The Market Index survival guide to ASX reporting season 2023

August reporting season is getting into the swing of things, with household names like QBE Insurance (ASX: QBE), AGL Energy (ASX: AGL) and AMP (ASX: AMP) posting their results on Thursday.

This earnings season is expected to be a challenging one as rising interest rates catch up to consumer facing sectors and resource companies cycle elevated commodity prices from a year ago.

This will also be a time when your stock theses, market conviction, and emotions will be tested. In light of all this, here’s our survival guide for the August 2023 reporting season.

Note: This article is general information only – it doesn’t consider your personal financial situation, so shouldn’t be considered advice. As always, do your own research and speak to a professional financial adviser before making any portfolio changes or other investment decisions.

#1 It’s all about expectations

It doesn’t matter if a company's earnings double or halve – As long as the results and guidance are ahead of analyst expectations, the stock should be in for a good time.

Suncorp (ASX: SUN) reported its FY23 on Wednesday, 9 August and serves as a good example of a result that looks strong at face value but missed analyst expectations. For the full-year, the company reported: 

• Cash earnings of $1.25bn, up 86.3%

• Net profit after tax of $1.14bn, up 68.6%

• Ordinary dividend of 60 cents per share, up 50%

The net profit figure was a slight miss against consensus expectations of $1.18bn while analysts were expecting an ordinary dividend of 73 cents per share. So the actual result came in about 18% below expectations. 

Suncorp shares opened 3% lower at $13.34 and finished the session down 1.5% to $13.54.

#2 The next couple of days are just as important

As the results drop, the market is a little all over the place as:

• Traders scalp and form swing positions

• Investors and institutions are buying and selling

• Analysts adjust their ratings and price targets

The next day is just as important, given:

• Analysts release new notes with updated ratings and target prices

• The results trigger a material re-rating that takes place over the course of days, if not weeks 

• The stock might be oversold/overbought and bounces/sells off

Shares in Domino’s Pizza (ASX: DMP) tumbled 23.8% on 22 February, the day of its half-year FY23 results. The company missed expectations across the board and downgraded near-term expectations, citing:

• "Domino's anticipates Same Store Sales growth will be below the medium term outlook of +3-6% growth, as a result of most-recent tumultuous trading conditions.”

• "New store openings are still expected to be strong in FY23, but may be below the medium term outlook of +8- 10%, depending on franchisee sentiment.”

Post earnings, the average target price across 16 sell-side ratings was cut by 15% to $61.29.

Between 22 February close and 16 March, the stock fell another 17.2% – a painful experience for dip buyers.

#3 Watch out for peers

If a major retailer announces an unexpected fall in earnings – shares in retail peers might also feel the heat. The result may also serve as a read-through for what to expect for other retailers. 

Global building materials company James Hardie (ASX: JHX) posted its first quarter results on 8 August, with figures coming in well-above consensus. North America was a standout region thanks to strong EBIT margins, and the stock finished the session up 14.4%.

On the same day, a peer like CSR (ASX: CSR) rallied 2.5%. 

Building and construction materials supplier Boral (ASX: BLD) also happened to report a better-than-expected FY23 result on 10 August, with net profit up 304% to $142.7m (above consensus expectations of $125m). The stock was up 4.8% as the market opened. 

Likewise, a peer like Acrow Formwork and Construction Services (ASX: ACW) was up 8.2%.

#4 Keep your emotions in check

Reporting season is a fast-paced and high stakes environment that elevates our emotions, which often results in us making the worst possible decisions.

A stock tumbles on poor earnings and an abysmal guidance but you tell yourself “maybe it’ll bounce tomorrow” – Only for the above Domino’s Pizza scenario to play out.

Or maybe you’re holding onto a winner and you’re thinking “I like the outlook but I’m going to take profits” – Only for the stock to continue running. You buy the stock back at a higher price, only for it to top out. 

Stick to your objectives – Reporting season is often the time when short-term trades turn into long-term holds because the trade didn’t work out. Or vice versa, the long-term holder gets caught up in intraday price action. Ignore the noise, stay objective, and have a cracking reporting season.