AU earnings: Did Aussie giants BHP, Qantas Airways, CSL and Rio Tinto live up to investor expectations?

In this edition of Investor Spotlight, we shed light on the unforeseen shifts within the corporate landscape as approximately 85% of companies have concluded their reporting.

Earnings season summary to date

• With 85% of companies having reported, the prevailing trend points towards more downside surprises, often accompanied by cautious or absent outlooks from management
• Persistent higher costs remain a notable challenge, although there are indications of cost moderation
• Consensus earnings projections for FY22/23 have shifted to a growth of +1.8%, down from +2.5% recorded at the end of July. Similarly, projections for FY23/24 have shifted to a decline of -5.4%, compared to -0.8% at the end of July
• Home buyers have generally maintained their payment patterns, but not all rate increases have been transferred
• Dividend payouts have fallen short of initial expectations.

• BHP's earnings disappointment

BHP missed earnings expectations on both the revenue top line and bottom-line net profits with underlying earnings down -58% to US$12.92 versus consensus forecasts of US$13.8 billion.

The final dividend of US 80 cents was also a miss and the share price fell -1.4% on the day.

• Iron ore dominance and earnings

Approximately 60% of the company's earnings are derived from iron ore, and this segment experienced a -23% decline compared to FY22. However, it's important to consider that the preceding year set a record.

• Capital expenditure and dividend outlook

Capital expenditure guidance for FY24 stands at US$10 billion, with subsequent annual projections of US$11 billion. Given the company's exposure to commodity price fluctuations, analysts anticipate a decreasing trend in dividend payouts due to ongoing investment commitments.

• Production and cost guidance

Management's guidance indicates iron ore production levels of 245,000-264,500 tonnes, contrasting with 257,000 tonnes in FY23. Cash costs are projected to range between US$17.40 and US$18.90 per tonne, in comparison to US$17.79 for FY23.

• Regional activity and demand factors

Activity levels in China and India remain resilient, with anticipated demand growth in India. However, near-term uncertainties linger concerning the outlook for steel demand in China and its consequent impact on iron ore.

• Analyst price targets and ratings

According to FNArena, the prospective target price stands at $43.60, while the shares are presently trading with a prospective dividend yield of 5.8%. Refinitiv's mean target price aligns closely at $44.95. Although the majority of analysts maintain a Buy rating, a subset of analysts has adopted a more cautious stance, as summarised below.

Refinitiv analyst price targets and ratings chart

• Qantas soars above expectation

Qantas' share price soared by 3.2% in response to results that even experts deemed better than anticipated. The underlying net profit reached $2.5 billion, aligning with guidance from May of this year.

• Benefiting from ticket price increases

The company benefited from higher airfares, with domestic ticket prices rising by 4% and international ticket prices by 10% above pre-pandemic levels.

• Steady revenues amid price declines

Despite declining ticket prices, revenues remain resilient, and the company experiences sustained growth in volumes, particularly as international routes progressively recover.

• Share buyback and dividend update

The share buyback program was expanded from $400 million to $500 million, consistent with expectations. As anticipated, no dividend was declared.

• Strategic aircraft orders

Departing CEO Alan Joyce revealed a substantial order of 12 Boeing 787 Dreamliners and 12 Airbus A350s, underlining Qantas' commitment to expanding its fleet. Capital expenditure commitments remain stable, and Qantas expects delivery of 133 new aircraft between FY24 and FY29.

The company did not provide any forward guidance in its recent announcement.

• Refinitiv analyst price targets and ratings

The Refinitiv mean target price stands at $8.27, while FNArena places it at $7.75. With projected 11% earnings growth in FY24, the current prospective multiple for the stock is 5.8x.

Refinitiv analyst price targets and ratings chart

• CSL continues to recover

The market’s initial reaction to the CSL earnings result was to lift the share price 4.3% and some saw the earnings as better than expected.

• Revenues surge in constant currency terms

Revenues in constant currency terms witnessed a remarkable 31% surge, amounting to US$13.8 billion. Net profits also registered an 8% increase, reaching US$2.4 billion.

• Strong performance in plasma collections

Plasma collections achieved unprecedented levels, accompanied by a notable decline of -14% in collection costs over the year. This reduction deepened to -17% during the peak of the pandemic.

• Currency fluctuations impact

Currency fluctuations exerted a negative influence on earnings. However, these impacts were well anticipated, aligning with the guidance downgrade provided in June. The company is set to go ex-dividend for the US$1.29 dividend per share on September 11. Impressively, the dividend for the full year experienced a significant 13% increase.

The new CEO expressed an overall optimistic outlook. Nevertheless, plasma costs continue to hover above pre-pandemic levels, presenting a notable challenge.

• Refinitiv analyst price targets and ratings

FNArena reflects an average target price of $330.55 along with unanimous six-out-of-six broker Buy ratings. Meanwhile, Refinitiv's mean target stands at $321.72.

Refinitiv analyst price targets and ratings chart

• Rio Tinto, a miss like BHP

Similar to BHP, Rio faced challenges in its 1H23 earnings due to the impact of lower commodity prices. Despite this, the results were a mixed bag, aligning reasonably well with analyst projections. Notably, iron ore contributed to 84% of the earnings, and improved cost management aided the overall results. However, underlying earnings experienced a significant decline of -37%, amounting to US$6.5 billion.

• Market reaction and dividend payout

Rio acknowledged the influence of rising costs and inflationary pressures, attributing these factors to a US$41.5 billion increase in costs for the first half results.

Upon the announcement of the results, the company's shares witnessed a 0.7% drop in London trading. The dividend payout, set at 50%, was notably lower than anticipated, marking a contrast to the 65% payout recorded over the preceding three years.

• Refinitiv analyst price targets and ratings

FNArena offers an average share price target of $113.92 for Rio, while Refinitiv's mean target price stands at $120.90.

Refinitiv analyst price targets and ratings chart