Bank results mask a challenging start to earnings season

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Strong results by NAB and CBA buoyed markets this week, but on average, companies are posting fewer upside surprises than usual and are being punished for it.

National Australia Bank’s quarterly update was the highlight of the week for many investors as NAB posted revenue growth of 8 per cent on the back of higher volumes across housing and business lending, and a recovery in its treasury operations.

But the banks' results arguably masked some deeper challenges: just 38 per cent of company results surprised to the upside compared to the longer-term average of 43 per cent, according to AMP Capital research. “But on average, it’s been a little bit downbeat, and it’s against the backdrop of cost pressures... and it’s important to remember that often you get the better results at the start of earnings season, and then it tends to tail off a bit."as demand softened for medical gloves, and its margins were crunched by surging freight costs.

But just days later, Amcor revealed that it had implemented $650 million of price rises across its global operations in the December half to claw back raw material costs which have jumped around 10 per cent, highlighting that companies with strong pricing power are still capable of absorbing rising prices.

 

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