Australia First-Quarter Company Profits Weaken, Inventories Rise
Gross operating profits fell 4 percent from the final three months of last year, when they slid a revised 6.4 percent, the Bureau of Statistics said in Sydney today. The result compares with the median forecast for a 2.5 percent drop in a Bloomberg survey of 17 economists. Inventories rose 0.9 percent. Economists had forecast a 0.7 percent gain.
Reserve Bank of Australia Governor Glenn Stevens will lower the benchmark interest rate to 3.5 percent tomorrow, according to most economists surveyed by Bloomberg. A high currency has hurt earnings for manufacturers and retailers, helping create what the RBA has referred to as a multi-speed economy with those industries lagging behind the performance of companies linked to the nation’s mining investment boom.
“Manufacturing profits, which are 10 percent of the total and have fallen for six of the past seven quarters,” are likely to have “fallen further, in part reflecting the high Australian dollar,” Justin Fabo, a senior economist at Australia & New Zealand Banking Group Ltd., said in a research report before today’s release. There is likely to be “a further decline in mining profits due to lower export prices in the quarter,” he said.
The currency gained 1.3 percent last quarter against its U.S. counterpart and has risen 37 percent since the start of 2009.
From a year earlier, profits declined 0.5 percent, today’s report showed.
Profits at mining companies fell 13.3 percent in the first quarter and manufacturing declined 9.8 percent, according to today’s report. Profits at financial and insurance services soared 74 percent, and accommodation and food services advanced 5.3 percent, the report showed.
Transfield Services Ltd., an Australian engineering and maintenance company, in April cut its full-year profit forecast as much as 22 percent.
After tax earnings before amortization costs will be A$105 million ($101 million) in the 12 months ending June as floods and storms hit its mining unit and the company provides for losses on a construction contract, Sydney-based Transfield said April 3. The forecast is as much as 22 percent less than a Feb. 22 prediction for profit of A$130 million to A$135 million.
Harvey Norman Holdings Ltd., Australia’s largest electrical-goods retailer, said in May that nine-month earnings dropped 25 percent as a consumer slowdown curbs sales and discounting crimps profitability.
Unaudited pretax profit fell to A$204.8 million in the nine months ended March from A$272.3 million a year earlier, the Sydney-based company said in a statement on May 3. Sales in the period dropped 6.7 percent.
Myer Holdings Ltd., Australia’s largest department-store chain, last month cut its profit forecast.
Net income may fall as much as 15 percent in the year ending July as weak consumer spending and uncertainty about the global economy cuts sales, Myer said May 23. The Melbourne-based retailer forecast March 15 that earnings would be “no worse than 10 percent” below the year-earlier profit of A$162.7 million.
Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign-exchange gains or losses.
Stevens last month slashed the overnight cash rate target to a two-year low of 3.75 percent from 4.25 percent, the deepest reduction in three years, as inflation cooled and growth slowed. The nation’s currency declined 6.7 percent last month as concern about the global economy and Chinese growth worried investors.
Australia’s economy probably grew 0.5 percent in the first quarter, accelerating from a 0.4 percent pace in the final three months of last year, a Bloomberg News survey of 24 economists showed before a June 6 report.
To contact the editor responsible for this story: Stephanie Phang at email@example.com
Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.