A pass on paper: Our grade on the Aussie reporting season

Four rate rises, a Budget that wound back tax concessions for property investors and an energy-driven lift in inflation – August’s reporting season was a test of how much pressure Australian companies could absorb. On the surface, they passed, with the broader market beating expectations, but on closer examination, growth is narrow, outlooks are cautious and boards are handing cash back rather than investing it. 

Room for improvement  

The bar had been lowered in the lead up with management teams cooling expectations during the May ‘confession season’. Realised profits grew 12.0% year-on-year, though this was heavily influenced by the booming materials sector. Stripping materials out, earnings grew by 4.6%, and analysts expect a similar split in FY27 (+8.9%, or +5.2% outside energy and mining).  

Beats and misses were evenly split and aggregate earnings per share measures finished around 2% lower, yet some of the best share price reactions went to companies whose results were simply less bad than feared. CSL is the clearest example; after falling 22.6% in May, as healthcare became one of the most heavily de-rated sectors of FY26, it rose 17% on a result that beat expectations by just 2%. Reactions bore little relation to the size of the beat, so sentiment was doing more of the work than earnings. 

The view from the boardroom 

Beyond the numbers, company outlook statements arguably offered a more direct read on how the domestic economy was performing. Housing is where higher rates and changes to tax policy are biting hardest. All four major banks flagged slowing credit growth. Westpac reported mortgage applications down 20% between the May Budget and the end of July, and ANZ, CBA and NAB reported falls of 12% to 15%. House prices are following activity lower, with the five major capitals approximately 5% below their April peak, and we see scope for this downturn to exceed the roughly 8% falls of 2017-19 and 2022-23. 

On the consumption front, households are trading down rather than cutting back, which the aggregate data isn’t built to capture. Consumer spending rose +0.4% in the June quarter, yet company results show where it went. Woolworths cut prices and lifted Australian Food sales 5.7% in the second half, JB Hi-Fi’s comparable sales turned negative 0.8% in the final quarter as customers moved to lower-specification product, and Nick Scali reported store traffic down 10% to 15%. What’s clear is that persistent inflation is eroding real purchasing power, and paired with higher mortgage repayments, it’s crimping household budgets. 

Boards weighed the same conditions and chose to return cash rather than commit it. Two-thirds of companies lifted their dividend, the most since 2021, and the market rewarded them returning a median 5.5% on the day, against -1.6% for those running buybacks. A higher payout ratio leaves less for reinvestment, a strong signal that boards and management teams are finding few domestic opportunities worth funding. 

September’s trading shows where investors see the risk. CBA (-5.6%), the largest mortgage lender, lagged the broader market as house prices kept falling, while the online classifieds sold off on the same domestic weakness: REA (-11.1%) on listing volumes, Seek (-16%) on rising unemployment and Carsales (-17.4%) on softening vehicle demand.  

We read this as the market pricing a higher for longer interest rate regime, more intense housing downturn, a softer labour market and weaker consumer demand. Reality is that valuations also offer little cushion. At 18x forward earnings the market looks expensive against its growth outlook, while a net dividend yield of 3.5% sits at the very bottom of a 20-year historical range.