Reading between the spreadsheet lines, the annual earnings season has given a few hints of what is to come for corporate Australia and the broader economy over the next year.
The annual results of Australia's top 200 listed companies is a scorecard of how they performed over the last 12 months, as well as what they're hoping to achieve for the year ahead.
Despite some serious headwinds in FY 2022, Australia's biggest businesses did pretty well.
Profits were up
Overall, company profits rose strongly in the 12 months to June 2022.
BHP announced its second-highest profit since 2011 and a record dividend. Underlying profit from continuing operations jumped 26 per cent, to $US21.32 billion.
If you include its petroleum division, which was spun off into Woodside during the year, it posted a stellar $US30.9 billion net profit.
Strong commodity prices and record sales from its Western Australian iron ore operations delivered the growth.
Woodside also posted strong numbers, thanks in part to its acquisition of BHP's petroleum assets and higher energy prices.
Its half-year net profit after tax rose five-fold, to $US1.82 billion.
Russia's war in Ukraine and the subsequent energy supply shortages also saw Whitehaven Coal deliver an increased profit of $1.95 billion, a massive turnaround from recent losses.
"The one big sector that is winning across the board is commodities," said Forager Funds chief investment officer Steve Johnson.
"If you take out the financial stocks, so the big banks, the commodity sector made more profit in the past four months than the entire non-financial section of the ASX.
"They are making extraordinary profits."
But the strong numbers were not just reserved for resources.
Global logistics technology firm WiseTech Global's profit surged 80 per cent to $194.6 million, while retailer JB Hi-Fi's net profit after tax rose 7.7 per cent to $544.9 million.
"The results were generally good was probably the main theme, admittedly, all through the rear window. We're looking back at the past 12 months of profits, not what's currently going on now," Mr Johnson observed.
Not everyone was a winner
Every reporting season has a few losers.
Once one of the biggest winners from lockdown life, this year Kogan posted a full-year loss of $35.5 million.
In the 2021 financial year it recorded a profit of $3.5 million profit and in FY 2020 its profit after tax was $26.8 million.
"The one really, really weak spot is online retail," Mr Johnson told The Business.
"They were the main beneficiaries of COVID lockdowns, I think a lot of people thought that brought forward demand was going to stay.
"We've really seen a huge retraction in that, it has gone back to the trends from pre-COVID and, unfortunately, for a lot of these businesses their costs have stayed elevated.
"Most of those companies are now loss-making again like they were in the pre-COVID years and I think that's been a big negative.
"A lot of us are very uncertain about whether or when they're going to be profitable again."
For others, the falls were not so significant, but earnings were down on last year.
Building materials maker Boral reported a 40 per cent slump in annual profit, as construction lockdowns and bad weather dampened demand and increased costs. It still posted a profit of $149.7 million.
Cement maker Adbri also saw its profits fall, down 15 per cent to $48 million.
'A microcosm for what's going on'
InvestSmart's head of strategy Evan Lucas said those kinds of numbers from the construction sector are a sign of what is to come.
"The demand for concrete is always a way to look at how construction is going, and what Adbri's result is telling you, is that they are starting to feel the pinch, and the slowdown is happening," he explained.
"The same with CSR, Boral and James Hardie, to some extent — they are showing you the future."
Wesfarmers — the owner of stores like Bunnings, Officeworks, Kmart and Target — posted a $2.35 billion profit for the year to June 30, 2022, which was 1.2 per cent lower than 2021.
But perhaps more telling was chief executive officer Rob Scott's comments about consumer behaviour.
He noted to the media during his results presentation that, as inflation bites, he expects sales to remain strong but margins to come under pressure as consumers look for a bargain.
"We noticed that customers [during COVID] were not as value conscious as they ordinarily would be and what we have seen in recent months, I think, to a large degree, is a normalisation of customers focusing back on value, which is obviously very important."
Roger Montgomery from Montgomery Investment Management warns some retailers could be in for more pain as inflation rises and people refrain from spending.
"Another after effect from COVID has been the persistent supply chain issues that companies are facing, and we saw companies like City Chic, Lovisa and Supercheap Auto responding to those supply chain difficulties by investing more in inventory," he observed.
"Now that can be a good thing, if sales remain buoyant but, if sales fall, those inventories will have to be discounted."
Coles chief executive Steven Cain noted shoppers are starting to buy fewer or cheaper products, when delivering his company's 4.3 per cent profit increase (to $1.05 billion).
"Maybe up to 20 per cent of consumers … are obviously finding it tough," he said.
"What we've seen in the current quarter is, for the first time, we're seeing significant increases in transactions but we're also seeing reductions in baskets as well.
"Given all of the headwinds the economy is now faced with, persistent supply chain bottlenecks, rising interest rates, inflation … ongoing geopolitical tensions, as well as persistent weather problems … I really think it will be a challenge for, in aggregate, companies to meet their historic benchmark of 5.5 per cent earnings growth this year," Mr Montgomery said.
Shareholder pay day
It will come as little surprise that those companies that recorded big profits often paid it forward to their shareholders.
Woodside tripled its dividend payout to $US1.09 and BHP also delivered for shareholders with a $US1.75 per share payment.
But that kind of showing was far from universal.
Fortescue Metals Group (FMG) cut its dividend by 43 per cent, to $1.21.
"Fortescue, and Rio Tinto, though, they held some of the money back," said Mr Montgomery.
"The banks are also meeting investors with lower payout ratios.
"I think what was more compelling, in light of the fact that there were fewer companies growing their dividends this year than last year, is the very large buybacks that have been announced by a raft of companies."
A string of companies announced share buybacks, including Qantas ($400 million), A2 Milk ($NZ150 million), Seven West Media (10 per cent of its shares) and The Reject Shop ($10 million).
Buybacks are when a company buys its own shares, then cancels them, effectively reducing the number of shares that exist and as a result making those that remain more valuable.
"Those buybacks are a way of returning money to shareholders without committing to ongoing dividends," added Mr Montgomery.
Anxious year ahead
Typically, companies give some hard numbers on what they think profits will look like in the year ahead.
But with that level of detail not particularly forthcoming this reporting season, it is clear the business world is just as uncertain about Australia's economic future as the rest of us.
"Like we saw in 2020 with COVID, the opaqueness of the inability to actually forecast what next year will be, is why they're backing away," explained Mr Lucas.
"We know that interest rates are rising, we know that inflation is all over the place, we also know that the energy cost is going to be all over the place, making it very hard to give those numbers and so companies don't want to get burnt with that."
"It is still highly uncertain as to what the economy is going to look like 12 months down the track, that is largely dependent on what happens on the inflation and interest rate side of things," added Mr Johnson.
"I don't think that's just companies being coy, I do think it's genuine uncertainty from their perspective about how their consumers and their customers are going to behave over the coming 12 months."
Mr Lucas predicts, with economic conditions still tightening, worse numbers are yet to come.
"The earnings season that's been is a retrospective number, the earning season coming is what you need to concentrate on."
