FY23 reporting season recap – who survived, who thrived and who surprised?

With the FY23 reporting window having drawn to a close, we reflect on a season full of surprises.

Share price volatility was par for the course, with double-digit fluctuations on announcement day common as investors digested the financials and all-important outlook commentary.

As we foreshadowed in early August, companies that were able to cut through the noise and clearly articulate their story for easy consumption were generally rewarded.

We saw an abundance of new disclosures and plenty of buzzwords, with “AI-driven efficiencies”, “business model resilience”, “challenging market conditions” and “tracking towards cash flow positive” all featuring heavily.

Anecdotes from the post-results roadshow circuit revealed that fund managers and analysts were quick to praise management teams who directly and transparently addressed the major issues facing their companies and sectors. Conversely, those who were seen to obfuscate endured some difficult conversations, with many having seen their shares de-rate since the results announcement.

FY23 performance – not as bad as feared

While earnings were down year-on-year, corporate Australia emerged from a challenging macroeconomic environment in FY23 in better shape than many expected.

Performance versus consensus was mixed, with roughly one-third of companies undershooting, one-third in-line and one-third outperforming.

While management teams pointed to the impacts of rising input costs on margins, companies appear to have managed inflation relatively well, with those demonstrating pricing power outperforming – witness Brambles’ 7% share price pop after pushing through 16% of price increases.

Rising interest rates and bond yields had a differentiated impact on earnings, with clear winners (insurers, banks, owners of regulated assets) and losers (cash burners and the highly leveraged).

The consumer remains resilient

One of the key focuses heading into this reporting season was the health of the consumer, and the retail sell-off leading up to August confirmed hopes were not high.

However, positive pre-announcements and results from the likes of JB Hi-Fi and Nick Scali showed the consumer remains resilient. This was echoed by the big banks, who revealed household savings buffers remain above pre-COVID levels and mortgage arrears were lower than expected.

Discretionary bellwether Carsales delivered a strong set of results, with profits quadrupling, while shoe retailer Accent Group’s strong sales update showed there is still life in its core youth demographic, sending its shares up 17%.

Since the beginning of August, consumer discretionary names are up 3.5%, however this may prove the calm before the storm, as many reported trading weakness in June and July.

Cautious outlook and lack of guidance

A clear hallmark of this season was caution around the outlook for FY24.

We previously flagged that the issue of providing guidance would be particularly hotly debated, and this proved to be the case, with many companies guiding to lower-than-expected earnings in FY24.

While overall cash balances were down on the prior year, balance sheets remain in good health. However, boards reinforced their caution by electing to conserve cash, with more companies cutting dividends than increasing.

Interestingly, small caps have outperformed larger companies so far in FY24, with the ASX Small Ordinaries index up 1.5% since June 30, while the ASX 100 is down 0.75%.

Looking ahead, the market will continue to watch closely the ongoing impacts of inflation and the potential for further rate hikes, with unemployment a key focus over the next 12 months. Now, attention turns to the upcoming November AGM season, where the next tranche of trading updates will reveal where the economic pain is being felt most acutely.

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