Profits were down amid strong inflation, high interest rates, and reined-in consumer spending, however, ASX shares still delivered generous dividends to investors this earnings season.
CBA has released a note containing expert analysis on the latest earnings season from senior economist Ryan Felsman and chief economist Craig James.
Let's take a look at the details.
What are the key takeaways?
CBA said profits were weaker but ASX 200 shares still dished out generous dividends this season.
In aggregate, the revenue of ASX shares increased by 3%, with 73% of companies reporting higher revenue. Expenses increased by 6%, with 83% of ASX shares reporting higher costs.
Profits declined by 35% in aggregate, with 49.6% of ASX shares reporting higher profits vs. the long-term average of 58%.
Almost 81% of companies made a profit vs. the long-term average of 87%. CBA says this is the lowest percentage of companies reporting a profit in seven reporting seasons.
Aggregate cash holdings fell by 25%. Total cash reported was $196 billion, down from $250 billion in the February 2023 reporting season. About 53% of ASX shares reported higher cash holdings.
What about dividends?
Despite the profit and cash holdings declines, ASX 200 shares still paid generous dividends this earnings season, totalling $33.9 billion. This is just 2% lower than the dividends paid in the February 2023 season.
In total, 83% of companies declared a dividend vs. the long-term average of 85%.
ASX shares that have historically paid dividends but did not this season include Pilbara Minerals Ltd (ASX: PLS), James Hardie Industries plc (ASX: JHX), Adbri Ltd (ASX: ABC), and Alumina Ltd (ASX: AWC).
Among the stocks paying a dividend, 52% of them are paying a higher amount this time around. Almost 20% of reporting companies kept their dividends steady and 29% cut their dividends.
Major themes of the reporting season
Felsman and James said there were a number of key themes among ASX shares reports this season.
These themes included moderating food inflation, lower airfares, reduced demand for gaming services, lower commodity prices, and artificial intelligence (AI) proliferation.
There was a positive outlook for housing and building activity. However, the real estate investment trusts (REITs) continued to write down the value of assets, especially office blocks.
The economists noted resilience among many ASX retailers, including JB Hi-Fi Ltd (ASX: JBH), Lovisa Holdings Ltd (ASX: LOV), Universal Store Holdings Ltd (ASX: UNI), and Nick Scali Limited (ASX: NCK).
They said:
… in a surprising sign of strength, Consumer Discretionary shares jumped 8.2 per cent in February at a time when borrowing costs and inflation are high, pressuring consumer sentiment and demand.
Retailers cleared excess stock, input costs generally eased and shops engaged in price discounting, with margins defended.
What did ASX shares bosses say?
Many CEOs described economic conditions as challenging but said their businesses had been resilient.
Felsman and James said:
By no means have companies been downbeat.
Many companies have highlighted their ability to ride out the period punctuated by higher interest rates, cost of living 'crisis', inflation and geopolitical uncertainty.
The economists noted that many companies were "relatively restrained" in providing forward guidance for the second half of 2024.
A number of company bosses noted the likelihood of interest rate cuts ahead.
Felsman and James said this would be a particular tailwind for ASX financial stocks and property stocks.
They commented:
Companies with a solid record of earnings delivery were rewarded during the reporting season with professional investors looking to rotate out of defensive company exposures with pricing power and strong balance sheets into quality cyclical stocks given the more constructive outlook.
What now for ASX shares?
The CBA experts said the S&P/ASX 200 Index (ASX: XJO) price-to-earnings (P/E) ratio is now 16.2 times, which is above the long-term average.
The 12-month forward dividend yield is 4%, which is below the average.
Felsman and James said:
Large cap valuation metrics are less attractive than small cap metrics with emerging companies positioned to benefit from an eventual easing in financial conditions, a soft economic landing, moderating inflation and lower borrowing costs.
We expect the Aussie sharemarket to drift through to mid-year as rate cut validation is amassed.
The S&P/ASX 200 index is expected to be trading in 7,750-8,050 point range near the close of 2024.
Want to know more about earnings season?
Income investors might like to check out 9 ASX shares that delivered some of the biggest dividend boosts of the season.
They included AGL Energy Limited (ASX: AGL), Corporate Travel Management Ltd (ASX: CTD), Inghams Group Ltd (ASX: ING), Origin Energy Ltd (ASX: ORG) and QBE Insurance Group Ltd (ASX: QBE).
We've also profiled a dozen ASX shares that reported the biggest profit jumps of earnings season.
