ASX reporting season: Signals, surprises and stock stories

Strong earnings, higher dividends and plenty of surprises featured in this year’s August reporting season, but the headline numbers only tell part of the story.

While resources and healthcare emerged as clear winners, banks faced a tougher outlook and consumer-facing businesses continued to feel the effects of a more cautious economy. The result is an increasingly selective market, where company fundamentals are increasingly separating winners and losers rather than broad market trends.

Christian Guerra, Head of Research and I unpack the key trends that shaped this reporting season.

Edited transcript

David: Welcome to the First Sentier Investors Curious podcast. I'm David Wilson, deputy head of the Australian Equities Growth Team, and joining me today is Christian Guerra, Head of Research.

In today's episode, we're unpacking the August reporting season, where we'll explore the key themes, standout performances, and what it means for investors.

Before we get started, this podcast is general information and for an Australian audience only. It's not advice. It does not take into account anyone's investment objectives, situations, or needs. Funds referred to in this podcast are issued by either the trust company RE Services Limited or Colonial First State Investments Limited. Product disclosure statements and Target Market Determinations are available on the First Sentier website and should be considered before deciding whether to invest in the funds. So let's start today with getting an overview of the reporting season from Christian, because there's a lot to get through and a lot of things happened.

Christian: David, good morning. So yeah, great to be with you again and very, very interesting August in my opinion.

So what I'd say is that superficially, optically, the reporting season looks strong, but when you look under the hood, I think there are maybe a couple of areas of concern. So let's start with the overall picture.

So overall numbers, I call it earnings estimates, beat expectations by about 15 percentage points. Super strong, particularly when you compare it to the last two August reporting seasons. So August 2025, it was about a 4% beat, so obviously a long way below that sort of 15 percentage points of this year. And the year before that, August 2024 was actually flat, so it came in line with expectations. So yeah, very, very strong beat.

The other interesting part of it was that dividends were super strong. So dividends beat expectations by over 20%, and that was driven by higher payout ratios as well as really strong cash generation.

So you look at that and you come on and you think, wow, we've had a really, really good August and the Australian market is doing really well. But when you look under the hood, in my opinion, it wasn't as strong. And there were probably three key reasons for that.

Number one, just given the conflict earlier in the year, we did see a lot of companies come out with trading updates in that sort of May, June, July period where they guided the market. So therefore the number of companies that actually missed expectations was low because that's essentially almost pre-released their results.

Secondly, when you look at earnings for FY26, EPS growth was around 10%, which looks pretty solid, but resources are a huge driver of that. With resources EPS up almost 35%, banks are essentially flat and the industrials actually saw earnings contract for the FY26 year. So again, not great.

And then lastly, analysts actually downgraded the forward outlook. So about 30% of companies actually downgraded their forward outlook, forward guidance. The market downgraded by about 300 basis points, and as a result, FY27 EPS growth is now only 4%.

So Dave, that was the overall, and maybe now let's have a chat about the barbells. So the banks versus resources. I might start with the banks if that's all right and I might flick to you on the resources.

I thought it was a tougher reporting season for the banks and certainly a big contrast to what we saw in February where they had a really good reporting season, really in an environment that couldn't get much better.

It was a lot tougher this time around. And really the key issue was the revenue performance of the banks and specifically their net interest margins, so their bank net interest margins. And that was despite the fact they had some pretty good tailwinds from higher interest rates as well as what's called their replicating portfolio. So essentially the hedges on their deposits. So margins expanded certainly, but the expansion margins came in way below expectations. And as a result of that, the pre-provision profit number, which is really sort of the key measuring stick that we judge the banks on from a valuation perspective and a growth perspective, the pre-provision profit numbers came in below expectations. Probably the bigger issue though was on the outlook where clearly there was a lot of focus given the recent changes around the taxation outlook for property. And the banks did talk about what they'd seen since the budget.

And probably most interestingly on mortgage applications, they'd seen a drop across the four major banks is somewhere between 12 and 20%, which is clearly material. 

And then on the investor side of the equation, the reduction in mortgage applications was somewhere between 20 and 28%. And that's important because it does have implications for loan growth and for balance sheet growth for the banks, which is clearly how they drive their net interest income. And the big drop off in mortgage applications did raise some alarm bells around potentially unfolding downturn in the housing market. Now, certainly we are not being alarmist at all here. The banks are very, very well provisioned. They did see a small uptick in arrears in their most recent results, certainly off a very, very low base and nothing to be concerned about. But clearly if loan growth is slowing, then that means a slower revenue environment for the banks and that has implications for earnings and obviously for valuation.

How about the resources, David? Anything worth calling out?

David: Well, as you've already mentioned, Christian, the resources was really quite a standout through reporting season. They really drove a lot of the overall growth for the market. So you could almost divide it up into three. I think it's the best way to think about it. So firstly, you look at the energy companies and obviously with elevated oil and gas prices, those stocks perform well and the earnings were strong. And it's probably worth calling out Santos (ASX: STO) in particular because they're really through a very heavy CapEx phase and they're really now starting to earn through the cash flows from their northern territory and their Alaskan projects. And you're already seeing their payout ratio start to rise. So alongside Woodside (ASX: WDS) as well, they had both very sort of strong results and things were encouraging. 

Then you move across to what you call the sort of traditional mining areas of the BHP (ASX: BHP) and Rio (ASX: RIO), and with the iron ore price at $100 a tonne and you got the copper price at $6.50 a pound, their earnings are incredibly strong at the moment to the point now where BHP earns actually more from copper than it does from iron ore.

Christian: Wow.

David: And even in the case of Rio Tinto, they're earning 50% of their earnings from iron ore and now 30% from copper. So again, very, very strong results for those two and they're a key part of the market.

And then the final areas we're touching on is just the gold miners. And really what we started to see in Australia is just the emergence of an array of mid-cap groups. So yes, you've got the traditional gold companies like the Newmont (ASX: NEM), Northern Star (ASX: NST), Evolution (ASX: EVN), and they continue to perform well, although Northern Star a little bit more mixed.

But now you've got names like Ramelius (ASX: RMS), Capricorn (ASX: CMM), Genesis (ASX: GMD), and they're now a meaningful part of our index. And again, with elevated gold price like the elevated iron ore and particularly the elevated copper prices and the energy prices, all of those companies were earning through and really generating cash flows and the stocks have benefited accordingly.

So that's, if you like the sort of banks and resources part of the market. Let's step across to more of some of the growth sectors that we have. Why don't we start with healthcare?

Christian:

Yeah, thanks Dave. So a pretty interesting month in healthcare. The sector actually delivered one of the best share price performances on record as an overall sector. And what's interesting is the stocks in healthcare are quite disparate. So it's not like there were industry tailwinds sort of driving the results. Each company individually delivered a really strong and in some cases outstanding six and 12 month period of results.

So, I'll start with MedTech, so the sort of medical device companies and two companies that we've talked about in the past, ResMed and Fisher & Paykel (ASX: FPH) Healthcare, super strong results, double digit sales growth, double digit profit growth, strong outlook, two really, really good results there.

The other medical device company that reported in August was Cochlear (ASX: COH), where I'd say it was more of a case of a less bad result. So they had essentially a profit warning earlier in the year. The results came in a little bit better to what they'd guided to. There was some encouraging signs. So the cochlear implant part of the business delivered a reasonable result in the second half, but overall I'd say Cochlear was more of the less bad in terms of numbers.

Pro Medicus (ASX: PME) stock we've talked about in the past, very, very strong results. So sort of 30% growth in sales, 30% growth in profit, EBIT margins approaching 75%. They've had some really good contract wins over the course of the last six months. They're typically sort of full stack, which means they come with all the Pro Medicus products. They've achieved price rises, typically they're multi-year contracts.  

I think it's fair to say that Pro Medicus has completely obliterated that sort of AI bear thesis that we saw earlier in 2026. So strong result there.

The other one was CSL (ASX: CSL) where that stock moved almost 40% in the month of August, which clearly for a large cap stock like that is quite extraordinary.

David:

Certainly been a volatile beast.

Christian:

Has been very volatile, yes. It's copped a huge D rating and potentially is turning the corner. And it's interesting when you look at the result, the actual result itself and the outlook was about what the market expected, but I'd argue the composition was a little bit better. And really, I guess my focus there is that CSL bearing business where the second half numbers were decent and the outlook pointed to sort of mid to high single digit top line growth with a bit of margin expansion and clearly investors voted with their feet there.

We also saw a decent result from Ramsey Healthcare (ASX: RHC), which is one of the very few, I think, domestic healthcare companies that delivered a good result. And really the story there is of a management team that's really executing this turnaround, both in terms of the core sort of Australian hospitals business as well as the overall group and the overall return on capital of the company.

So yeah, that'd be the summary. Yeah, a number of really, really strong results in healthcare in the month of August.

David:

And then in the tech sector, which is also another sort of growth part of the market, again, it's not homogenous, but like the healthcare sector. So it's worth actually dividing it up a little bit. You look at the classified businesses, so the likes of Car Group (ASX: CAR) and REA Group (ASX: REA) continued to deliver double digit earnings growth, very, very strong franchises, well-run businesses, and just continue to consistently deliver the earnings to the earnings expectations of the market. However, again though, SEEK (ASX: SEK) disappointed. It's a sort of chronic disappointer and it did it again. So it really differentiates itself from the likes of Car and REA.

Moving more across to some more traditional tech type companies, a company like WiseTech (ASX: WTC) actually delivered very strong earnings number. NPAC was up over 30%, but the market was a little bit dissatisfied with the revenue growth. And so the stock was marked down on the back of that.

Elsewhere in tech, you already mentioned Pro Medicus and alongside a company like NextDC (ASX: NXT), those sort of companies continue to generate contract momentum, which is really what the market is looking for.

Christian: Spot on. Yeah.

David: So Australian tech stocks over the previous 12 months have had a volatile period, but I think they're largely through a lot of those sort of, if you like, apocalypse concerns that sat on them through that period. But it's now worth probably touching a little bit on the sectors that are more, as you touched on before, a bit more exposed to the economy.

Christian: Yes.

David: So you can talk to the retail sector, I'll deal with the industrials for a bit.

Christian: Sure.

David: Yeah, the retailers.

Christian: Yeah. Again, a pretty interesting month in retail and we saw a real dichotomy between the consumer staples, so the everyday needs type of retailers versus the more discretionary parts of the market. So I'll start with the staples and in particular the two supermarket chain.

So Coles (ASX: COL) and Woolworths (ASX: WOW), where they delivered really good results and they were rewarded by investors. So they're delivering, we shouldn't get carried away here, but they're delivering top line growth of three to 5%, which is decent. They're opening a few more new stores. They're seeing consumers return to the two bigger retailers, the two bigger supermarket retailers. So they're probably taking a bit of market share. Their execution has improved. So things like stock availability is better than what it has been in the past, which I know is probably retail 101, but it has been an issue in the past.

David: Amazingly.

Christian: Amazingly. And they're also growing their earnings. So top line growing sort of 3% to 5%. They were growing their EBIT at probably 8% to 10%, 8% to 12%, which again is decent. And again, pretty good top line sales momentum. They're realising some cost savings, their productivity's improving. So yeah, overall, I thought two commendable results from the two big sort of supermarket retailers.

In contrast, in discretionary, the results were weaker and the outlook was probably weaker as well. 

So this is the likes of JB Hi-Fi (ASX: JBH), Harvey Norman (ASX: HVN), Nick Scali (ASX: NCK), these types of discretionary retail companies.

David: Some of those are really well-run companies too, Aren't they?

Christian: Super well, you'd argue that a couple of those companies are two of the best run retailers in the country. But again, you can't really defy the headwinds and the pressure in terms of what's happening with the consumer.

So yeah, as I said, the results are probably a little bit, I would say modestly weaker, but the issue was really around the outlook where those companies talked about negative like for like or negative same store sales in the month of July.

So for JB Hi-Fi, they saw negative like for like sales in JB Hi-Fi Australia as well as The Good Guys and also E&S, which is their recently acquired premium appliances business. In the case of Harvey Norman, they saw negative like for like sales in both Australia and in New Zealand. 

I talked earlier about this unfolding housing downturn, potentially engulfing the banks and really the discretionary retailers are the epicentre of that because clearly if the housing market's slowing, if housing turnover slows or people are doing less in the way of renovations and alterations and additions, that has big implications for the sellers of appliances and white goods and televisions and all that sort of stuff.

So yeah, a bit more challenging in that discretionary part of the market for sure.

David: Well, in the industrials, again, you've almost got to piece through it sort of stock by stock. But if you look at the companies like BlueScope (ASX: BSL), Ansell (ASX: ANN), James Hardie (ASX: JHX), Sims (ASX: SGM), Index, they've got large US and North American exposures. And so they continue to easily deliver double digit earnings growth. So really quite strong in that part of the market.

With the contractors, a little bit more domestically focused, they're actually sort of quite mixed. But within that, Ventia really sort of shone through where it continues to get high single digit earnings growth, a lot of defence utilities contracts benefiting them in that part of it. You did have some disappointments, the likes of Aurizon (ASX: AZJ) and Bramble's (ASX: BXB) probably disappointed somewhat.

Qantas (ASX: QAN), the market was aware that the fuel price was going to sort of impact them, although their loads were a little bit sort of weaker in the fourth quarter, but Qantas is well run and they're sort of well positioned for the year we're now going into, but certainly we saw some weakness at Brambles and Aurizon.

And what you also saw, which I thought was intriguing, was that you had a couple of companies like Cleanaway (ASX: CWY) and Reliance Worldwide Corporation (ASX: RWC) who actually had profit downgrades and the results were quite weak, but then they actually attracted takeover bids. So the share prices actually responded very strongly despite what seemed like prima facie, reasonably weak results.

I think it's one of those things that when you piece through reporting season, you've got to sort of think through almost stock by stock or within sub-sectors and that. It's sort of harder these days, I think almost to sort of do a generalisation.

Christian: Absolutely.

David: And particularly when you've got the sort of potency of Australia having a very, very strong resources sector as well, which I think really sort of shone through.

Christian: You're right. I mean, even the fact that the overall market was flattish in the month of August, banks fell around 10%, which is their worst result in, I think since maybe 2022, whereas healthcare had their best month on record. So again, a flattish market actually almost camouflaged some huge moves in some quite big sectors and quite big stocks.

David: All right. Well, thanks very much for today, Christian, and we'll finish up there.

Christian: Always a pleasure, David.

David: So thank you for joining us. We'll be back with future reporting season updates. So don't forget to follow the Curious Podcast. For more information about our team and our strategies, head to our website at firstsentierinvestors.com.au.

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