This would be a sharp contrast to earnings season last year, where shareholders were showered with more than $34 billion in dividends, together with $20 billion worth of share buybacks, as companies were on a high after a year of pandemic-boosted profits.
Schellbach expects revenue and earnings results from the past financial year will again be strong for most businesses, but this would be largely irrelevant to professional investors, who would instead focus on companies’ forward-looking statements.
“Everything in their rear-view mirror has been strong because, over the past 12 months, we’ve been operating in a peak economy cycle, so the actual profit results will be OK,” he said. “But I think the earnings estimates for next year’s results will be downgraded.”
Some sectors are likely to have a worse prognosis than others. For example, discretionary retail companies such as electronics sellers Harvey Norman and JB Hi-Fi, plus clothing retailers Myer and Premier Investments, are most likely to feel the pinch in the months ahead from contracting consumer sentiment.
“For retailers, things are uncertain,” says Rhett Kesseler, fund manager at Pengana Capital. “Their cost bases are going up, with wages, rents and inflation all increasing.
“Particularly for discretionary retailers, we’re not sure about the level of consumer spending going forward. I would imagine their boards would err on the conservative side.”
‘Returns to shareholders in the form of dividends are just not the priority they have been previously.’
Richard Schellbach, strategist at investment bank UBS.
On the flip side, consumer staples companies, such as the big-two supermarkets, are likely to be beneficiaries of higher inflation.
Analysts at Jarden told clients in a research note this week the grocery sector is likely to outperform, predicting another strong set of earnings through fiscal 2023.
Schellbach notes supermarkets could be one of the few sectors where investors could be surprised by stronger earnings or a more bullish outlook, although he still expects them to be somewhat conservative with their dividends, despite operating in a more stable section of the economy.
“They are aware the outlook is uncertain: there are cost-of-living pressures affecting their end customers, supply chain constraints that remain, labor shortages. Returns to shareholders in the form of dividends are just not the priority they have been previously,” he says.
Mining companies are another sector to watch. Some analysts think they may provide investors with an unexpectedly good result.
Market-watchers at Wilsons told clients last week that higher commodity prices could mean resource companies, such as Santos and Woodside, could generate “super-normal levels” of cash and lift their dividend payouts to investors.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.