Quick Bite: Australia’s February Reporting Season Review
Author: Paul Zwi
In a word, Australian corporate earnings results in February were … okay. Expectations for corporate profits into this year and next held reasonably firm against the softer economy. Overall, Australian shares lost around one Price-to-Earnings (PE) point of risk appetite from their valuations (from PE of 19x to 18x future earnings) – not surprising considering the broader macroeconomic environment of Donald Trump tariff uncertainty and high valuations heading into results. Full valuations leave little margin for error. Note, we’ve drawn from Morgan Stanley’s excellent Reporting Season Review (5 March 2025) in putting together this QB.
ASX 200 trading at 18x forward earnings, around 10% premium to 10y average
Source: Morgans
Most February results were solid, an “average” season for large-cap companies in terms of their beats and misses, although this was an improvement on recent seasons. Mid-to-small-cap companies were more mixed, but this is expected.
Source: Morgans
The highest concentration of beats was in Agriculture, Food & Beverage, Insurers, and Smaller Retail stocks. The highest concentration of misses was in Consumer Staples, Construction/Contractors, and Transport stocks. Large-cap misses were punished more severely than usual, which makes sense given elevated ASX 20-50 valuations heading into February.
Source: Morgans
Cracks appeared within the banks. With major banks having delivered a 36% return in 2024 and accounting for around 22% of the benchmark ASX 200 index, their results were closely monitored. The banks’ earnings confirmed that fundamentals remain sound, with Commonwealth Bank of Australia (CBA.ASX) and Westpac Banking Corporation (WBC.ASX) exceeding expectations, but National Australia Bank (NAB.ASX) lagged due to increases in credit impairments and tax charges. Despite these generally reassuring results, bank stocks fell by an average of 5.5% post-announcements. As Morgans notes, “The market’s reaction underscores a key lesson: high hopes can quickly turn into harsh realities.”
Source: Morgans
Large global cyclicals (Brambles Limited [BXB.ASX], BlueScope [BSL.ASX], Qantas [QAN.ASX], Amcor Limited [AMC.ASX], and Ansell Limited [ANN.ASX]) stood out, benefiting from foreign exchange tailwinds – the low Australian Dollar (AUD) – and the falling interest rate environment should continue to support earnings and margins. It was a tough reporting season for growth stocks unless they exceeded forecasts.
Source: Morgans
Dividends Disappointed
Australian companies are set to distribute the lowest dividends since the pandemic four years ago. This is largely driven by major mining companies, particularly due to the fall in iron ore prices. Commodity market sentiment remains pressured by uncertainty surrounding slower Chinese economic activity and global trade/tariffs. Significantly lower dividends reflect the reality that iron ore prices have likely taken a permanent downturn, with miners now focusing on non-iron ore growth in copper and other metals.
Even industrials disappointed on dividends, cutting their payout ratio from above 70% to below.
Source: Morgans
Companies in the S&P/ASX 200 Index declared $31.2 billion in dividends during the February reporting season, the lowest for this period since 2021, when capital-constrained businesses returned just $26.5 billion to shareholders, according to Bell Potter strategist Richard Coppleson. This is 6.3% lower than the same period last year and extends a decline that began after the resources boom fuelled a record $36.3 billion in the 2022 half-year profit season.
“That is not going to help in a market that looks expensive and is facing weeks of election uncertainty, with banks still overvalued and miners in the doldrums with no green shoots in sight” notes Coppleson.
Fortescue (FMG.ASX) slashed its dividend by more than 50%. Rio Tinto (RIO.ASX) declared its lowest dividend in seven years, and BHP Group (BHP.ASX) will pay its lowest interim dividend in eight years. The major oil producers also made significant cuts: Woodside Energy Group (WDS.ASX) lowered its payout by 9.2%, and Santos (STO.ASX) reduced its distribution by 39%.
