The economy is slowing, business and consumer confidence is struggling to get out of the basement, Covid-19 is ravaging workforces and supply chains, and rising interest rates and inflation are squeezing spending.
Analysts at Forsyth Barr expect revenue among reporting stocks to grow about 8.7 percent for the past six months (file image). Photo: 123RF
So why are the country's top companies on the stock exchange expected to report a reasonable set of earnings when the season starts in earnest next week?
"Given the lack of confessions or poor trading updates in recent months it suggests there's still earnings strength out there among our listed companies," Milford Asset Management portfolio manager Sam Trethewey said.
Analysts at Forsyth Barr expect revenue among reporting stocks to grow about 8.7 percent for the past six months, and operating earnings rising just under 3 percent, although they also noted their forecasts were skewed by a small number of large companies.
"We have a slight bias to the upside with regards to our expectations going into the June earnings results."
Bellwether
All analysts are looking at the results of companies directly exposed to the domestic economy to see the impact of slowing activity, disruptions, and rising costs.
"We will pay particular attention to comments on current demand by Spark, Fletcher Building, and Freightways," Forsyth Barr analysts said.
"Of the three we are most cautious on Freightways as its demand profile tends to be early cycle, inflationary cost pressures may eat into margin expansion, and earnings
growth expectations for financial year 2023 may need to be moderated."
They also saw risks for the dairy companies, Synlait Milk and A2 Milk Company, and were not expecting any re-assurance from either at the results, while financial stocks NZX and Heartland Group could also face "a challenging earnings season", with subdued capital markets activity and deteriorating economic background weighing.
Jarden Securities senior analyst Adrian Allbon was not expecting any surprises in the Fletcher Building result, which the company has indicated should be a pre-tax profit of about $750 million, and with continued talk of a strong forward order book of work.
The gentailer companies - Contact, Mercury, Meridian and Genesis - are regarded as solid defensive stocks and expected to deliver no surprises and solid dividends, with a new momentum emerging for their outlooks.
"We expect focus to be applied to Tiwai negotiations, now underway again, along with current and new build cost, escalation and delays," Allbon said.
Travel
For Milford's Trethewey, the Air New Zealand and Auckland International Airport results mattered not just for the bottom line numbers, but also for what their outlook pointed to for the economically important tourism sector.
Air New Zealand has already signalled an underlying loss of no less than $750m, but recently has also reduced capacity heading into summer to lessen delays.
Other tourism related stocks, such as Sky City Entertainment and Tourism Holdings, are also attracting interest.
Allbon said: "SkyCity ... has experienced a solid return to fourth quarter activity. Into 2023 we expect earnings to track back to pre-Covid levels, caveated on properties remaining open and guidance to reflect this".
Forsyth Barr said "revenge" travel demand should improve the fortunes for Tourism Holdings.
Outlooks
Trethewey said companies missing earnings expectations could expect to be punished on the share market, and similarly investors would look carefully at company statements on their prospects for the coming year.
"The interesting thing will be whether CEOs signal a tougher year ahead and whether they acknowledge the lead (economic) indicators and build them into the outlook."
He was not expecting any big writedowns in assets or talk of capital raising because much of that had occurred when the pandemic first hit, but was wary of any overblown outlooks that did not seem to stand up.
"The market will be very sceptical about any material earnings growth or excessive confidence shown by companies ... if they can articulate a strong story as to why their earnings are going to hold up, then that's when we'll see a positive sharemarket reaction."
