Australian investors are preparing for a wave of profit downgrades, as the Middle East conflict and persistent RBA interest rate hikes heavily impact corporate earnings. While many brokers initially maintained bullish outlooks, market sentiment is shifting. Excluding soaring energy stocks, S&P/ASX 200 earnings expectations have seen slight reductions, despite repeated company warnings.
Several major Australian companies have already signalled trouble. Hearing device giant Cochlear became a significant casualty, warning of lower-than-expected earnings, causing shares to fall sharply. Cochlear develops and manufactures cochlear implants, bone conduction, and acoustic hearing implants for people with moderate to profound hearing loss. Qantas anticipates an $800 million higher fuel bill. Worley expects $40 million in earnings, while logistics firm Qube projects a $10 million to $20 million reduction.
While initial warnings focused on conflict exposure or heavy fuel users, concern is broadening. Retailers are highly susceptible to weakening consumer sentiment driven by rising interest rates, yet significant downgrades are still pending. Ten Cap portfolio manager Jun Bei Liu noted activity for some categories is “stretched.” Analysts’ forecasts, some untouched since February, are viewed as “stale estimates,” prompting investors to rely on company guidance.
Tighter monetary policy continues to loom. Bond traders predict a 74 per cent chance the RBA lifts the cash rate to 4.35 per cent at its May meeting, with further rises expected by year-end. Yarra Capital’s Edward Waller highlighted that higher rates will significantly weigh on earnings, especially as consumption accounts for half of Australia’s GDP. This confluence of factors suggests the coming weeks will likely bring a flurry of further profit downgrades.
