Company Gross Operating Profits Rocket Higher in Q4 2016
Published 03-MAR-2017 10:54 A.M.
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
Australian Company profits bounced significantly in the last quarter of 2016, as a rebound in commodities prices helped Australian companies achieve robust profit growth of 9.3 percent for the period. The increases in company profits amounted to $13 Billion dollars, which was the biggest rise since 2001. Profitability was strong across most sectors of the economy, with weakness coming from Administrative and Support Services, as well as Arts and Recreational Services.
It should be noted here commodity prices do fluctuate, as do company profits, and caution should be applied to any investment decision here and not be based on spot prices or profit movements alone. Seek professional financial advice before choosing to invest.
Any weakness however was drowned out by stellar increases in profitability from the Mining (+21.0%) and Financial and Insurance Services sectors (+22.2%). Strength was also seen in the Professional, Scientific and Technical Services (13.7%), Manufacturing (+5.6%), and Construction (+5.3%) sectors.
The strong release sent the Australian dollar flying, with a pacific peso rising more than 20 US cents in value on the day of the report.
The improvement in profitability of the mining sector could be seen in the reports of listed Australian mining companies, with Rio Tinto increasing their full-year 2016 profit by over $5 Billion USD, and BHP Billiton increasing their Half-Year 2017 profit by more than $2.8 Billion USD. The ASX was already pricing the strong results however, with mining stocks rallying strongly in the second half of 2016, which meant that any price gains following the earnings reports were fairly muted.
The strong profitability came as listed Australian companies announced a record $72.3 Billion in dividends this month, with many companies choosing to pay out dividends rather than reinvesting in their businesses, according to Commonwealth Bank of Australia economist Kristina Clifton.
Whilst Ms Clifton agrees that investors will hail the record dividends, she states, “The reinvestment of these earnings into new capital goods would be a better way to increase the future earnings potential of these companies.”
Despite the strong increases in business profitability for the quarter, wages and salaries fell 0.5% for the period. The decline in labour costs undoubtedly helped to increase profits in the quarter, but the lower wages may lead to lower consumption growth, and could impact company profitability moving forward. Some economists argue instead, that the increase in profitability will eventually flow through to increased pay packets for workers. Regardless, in the absence of further commodity price gains, we will likely need a pickup in wages to maintain the same positive economic trajectory.
The Australian Bureau of Statistics released the Business Indicators for the December quarter 2016 on the 27th of February 2017. The report for the March quarter 2017 will be released on the 5th of June 2017.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.