Australian companies appear to have emerged stronger after reporting higher profits over the past financial year despite a COVID-19 rebound, supply chain disruptions and soaring commodities prices.
Yet the road ahead seems less smooth.
Analysts tempering forward earnings estimates amid lingering cost pressures are preaching caution about the full impact of ongoing interest rate rises and continuing geopolitical challenges.
With nearly 90 per cent of S&P/ASX 200 companies having reported their full or half-yearly earnings by Friday, expert observers have termed the August corporate earnings season an 'overall positive'.
According to a CommSec review of earnings reports until August 19, aggregate profits have jumped 55.1 per cent, with a substantial majority of companies reporting a statutory profit.
Around 63 per cent of them lifted profits over the year.
Aggregate revenues over the year to June 2022 rose 10.4 per cent, with 85 per cent of companies lifting revenues and an average increase of 21.8 per cent.
"Australia's earnings situation is better because of our stronger economy relative to other countries and also the benefits from our greater mining exposure," said Ryan Felsman, senior economist and CommSec report co-author.
"But certainly those solid earnings may cycle lower into the next financial year. Probably into single digit figures."
While the overall growth trend may be positive, there has been a clear split along sectoral lines.
Miners, energy exporters and fuel retailers have reported the highest increase in earnings as they benefit from a surge in commodities prices brought about by Russia's invasion of Ukraine six months ago.
Resource giants BHP and Rio Tinto reported bumper profits, while coal miners have seen record earnings as Australia, the world's top exporter of the black stuff, gains from Western sanctions and freight blockages of Russian coal and energy.
On the other hand, consumer-focused and retail companies have seen more moderate growth as higher prices and interest rates bite consumers' wallets.
Woolworths and rival Coles Group, which account for about two-thirds of Australia's grocery sales, say customers are shopping to budgets with food prices surging in recent months.
Similarly, banks have turned cautious as rapidly rising interest rates curb demand for mortgages - their biggest contributor to earnings - with rising costs of living eroding consumer confidence.
Surging costs are already being reflected in company financials.
According to the CommSec report, about 81 per cent disclosed higher expenses over the past six months or year, with the average increase 16.9 per cent compared to previous increases of 7.3 per cent.
It may also have to do with total cash holdings dropping 16.8 per cent with banks, insurers and infrastructure firms reporting most decline.
Interestingly, while more companies have reported dividends amid rising profits, aggregate dividends fell 1.4 per cent after lifting in the February reporting season.
Excluding the impact of strong payouts by heavyweights BHP and Rio Tinto, that number would be much weaker.
Shane Oliver, who heads investment strategy at AMP, says historically there has been a close link between dividend payouts and where companies see profit growth heading.
"These results don't really show much impact from higher interest rates because interest rate hikes only started in May," he noted.
"We'll also see wage pressures might become more of an issue in the current financial year.
"A number of companies are now saying they're paying more than three per cent wage rises, which is more than we've seen for the last few years."
That has meant more cautious outlooks from several companies amid macroeconomic headwinds, resulting in more negative share price reactions despite a majority of earnings reports beating expectations.
While some exceptions like airlines and travel companies expect a boost in demand, most others including banks, supermarkets and discretionary retail are guiding for slowing profit growth in a clear sign of softening outlook.
"What we're seeing is companies under pressure from inflation, higher interest rates and the potential for a weaker consumer environment. They're starting to be a bit more circumspect," Mr Felsman said.
