Damage from months-long bushfires will dominate Australian corporate earnings results this month as companies give their first profit updates since the start of the summer and as a coronavirus outbreak in China adds uncertainty to forecasts.
Insurers such as Suncorp Group Ltd <SUN.AX> and Insurance Australia Group Ltd <IAG.AX> that are paying out claims related to the country's worst bushfires in a generation will be hardest hit, fund managers and analysts said.
Retailers and companies that depend on discretionary consumer spending are expected to report a tough quarter as well. Earnings from a clutch of such companies including retail conglomerate Wesfarmers Ltd <WES.AX> is likely to decline 1.6% on an average for the six months ended Dec. 31, according to Refinitiv data.
Companies exposed to Chinese tourism and spending, including casinos, educators and dairy producers, may flag early impact from the virus that has killed nearly 500 people and infected more than 24,000.
"What's likely to shape the outlook is big uncertainties, things like coronavirus and companies with direct exposure to China," Citigroup equities strategist Craig Woolford said at a recent media briefing.
"There are also the bushfires and how they've distorted activity," he said.
Qantas Airways Ltd <QAN.AX>, the country's flagship airline, may take a double hit as bushfires gutted domestic tourism over its busiest period while it was forced to cancel flights to mainland China from Feb. 9 to March 29, potentially hitting its earnings outlook.
Many companies have already flagged potential losses from the bushfires, which have claimed 33 lives and destroyed over 2,500 homes. Fire season still has another month to run and analysts are expecting more losses.
Industry watchers said they are also bracing for bearish commentary from Crown Resorts Ltd <CWN.AX> and vitamin maker Blackmores Ltd <BKL.AX>.
Tougher import rules and a slowing Chinese economy have weighed on Blackmores results in the past few quarters, while fewer big-spending Chinese travellers have hurt the casino giant's sales as it deals with management changes and regulatory probes.
WHO WON?
Macquarie Research slashed its estimate for Australian companies full-year profit growth to 0.5% on Feb. 3, from 8.8% in July. The brokerage expects investors to favour mining companies, which it estimates will see 8.7% growth this year.
Goldman Sachs expects electronics vendor JB Hi-Fi Ltd <JBH.AX> to benefit from higher air purifier sales as bushfire smoke shrouds big cities. The brokerage also anticipates global vaccine maker CSL Ltd <CSL.AX> to beat market estimates after a "strong start to northern hemisphere flu season".
Australia's biggest banks, struggling in a low-credit growth environment and dragged down by hefty customer compensation bills following mis-selling scandals, are expected to again report weak figures.
"We expect low interest rates, poor and deteriorating housing affordability, and high valuations by global standards, will continue to make banks an unappetising investment," said analyst Nathan Bell at InvestSMART.
The four biggest banks including Commonwealth Bank of Australia <CBA.AX> are expected to report a 10% decline in profit for the first half of fiscal 2020, from the same period a year earlier, according to Refinitiv.
Still, things improved from the first half of 2019, with profit estimated to be up 4%.
(Reporting by Byron Kaye; Additional reporting by Paulina Duran in Sydney and Gaurav Dogra in Bengaluru; Editing by Sayantani Ghosh and Christopher Cushing)
