Editorial: Company results show economy still solid

The NZX-50 ticker on the New Zealand stock exchange downtown head office. Photo / Supplied

Editorial

EDITORIAL

There is an old adage that New Zealand's stockmarket is a poor proxy for the real economy.

The lack of listed agricultural exporters on the NZX and the dominance of small unlisted companies on the local business landscape account for the disconnect.

But looking at the big corporate results making headlines this reporting season, that doesn't hold so true any more.

Five of the biggest companies on the exchange reported last week - Spark, Fletcher Building, Air New Zealand, Auckland Airport and a2 Milk.

Each in its own way reflects an important sector of the New Zealand economy.

Their profits have provided a timely reminder that, while there are clouds on the horizon, the economy is still in solid shape.

The a2 Milk company - now New Zealand's largest listed company - has been the marketing led success story that Fonterra always dreamed of.

Its shares took a hit last week after its profits and earning outlook undershot market expectations.

But, to be fair, those market expectations were very high and reflective of speculative value in the share price, which is outside the company's control.

Net profit actually leapt by 47 per cent to a record $287.7m for the June year.

So in the broader picture - and the one that offers some hope for the country's immediate economic outlook - a2 remains on a strong growth path.

We can rest assured that demand for quality dairy protein remains strong in key markets like China.

It was relief to see Fletcher Building back in black this year. Finally clear of woes around underbidding on big construction jobs, and having written down some bad investments, its core business appears in relatively good shape.

Net profit for the year ended June was $164 million, compared with loss of $190m a year earlier.

Crucially, revenue for continuing operations was up reflecting a construction sector that's still running near capacity, even if forecasts are for a slowdown.

Growth in tourist numbers into New Zealand has also peaked but solid results for both Auckland International Airport and Air New Zealand were a reminder we're still benefiting from the sector's strength.

Auckland Airport saw 4.4 per cent lift in its underlying profit and another record year for traveller numbers.

Air NZ's result was weaker, largely on higher fuel costs, but it still delivered solid pre-tax earnings of $374 million.

Finally, a surprisingly strong result for Spark offered reassurance that the consumer end of the economy is still buoyant.

Spark reported a 12.1 per cent increase in net profit to $409m for the 12 months to June 30.

Demand for quality dairy protein remains strong in key markets like China. Photo / File

What next? This is another busy week for results. The two offering the best economic barometer will likely be Port of Tauranga (Wednesday) and Freightways (this morning).

And what does all this tell us. Well, it should be no surprise that companies are being cautious in their forecasts. There is no shortage of gloomy indicators as the trade war bites and interest rates head for zero.

Globally the recession risk is rising.

But the solid round of local results should be a reminder not to confuse the risk of recession with real thing.