Before some of Australia’s top companies report their latest set of earnings results this earnings season, take a look back at our analysis and summary of Qantas, AMP, and Coles recent operating performance.
The pieces below were originally published in our ASX 2023 Playbook: What’s your next move – during the start of 2023.
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Qantas posts record A$1.43 billion interim profit as covid concerns ease
The covid pandemic looks well behind Qantas, with the blue chip airline snapping back to record profitability in the half ending 31 December 2022.
Earnings fly forward
After booking losses totalling A$7 billion during the pandemic, the airline reported a record set of earnings off the back of surging revenue in the first half of fiscal 2023. Qantas reported underlying profits before tax of A$1.43 billion, statutory profits of A$1.0 billion, and earnings per share of 53.9 cents.
Key data point:
The airline continues to manage its debt profile well, with net debt now sitting at A$2.4 billion, well below the company’s target range of between A$3.9 billion to A$4.8 billion.
Returning capital
While the airline didn’t declare a dividend as part of its interim results, the Board did announce it would be buying back up to A$500 million in Qantas stock, starting March 2023. This follows from a A$400 million buy-back program the airline completed in December 2022.
2023 outlook
Qantas management provided high level guidance as part of its interim results, giving investors insight into where the airline expects demand and capacity will head over the short term. In terms of the travel outlook, management said they expected travel demand to remain strong in fiscal 2023 and 2024. Across the second half of 2023 domestic capacity is expected to rise to 103% while international capacity is poised to reach 81%.
Key data point:
With those strong demand and capacity expectations, Qantas is forecasting that it will hit the top of its earnings (EBIT) guidance in fiscal 2023 – which currently forecast to come in between A$425 million to A$450 million.
AMP posts solid full year earnings as investment markets bite AUM
Volatile investment markets drag on AMP’s recovery plans, as the firm’s largest revenue driver takes a hit.
What are earnings anyway?
Despite volatile macroeconomic conditions, AMP’s management team described its full year results for fiscal 2022 as ‘solid’. On a statutory basis – when factoring in AMP’s sale of its debt platform in fiscal 2022 – the firm’s earnings do indeed look good, coming in at A$387 million, well above the statutory loss of A$252 million AMP posted in fiscal 2021. Normalised or underlying earnings tell a slightly different story. Here AMP saw its profitability decline to A$184 million, down from A$280 million in 2021. The firm attributed those declines to elevated share market volatility, strategic repricing within its wealth business, and weaker net interest margins for AMP bank.
Why it matters:
For investors looking towards long term earnings or dividend growth, focusing on normalised, opposed to statutory earnings, is considerably more useful. This is because normalised earnings excludes one-off events – like AMP’s sale of its debt platform, for example and therefore gives investors a better picture of a company’s earnings profile on a ‘true’ or ‘normal’ basis. And while AMP or any company for that matter can use one off events to fund business activities, like paying dividends, it doesn’t necessarily accurately capture a firm’s ability to deliver returns to shareholders on a consistent or long term basis.
Wealth volatility
Share market volatility was most evident in the operating performance of AMP’s wealth management division. The firm’s total assets under management hit A$124.2 billion by the close of fiscal 2022, down firmly from A$142.3 billion in fiscal 2021. Outflows reached A$5.3 billion in fiscal 2022.
Key data point:
AMP remains heavily reliant on its revenue generated from the assets it manages, deriving A$843 million in revenue or more than 50% of the firm’s total revenue, from AUM based revenue.
What to watch for:
Broad based improvements in financial market performance and conditions could prove to be a key tailwind for AMP. This could potentially see a boost to AMP’s total AUM, likely improve its AUM based revenues, as well as boost inflows.
Do more distributions loom?
AMP announced a final dividend of 2.5 cents per share, franked at 20%, as part of its full year 2022 results released in February 2023. Commenting on the firm’s commitment to returning A$1.1 billion to shareholders, AMP’s CEO Alexis George said:
“I am pleased that we are able to deliver an FY 22 final dividend to shareholders of 2.5 cents per share as part of that, in addition to the $350 million on-market share buyback that we currently have underway.”
Why it matters:
While that dividend is down significantly from AMP’s last dividend in 2020, the resumption of any dividend is decisively a positive sign from the company, signals improving balance sheet health and points to a potentially shareholder friendly Board. Looking forward, the company said it has planned ‘capital management’ activities of up to A$350 million in fiscal 2023 as part of its promise to return up to A$1.1 billion to shareholders.
What to watch for:
Investors should continue to watch for AMP’s profitability levels and earnings stability over time, its dividend payout ratio against normalised earnings, and franking levels.
Coles shines as a defensive play, revenue and earnings stable as inflation runs hot
Coles posted strong operating results for the half ending 31 December 2022, highlighting its attractiveness as a defensive pick during periods of high volatility.
Solid performance, challenging times
Coles notched up another period of consistent growth for the half ending 31 December 2022, with the supermarkets giant seeing improvements across all of its key operating metrics, on a continuing basis. Across the top line, Coles saw its revenue edge higher – up 3.9% year on year to A$20.8 billion. This coincided with second quarter comparable sales growth across its supermarkets business, which was up 7.4% in the half.
Key data point:
Revenue growth flowed onto the bottom line: earnings (EBIT) came in at A$1.05 billion, net profits after tax were A$616 million, which translated into earnings per share of 46.3 cents.
Defensive dividends
Off the back of solid interim Coles declared a fully franked interim dividend of 36 cents per share. That represents a 9.1% increase on the interim dividend from the year prior and builds on the company’s consistent history of paying a dividend.
What to watch for:
For income focused investors, this consistency – from both a dividend and operational resiliency perspective – might be considered an especially attractive characteristic of the business. The fact that Coles has been able to grow its revenue and earnings in periods of elevated inflation speaks to the defensive nature of the stock. Looking forward, investors should pay particular attention to whether Coles can maintain comparable levels of growth – across both its top and bottom lines.
Coles growth outlook
Coles management provided a number of important insights into the operating outlook of the retail giant as part of its interim results.
What to watch for:
In terms of the growth outlook, speaking to the current quarter, which covers January 2023 to March 2023, management positively noted that its ‘supermarkets volume growth returned to modestly positive from mid-January.’ Elsewhere, after seeing its earnings (EBIT) decline in the first half of fiscal 2023, Coles management said they expected the operating performance of the group’s liquor business to drastically improve in the second half of the year. Here it was noted that liquor earnings are forecast ‘to return to growth in the second half as we exit COVID-19 cycling and focus on building sales momentum, partially assisted by the February excise increase.’ Finally, on the investment front, Coles reiterated its fiscal 2023 capital expenditure guidance of between A$1.2 billion to A$1.4 billion.
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