First results suggest recovery still weak

EARNINGS SEASON: It's been a mixed bag of financial results so far.

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"Patchy" and "a mixed bag" are typical reactions to corporate results streaming in so far this month.

"All in all, there have been not too many disappointments," said First NZ Capital's head of research, Rob Bode.

"So far it's been OK," said Goldman Sachs investment strategist Bernard Doyle.

"The fragile recovery is definitely coming through in these earnings numbers. We're tending to have companies meet their numbers more than surprise us.

"Inasmuch as there's a theme coming through it's that there's not a lot of confidence we're building momentum as an economy, which is pretty consistent with how we're seeing things."

Of the big company reports, Fletcher Building's $272 million profit – after a loss last year – produced an immediate share price lift despite falling revenue and earnings at the operating level.

"I think the market was fearing the worst with that one so there was a bit of relief," said Mr Bode.

There was more positive market sentiment for results from Freightways and Mainfreight, both seen as bellwethers for economic direction.

After reporting a full year profit of $39.5m on Monday, Freightways saw its share price jump from $2.75 to above $2.90, while Mainfreight's bullish quarterly announcement lifted its stock almost 20c to $6.70.

"Freightways has been having a tough time of things but the outlook was better so the market responded well," said Mr Bode.

"Similarly, Mainfreight is recovering from a pretty rough time last year and has got good momentum so portrayed quite a good outlook."

On the other side of the coin, Sky City's 12 per cent profit gain to $129.1m, on a normalised basis, met with little market enthusiasm after lacklustre figures from its Auckland gambling powerhouse. Its shares fell from $2.99 to $2.88.

"SkyCity, where Auckland gaming was a bit disappointing, is definitely signalling in the numbers it's still pretty tough," said Mr Doyle, "whereas Mainfreight did pretty well with its US operation.

While several big results are still to come this week, including Air New Zealand, Auckland Airport and Vector, so far the earnings season is reinforcing the impression of a weak recovery.

"The thing I look at on the strategy side is `are analysts revising their numbers up or down?', because it's usually a good indicator of where things are heading," said Mr Doyle.

"I'd say we're going to have the number [of analysts] revising up their numbers roughly offset by the people that are revising down. That says to me this is not an earnings seasons that is necessarily being powered by a strong recovery."

- © Fairfax NZ News