Armytage Private portfolio manager Bradley King highlights this as a likely trend for the February earnings season, The Australian reported. King said:
Look at Ansell's result. That was basically a car crash on the (earnings) side, but sales were OK. And ResMed, they're hiring planes to move stuff around and even though their competitor is pretty much self-combusting, they still can't get the kit in to take advantage of it. I think we're going to see more of that kind of thing going forward.
Similarly, Kogan.com Ltd (ASX: KGN) suffered a brutal 12% share price fall after it described COVID-19-related disruption in its supply chain for a reduction in its gross profits.
Pressure is on for performance as interest rates look set to rise
Another important facet that experts are keeping an eye on this earnings season is which ASX shares are able to continue to deliver. This has become especially important as the likelihood of interest rate rises has grown in recent weeks.
Investors have been adjusting their risk tolerance based on these expectations. For example, the S&P/ASX All Technology Index (ASX: XTX) is down around 21% since November 2021. As such, Jun Bei Liu of Tribeca notes the importance of earnings for the tech sector, stating:
So it's a good time to be picking up some companies, but investors should just be really mindful of earnings: if companies miss expectations then certainly investors have proven they're not very patient in today's world.
Additionally, investors will be looking for evidence of those ASX shares capable of passing on inflationary costs. Analysts at Macquarie Group Ltd (ASX: MQG) are backing companies with exposure to overseas earnings as winners in the current environment.
A more positive day of earnings results today is being reflected in the S&P/ASX 200 Index (ASX: XJO). The Australian benchmark index is up 0.38% to 6,998 points in early afternoon trading.
