CBA, BHP, AGL, Qantas, Wesfarmers

And in three months, the macroeconomic environment will have changed again – probably for the worst.

“Results will have their place, but I think it’s going to be pretty hard to extrapolate a lot of the trends that you saw over the past 12 months or six months,” says Wilson Asset Management portfolio manager Matthew Haupt. “The environment has changed a lot.”

Consensus expectations point to earnings growth of about 20 per cent for the S&P/ASX 200 for the year ended June 30, and resource stocks are likely to lead the way, thanks to the strength in commodity prices we saw for much of the 2022 financial year.

Profit margins in focus

As Barrenjoey chief equity strategist Damien Boey says, revenue is likely to remain relatively strong, but the question is what happens to profit margins.

During the half-year reporting season in February, companies generally showed they had been able to protect profit margins by passing on higher costs – particularly those related to labour, raw materials and freight – to end consumers.

Whether margins remained strong in the second half of the financial year, and how they might perform into next year, is the big question.

“Revenue is probably going to be up, but every line below revenue is probably going to be up too,” Haupt says.

Rising rates

The impact of rising interest rates is a fascinating question. Haupt will be watching this effect on corporate balance sheets, too: which companies have been smart with managing their debt, and which might need to be prudent with dividends and other capital returns.

“We’re looking for clever CFOs who have positioned themselves well for the rising rate environment,” he says.

But the bigger question is how the ASX companies’ end consumers – be they households or businesses – are coping with higher rates. Clearly, consumer and business sentiment is weakening, but spending and business activity is holding up relatively well – for now.

Without question, the most highly prized intelligence out of the reporting season will be the numbers, anecdotal evidence on trading in the first six weeks of the new financial year, and guidance on conditions beyond that from those companies brave enough to provide it.

Signs of consumer weakness will need to be carefully interpreted; as Boey points out, discretionary retail and media companies have been sold off in recent months, so investors might need to consider whether trading conditions suggest these stocks have actually bottomed.

But therein lies the rub. Boey says “history suggests that it pays to go against yesterday’s performance momentum, buying underperformers and selling outperformed… the challenge will be to discern whether the trends that we are seeing are six months too early or six months too late” to make that call.

Big share price movements following earnings releases have become more frequent in Australia in recent years, and this season should be no different.

Even companies that surprise with better-than-expected profits for this year could be hammered if investors decide that their outlook for next year looks underwhelming.

Here are five key results to watch in the coming weeks:

Commonwealth Bank, August 10

Australia’s biggest bank will get a margin boost from rising rates, but how its mortgage book is holding up is the big question investors want answered.

BHP, August 16

Rio Tinto delivered an unpleasant surprise with a lower than expected dividend. Will BHP take a similarly prudent approach with commodity prices having fallen sharply in recent months?

AGL, August 19

Its plan to split itself in two is now dead, and investors will be hunting for clues on AGL’s strategic review of its operations – and how major shareholder Mike Cannon-Brookes reacts.

Qantas, August 24

The national carrier’s finances have rapidly gained altitude in the past 12 months, but operational challenges have made its reputation go the other way. Will CEO Alan Joyce tweak the controls to better balance the two?

Wesfarmers, August 26

Although the conglomerate’s model should shine in a mixed-up economy, investors will closely watch out for any pressures on revenue and margins in its Bunnings and Kmart businesses.

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