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Wrapping up the 2023 financial year reporting season: A mix of resilience and uncertainty


Wrapping up the 2023 financial year reporting season: A mix of resilience and uncertainty

In this week’s video insight, Roger Montgomery delves into the recently concluded 2023 financial year reporting season which presented a mixed picture.

While overall results suggested economic resilience until the end of June 2023, underlying trends hint at a slowdown in corporate earnings growth and a potentially prolonged economic recovery period.

Various sectors, such as building materials and retail, showed mixed dynamics.

Roger discusses the performance of companies across these sectors, including Boral (ASX: BLD) and James Hardie (ASX: JHX), and retailers Nick Scali (ASX: NCK), Adairs (ASX: ADH) and JB Hi-Fi’s (ASX: JBH).

In terms of outlook, investors are treading with caution due to potential economic downturn, cost pressures, and their impact on profits and stock prices.


The just-concluded reporting season for FY23 unveiled a juxtaposition. While, in aggregate, results suggested our economy was resilient until June, deeper undercurrents suggest corporate earnings growth is slowing and we might be on the brink of a more extended recovery.

On the brighter side, companies recorded robust revenues, often surpassing their own projections. Company profits grew two per cent YoY versus expectations of 0.5 per cent growth. Indeed, more companies beat expectations than missed by a factor of five to three, or 167 per cent of the companies that missed expectations, beat expectations. 

However, that silver lining is clouded by the fact that many businesses highlighted the number one challenge being cost growth, specifically from labour, rent, energy and domestic transport. We also saw companies generally offer relatively soft guidance for 2024. Indeed, revenues appreciably slowed in the second half and that slowing continued into the first half of 2024. Consequently, the number of companies that downgraded guidance for FY24 exceeded those upgrading by 3:2. The consequence of this has been sell-side analysts revising down their expectations for FY24 profit growth to minus -5.7 per cent. And to put that in perspective, six months ago consensus forecasts for FY24 profit was for 0.7 per cent growth and last month it was minus -0.8 per cent. So there has been a serious deterioration in expectations from the beginning of reporting season to the end.

Looking at sectors we saw the building materials companies – think Boral (ASX: BLD) and James Hardie (ASX: JHX) – calling out a weaker demand environment and consequently cost-out programs. It’s worth remembering however that the outlook for residential construction will probably improve. The reason I say that is we know apartment completions are 50 per cent below 2018, and rental vacancies around the country are less than 2 per cent, but demand will rise with population growth, rents are rising by 10 per cent, and consequently property prices are rising again.

We also saw investors adding to their retail exposure. Companies like Nick Scali (ASX: NCK) have been able forward sell their furniture at stable prices but are receiving better shipping rates. Elsewhere in retail, several companies cited Chinese manufacturers offering discounts as the Chinese economy slows down. That’s helped companies to maintain margins. 

We also saw companies linked to renovations, such as Adairs (ASX: ADH) and JB Hi-Fi’s (ASX: JBH) Good Guys business, call out a more material slowdown in demand. Adairs saw group sales up 10 per cent YoY but EBIT but group gross margin was down 100 basis points and Adairs branded stores posted earnings before interest and tax (EBIT) that was down 37 per cent. Keep in mind, renovations generally follow housing turnover by 10 months and furnishing those renovations follows renovation activity by about six months. In other words, the low levels of housing turnover 18 months ago are now being felt.

And perhaps a little surprisingly, Super Retail group’s (ASX: SUL) Supercheap Auto has become a defensive play after the company noted the tougher economic conditions meant many people were cleaning, repairing, and restoring their cars themselves.

Finally, with respect to retail companies, we saw better companies – for example Breville (ASX: BRG), JB Hi-Fi and SuperCheap’s Rebel business – reduce inventory in response to the softening demand. This has helped with cash flow and balance sheet strength.

Interestingly small caps outperformed larger companies with Small Ordinaries up 1.5 per cent since June 30, while the ASX 100 was down three-quarters of a percent.

For the Australian economy, there’s a note of caution. As demand wanes, companies that can’t cleverly reduce inventory or improve efficiency in other ways may need to lay off staff. The repercussions would be noticeable.

Wrapping up reporting season, its clear investors are treading with caution. This has followed outlook statements from companies, many of whom were reluctant to stick their necks out and offer a forecast. The main concern is the fear that a potential economic downturn combined with cost pressures might adversely impact profits and, subsequently, stock prices.

The Montgomery Small Companies Fund own shares in Breville and Super Retail Group. This video was prepared 29 August 2023 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 in Breville and Super Retail Group 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.

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.

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