Reporting season showed companies improved margins but remain cautious: analysts
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The news: More companies beat market estimates than missed them during the February reporting season, but the results reflected the "disproportionate challenges" faced by smaller companies, according to UBS.
The numbers: Strategist Richard Schellbach said that profit beats to consensus estimates outnumbered misses by a ratio of 3:2. He noted that companies that topped profit forecasts saw their share price rise by an average of 2%, while those that missed estimates fell by 5%.
The context: Schellbach said that results weakened towards the end of earnings season, in correlation with a higher proportion of small caps reporting in the later weeks.
UBS analysts had expected that rate cuts and an improving economic outlook for the 2025 calendar year would be reflected in "more optimistic tones" coming from companies. However, "this did not quite play out," Schellbach said, with businesses typically reiterating cautious outlooks.
Macquarie analysts also said that Australian companies posted "another small earnings beat" in the face of challenges from high rates and cost-of-living pressures.
"The key driver was better margins, reflecting ongoing focus on cost control and lingering pricing power," they said.
The analysts said that insurance, commercial services and media were the sectors that had the best results in terms of outperformance, earnings surprise and upgrades.
Discretionary had poor earnings, they said, with downgrades across automotive, consumer services and retail.
The sources: UBS research, Macquarie research
