Insights from reporting season
As August 2025 has now wrapped up, Australia’s reporting season has again delivered a snapshot of the economy’s trajectory. For years, we’ve heard the refrain of a “resilient” domestic market weathering global headwinds, interest rate hikes, and inflationary pressures. But this time around, the narrative has evolved. Companies across the ASX are signalling that resilience is giving way to tentative recovery, particularly in consumer spending and the housing sectors.
A domestic economy on the mend
One of the standout themes from this reporting season is the budding recovery in Australia’s homegrown economy. Corporate leaders have moved beyond describing the market as “just resilient” – a phrase that’s dominated earnings calls for the past three years – and are now pointing to tangible signs of improvement. Over the last two months, for example, consumers appear to be responding positively to easier financial conditions, including lower interest rates and stabilising inflation.
This optimism was vividly illustrated in the post-June 30 trading updates from companies such as Harvey Norman, Nick Scali, JB Hi-Fi, and Super Retail Group.
Sectors tied to consumers and housing are leading the charge, suggesting households are starting to loosen their purse strings after a period of caution. For instance, easier access to credit and reduced mortgage stress seemed to be fuelling demand in retail and property-related businesses. While it’s early days, this shift could mark the beginning of a broader economic upswing, providing a much-needed boost to gross domestic gross domestic product (GDP) growth in the coming quarters.
Of course, in reality, much will depend on what happens overseas, especially in the United States.
Beats and misses
The profit picture wasn’t uniformly rosy. There was a roughly even split between companies that beat earnings expectations and those that missed – a departure from the positive momentum we’ve seen in recent reporting seasons.
It’s fair to say, the mixed scorecard highlights a loss of steam in corporate profitability, potentially reflecting lingering cost pressures and an uneven recovery in demand.
Consumer Discretionary stocks, buoyed by rebounding spending on non-essentials like apparel and leisure, demonstrated the most consistent beats against consensus forecasts. Similarly, Health Care companies shone, likely benefiting from steady demand for medical services and innovations. On the flip side, Consumer Staples – think everyday groceries and household items – tended to underperform, possibly due to price sensitivities and competition.
This sectoral divergence highlights the uneven nature of the recovery: while discretionary spending is picking up, staples and heavy industry, which follow the corporate capital expenditure (capex) cycle, are still grappling with the aftermath of economic tightness.
Earnings revisions
According to most observers, analyst revisions to forward earnings estimates have leaned modestly negative, with roughly five upgrades for every six downgrades. When upgrades did occur, they were relatively modest at about +2.5% per cent for next year’s earnings per share (EPS), compared to a steeper -4.2 per cent median cut for downgraded stocks.
Sector-wise, Real Estate and Financials bucked the trend with broader upward revisions, perhaps riding the wave of improving housing sentiment and lower borrowing costs.
Overall, the adjustments have shaved about a per cent off the S&P/ASX 200’s earnings outlook for both FY25 and FY26. Consensus now predicts FY25 growth at -3.1 per cent (down from -1.8 per cent a month ago) and FY26 at +4.5 per cent (down from +5.4 per cent). While not disastrous, this tempered forecast suggests investors should brace for subdued growth in the near term, remembering if the economy starts picking up, forecasts will be upgraded again..
Offshore influences
Amid the domestic green shoots, companies with international exposures painted a less encouraging picture – with the exception of a few companies like Brambles, ARB and Nick Scali.
Some Industrials reported ripple effects from troubles in the US housing market, where slowdowns in construction and sales are dampening demand for Australian exports. Tariff concerns continue to loom large, adding uncertainty to global trade dynamics and potentially weighing on future earnings.
Artificial Intelligence (AI) emerged once again as a hot topic in boardrooms, with companies touting investments in AI technologies. Yet, as in previous seasons, there’s a notable absence of concrete productivity gains or revenue boosts from these initiatives. The MIT report-prompted “AI investment without returns” narrative raises questions about whether the hype is outpacing practical applications, at least for now.
Investors might want to scrutinise any claims closely, separating genuine innovation from buzzword bingo.
Market reaction
Despite the mixed bag, the market’s response has been largely positive. For reporting companies, three stocks saw a price-to-earnings (P/E) re-rating for every two that de-rated, with the strongest lifts in Consumer Discretionary, Tech, and Communication Services. This skew aligns with a broader global equity bull market narratives.
So, there’s probably little need to credit Australia’s market gains to the results. The bullish international backdrop has played a significant role in lifting sentiment.
It’s also worth calling out the record share price volatility among reporting firms. Is this an anomaly – related to outdated earnings estimates, or is it structural – driven by rising passive investing and High Frequency Trading? For long-term investors, it probably creates opportunities, especially where the market treats as permanent, that which is temporary.
The Montgomery Small Companies Fund owns shares in Harvey Norman, Nick Scali and ARB. This article was prepared 02 September with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
