Mainfreight has seen a return to favour on the sharemarket. Photo / Alex Cairns
The sharemarket is bracing itself for what is looking like one of the worst December earnings seasons on record.
Brokers Forsyth Barr expects to see a median year-on-year earnings per share decline of 4.8 per cent - the worst December earnings season on its records and, for this group of companies, surpassed only by the dire June 2020 and June 2009 earnings seasons.
“This backdrop makes us cautiously optimistic that this earnings season will mark the cyclical low,” Forsyth Barr said.
“The lows of 2009 and 2020 turned out to be excellent entry points for the New Zealand and global markets.
“The forward-looking market appears to have anticipated this, with a reasonably strong summer performance,” the broker said.
The more cyclical end of the market has continued to be weak, in particular the consumer cyclical space, it said.
“We expect limited good news in the results but anticipate some outlook statements to signal the green shoots of a recovery.
“We have a negative bias toward companies with direct exposure to a stretched consumer, but expect business-exposed companies to perform better.
“Potential green shoots could ignite a cyclical recovery. We see room for a positive surprise from Skellerup and Vulcan Steel despite what is likely to be a weak (albeit expected) result in the case of Vulcan.”
About 40 companies are due to report over the next month or so, with most reporting first-half results.
Higher earnings growth may provide the support for New Zealand share market returns that has been absent over the past three years, Harbour Asset Management portfolio manager Shane Solly said.
After three years of earnings downgrades consensus earnings forecasts for the New Zealand S&P/NZX50 benchmark index are for double-digit compound earnings growth over the next two years.
Nine out of the 20 largest New Zealand companies are forecast to deliver mid-teens compound earnings growth over the next two years (including F&P Healthcare, Meridian, a2 milk, Contact Energy, Genesis, Mainfreight, Port of Tauranga, Auckland Airport and Mercury) based on market consensus data.
“A couple of other top 20 NZ shares (including Summerset and Ryman) are on the cusp of delivering double-digit compound earnings growth over the next two years according to consensus market expectations,” Solly says.
Mainfreight has enjoyed a return to favour as a result of trade route disruptions following sporadic attacks on Red Sea shipping by Houthi rebels.
The stock has come a long way since October 30, last year, when it traded at $56.30, this week hitting $71.50.
The logistics company has proven itself in a supply chain crisis, if Covid-19 disruption was anything to go by, having enjoyed strong earnings over the 2022 and 2023 financial years.
“Global trade route disruptions are the gift that keeps on giving for Mainfreight,” Salt Funds managing director Matt Goodson said.
Red Sea disruptions have seen the Freightos Ocean Freight Container Pricing Index lift from US$1300 per container pre-Christmas to US$3000 now.
While Mainfreight has a variety of contracts and lags, this will clearly be helpful for Mainfreight’s Air & Ocean division, which is around 40 per cent of its profit before tax, he said.
However, the higher trade costs will not be so helpful for inflation, Goodson said.
According to Bloomberg, the consensus of market earnings expectations for Mainfreight for the March 31 year is a net profit of $280.2 million.
Mainfreight will release its annual results on May 29.
Steel and Tube Holdings has firmed up its first-half earnings guidance.
The company said it had continued to perform well in the current soft economic conditions and, as a result, expects the half-year financial results will be at the top end of the guidance previously provided last December.
Steel & Tube had previously advised that it expected normalised EBIT for the first half of between $10m and $11m.
It now expects normalised Ebitda of around $22m and normalised Ebit of slightly above $11m.
Steel & Tube ended the half year with no bank debt and a positive cash balance of $26m, representing a $20m improvement on 30 June 2023.
The company has also achieved a significant reduction in its inventory balance to $129m, down from $139.2m last June.
Chief executive Mark Malpass said the company continued to focus on “controlling the controllables”.
“Given the current recessionary environment it is important we maintain a strong balance sheet and tight control on costs,” he said, adding the company continued to review merger and acquisition opportunities,” he said.
Chair Susan Paterson said demand for steel continued as it was one of the world’s most recycled products and was in increasing demand for seismic and infrastructure strengthening.
Steel & Tube expects to release its December half-year results on February 20.
China is making its presence felt on Comvita’s earnings.
The mānuka honey exporter said its latest trading update was driven by weaker near-term consumer sentiment in the PRC, the loss of a customer in the US, and a non-cash foreign exchange translation loss.
Encouragingly, market share in key markets of China and the US have remained strong, and sales in the last 10 weeks’ lead up to Chinese New Year show improving trends, Comvita said.
Comvita said revenue in the December half was $103 million, down 8.1 per cent on the prior corresponding period.
The company expects its first-half earnings before interest, tax, depreciation and amortisation to be $9.5m, down 32 per cent on the year-ago figure.
For the full year to June 30, Comvita’s revenue is now expected to be $225m to $235m (previously $245m to $255m).
Reported Ebitda for the year was expected to be $30m to $35m, down from a previous guidance of $33m to $38m.
The company’s first-half results, due on February 21, are expected to show a loss of $3.2m compared to a profit of $4.2m in the prior period.
China’s revenue for the half year was $33m - a 19 per cent decline.
“The China revenue slowdown was driven by macro-economic weakness, impacting the premium consumer category,” Comvita said.
Sales in China during November and December showed improvement towards a more stable trading pattern.
Revenue in the rest of Asia improved 52 per cent or $6.6m to $19.2m driven by strong growth in Korea of 13 per cent to $8.6m and Singapore of growth of $5.7m.
Australia and New Zealand revenue improved by $1.2m or 7 per cent to $19.3m.
Comvita’s share price tanked on the news, dropping by about 13 per cent to $1.91 late in the trading day.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
Mainfreight said its NZ division outperformed an estimate.