Earnings-season test: has corporate New Zealand finally turned the corner? Photo / 123rf
Earnings-season test: has corporate New Zealand finally turned the corner? Photo / 123rf
THE FACTS
Earnings season begins with Skellerup, testing recovery optimism after economic challenges.
Around 34 NZX 50 companies will report.
Focus is on guidance, not profit growth, with low expectations potentially leading to positive surprises.
New Zealand’s earnings season gets underway this week, starting with Skellerup on Thursday, and it arrives at a pivotal moment for markets.
After a prolonged period of economic disappointment, false starts and cautious optimism, investors are looking for something simple but powerful: confirmation that the worst is behindus and that a recovery is genuinely taking hold.
In recent months, the macroeconomic data have begun to show tentative “green shoots”, while there is confidence that indicators have stabilised after a long downturn. Financial conditions have become less restrictive, encouraging optimism that the economy may be turning a corner.
Earnings season is where that optimism is tested. Over the next two-and-a-bit weeks, around 34 companies from the NZX 50 will report half- or full-year results across a broad cross-section of the economy. Taken together, their results will provide a bottom-up assessment of whether those macro green shoots are translating into real improvements in revenue, margins and cashflow.
This reporting season is therefore less about headline profit growth and more about truth-testing the recovery narrative. Are earnings still deteriorating, or have they stabilised? Are management teams seeing genuine improvement in demand, or merely hoping for it? In a forward-looking market, the answers to those questions may matter far more than the numbers themselves.
Low expectations, asymmetric upside
Expectations heading into this earnings season are relatively low, and understandably so. The past year has been challenging for many businesses. Economic growth has been weak, households have been under pressure from high interest rates and inflation, and operating costs (from wages and insurance to energy and financing) have remained elevated. Several anticipated turning points failed to materialise, leaving confidence fragile.
But low expectations can be fertile ground for markets. When investors are already braced for subdued results, it does not take spectacular earnings to surprise on the upside. Stability alone can be enough to move share prices, particularly if it is accompanied by improving outlook commentary.
That makes this season especially important. The key question is perhaps not whether profits have rebounded sharply (few expect that) but whether earnings have bottomed. If companies can show that conditions are no longer worsening, that margins are holding and that volumes are stabilising, it would help validate the view that the economic cycle is turning.
Guidance matters more than history
As always, markets care far more about the future than the past. While reported earnings will attract attention, the real focus will be on outlook statements and guidance for the next six to 12 months.
If management teams sound more confident about demand trends, margin pressures or easing cost headwinds, that could prove constructive for share prices and the broader market. Conversely, overly cautious guidance may temper optimism, even if reported results meet expectations.
Consensus forecasts point to earnings growth of around 20% over the next year, reflecting assumptions that conditions will gradually improve as interest rates fall and activity recovers. Whether those expectations are sustained will depend heavily on the tone struck during this reporting season.
Electricity companies like Meridian Energy will be closely watched this earnings season. Photo / Warren Buckland
Company-level proof points
Several sector-specific dynamics will be closely watched. Recent wet weather should have supported the gentailers, boosting hydro generation and easing pressure on wholesale electricity prices.
Domestically exposed names will attract particular scrutiny. Fletcher Building enters this season with improved sentiment following a strategic reset. The divestment of its construction unit removes a source of persistent earnings volatility and balance-sheet strain. With the business emerging leaner, Fletcher offers a cleaner exposure to the domestic recovery through its remaining product businesses, including its dominant position in Gib board, while debt reduction creates a more credible pathway to dividend resumption in FY27.
Spark New Zealand will be watched as a barometer for household and business conditions. As a largely domestic, utility-like business, Spark has faced subdued consumer spending and competitive pressure, particularly in mobile. Investors will be looking for signs that pricing discipline and cost control are gaining traction, alongside improved execution from the management team.
SkyCity Entertainment provides another lens on discretionary spending and confidence. The company has been navigating weak domestic demand and regulatory headwinds, with investors focused on whether visitation and spend are beginning to stabilise, particularly in Auckland, alongside progress on balance-sheet management.
Ebos Group will carry added significance after a year that saw guidance downgraded and the loss of the Chemist Warehouse contract, denting investor confidence. Attention will be on whether earnings have stabilised, how margins are tracking and whether management can credibly rebuild trust after surprising the market with elevated capital expenditure last year.
Port of Tauranga offers another read on the recovery narrative. The shares have benefited from improving sentiment in trade and cargo volumes and investors will be watching for signs of improvement, alongside any comments around progress on the Stella Passage expansion and fast-track consenting efforts.
Freightways will also be in focus following its A$71 million ($83m) acquisition of Victorian freight operator VT Freight Express, which strengthens its position across both business-to-business and consumer delivery. As trade volumes stabilise, the expanded network provides a useful downstream read-through from activity at major ports such as the Port of Tauranga, with the deal expected to lift earnings per share by around 6% in its first year.
Auckland Airport is unlikely to deliver major revenue surprises, given passenger traffic numbers are already disclosed monthly. Instead, attention will centre on operating and capital expenditures, with the airport in a heavy investment phase and investors closely scrutinising the implications for leverage, returns and dividends.
Highlighting the tension between structural headwinds and company-specific execution is a2 Milk. China’s birth rate has fallen to its lowest level since 1949, a clear long-term challenge, given China is the company’s largest market. More positively, the company has continued to gain market share and reinforce its premium positioning and has not been affected by recent infant-formula recalls involving competitors. For investors, the focus this season will be on whether a2 can continue to offset demographic pressure through brand strength and market share gains against the backdrop of a struggling Chinese consumer.
Retirement village operator Summerset will also be watched closely, although sales volumes are less of an unknown following its January update. Investor focus is likely to shift toward margins, development profitability and balance-sheet positioning, with any stabilisation supporting the view that earnings pressure across rate-sensitive sectors may be easing.
Confirmation, not fireworks
This reporting season is unlikely to deliver blockbuster profits or dramatic turnarounds. Instead, success will be measured in subtler ways: fewer downgrades, steadier margins and more confident language from management teams.
For investors, confirmation that earnings have bottomed out (and that the tentative green shoots seen in recent macro data are beginning to show up in company results) may be enough. At turning points in the cycle, direction often matters more than magnitude.
If corporate New Zealand can demonstrate resilience and early signs of improvement, it would lend credibility to the recovery narrative markets have been cautiously embracing. For a forward-looking market, that confirmation would mark a genuine moment of truth, and a signal worth paying close attention to.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 180,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
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