ASX reporting season wrap: Solid earnings, dividend surprises and a domestic revival

Australian companies weathered the wall of worries this reporting season, delivering more earnings beats than misses despite cost of living pressures and the fallout of US tariffs.

The ASX 300 Industrials (ex-resources) posted a net earnings beat of 11 percentage points (33% beat, 22% missed) as smaller companies led the charge amid improving domestic conditions, according to Macquarie.

Margins drove earnings

The earnings beats were primarily driven by better-than-expected margins rather than revenue growth, suggesting companies have become more adept at cost management after years of inflationary pressure. This margin discipline allowed companies to maintain profitability during what proved to be one of the strongest reporting seasons in recent years.

Source: Macquarie Research, August 2025

Source: Macquarie Research, August 2025

Positive surprise on dividends

"The positive surprise on dividends (15 percentage point beat) is probably a better indicator of corporate Australia's outlook, as they might otherwise hold onto more cash," noted the report.

Macquarie noted how companies that announced special dividends or buybacks tended to outperform.

Stocks that paid special dividends include: ARB Corp, JB Hi-Fi, Nine Entertainment, Qantas, Super Retail Group and Wesfarmers.

While companies that announced buybacks include: Aurizon, Brambles, CSL, Downer, G8 Education, Lendlease, Suncorp, Telstra, Treasury Wine Estates and Ventia Group. Though G8, CSL and Telstra have continued to underperform.

What mattered

"How company guidance compares to consensus is the best indicator of the share price reaction. This factor was more correlated than any other fundamental factor we track over reporting season," said the analysts.

Source: Macquarie Research, August 2025

Small-to-mid caps that beat FY25 expectations and upgraded their guidance include:

• Australian Clinical Labs (ASX: ACL)

• Australia Finance Group (ASX: AFG)

• Aussie Broadband (ASX: ABB)

• Codan (ASX: CDA)

• Monadelphous (ASX: MND)

• Polynovo (ASX: PNV)

• Spark New Zealand (ASX: SPK)

• Superloop (ASX: SLC)

• Tabcorp (ASX: TAH)

Meanwhile, small-to-mids that missed and had FY26 downgrades include:

• Chorus (ASX: CNU)

• Ebos (ASX: EBO)

• Imdex (ASX: IMD)

• Inghams (ASX: ING)

• Iress (ASX: IRE)

• Johns Lyng Group (ASX: JLG)

• Megaport (ASX: MP1)

• Temple & Webster (ASX: TPW)

Domestic names > global exposure

A clear theme emerged during reporting season favouring domestically-focused businesses over global cyclicals. Domestic cyclical companies posted the second-highest earnings surprise and delivered the best free cash flow results, while also receiving the smallest FY26 earnings downgrades.

Source: Macquarie Research, August 2025

This domestic preference was reflected in share price performance, with domestic cyclicals outperforming by an average of 3.1% as investors positioned for an improving local economy and potential RBA rate cuts.

Global cyclicals faced headwinds from tariffs, foreign exchange volatility and challenging conditions in key markets like US housing. These companies experienced the worst earnings downgrades for FY26 and the largest underperformance, with misses heavily punished by the market.

Conservative FY26 guidance

Management teams adopted a cautious stance on forward guidance, with net guidance misses of 8 percentage points across the market. The conservative approach was more pronounced among ASX 100 companies, which posted guidance misses of 16 percentage points compared to just 2 percentage points for smaller companies.

This conservative reset potentially creates opportunities for earnings upgrades throughout FY26, particularly if RBA rate cuts continue and domestic economic conditions improve further. The combination of low guidance bars and improving economic fundamentals could support positive earnings revisions.

"We still think conservative guides have set a low bar for FY26. Coupled with RBA rate cuts and an already improving domestic economy, this could allow for earnings upgrades over FY26," noted the analysts.

Market momentum driven by liquidity, not earnings

Despite attention on high-profile disappointments and soft guidance, the ASX made multiple new highs during reporting season. This disconnect highlights that current market movements are being driven by liquidity and global rate cut expectations rather than fundamental earnings performance.

The market's focus on monetary policy reflects expectations that both the RBA and Fed will continue easing, supporting global liquidity and investor optimism through the remainder of the year.

Banking sector results were particularly encouraging, with FY26 earnings estimates upgraded by 100 basis points during reporting season.While rate cuts pose margin pressure risks, they also support lending activity and reduce near-term bad debt concerns.

Valuations reach elevated levels

The ASX's price-to-earnings ratio has climbed to 20.1x, matching the post-COVID highs of 2021. While these elevated valuations raise questions about sustainability, current conditions of improving growth and easing monetary policy provide near-term support.

Source: Macquarie Research, August 2025

The report suggests investors should 'make hay while the sun shines' in the current environment. While acknowledging that 1999-like market conditions don't persist indefinitely, current conditions remain supportive as growth accelerates and central banks maintain accommodative policies.