NAOS News & Insights



March 6, 2017

Cold and hot weather wreak havoc on Australian earnings season

Long before the collapse of listed furniture business Clive Peeters, the company put out a memorable trading update blaming its inability to move air-conditioners on everything from the price of petrol to the sharemarket.

So it is with some cynicism that investors evaluate the impact of the weather, which had an unusually frequent appearance this earnings season. A more than 40 per cent rise in the incidence of weather mentions suggests unseasonal conditions, beginning with 2016's mild winter, had a bigger impact on earnings than usual.

There have been 354 mentions of "weather" in ASX disclosures by Australian companies this profit season, versus 248 in the same period of 2016, an analysis of corporate filings shows. That figure was 260 in 2015 and 310 in 2014. This includes any use of the word in any context by a listed company.

Selective mentions

For some sectors, such as agriculture, the weather will always be a variable. Most mentions this month have been confined to mining and energy stocks, where cyclones can wreak havoc on the loading of iron ore on ships. But fund managers regard the weather, the currency and interest rates as things they only hear about selectively

"I tend to always think it's a bullshit excuse," says small caps manager Dean Fergie from Cyan Investment Management. "If a business says 'Hey, we had a slow start to summer and we didn't sell enough board shorts', you'll never see the weather quoted when they have a great result, but that was mainly due to the weather. It will be about great management, excellent branding, smart marketing.

"I don't think you'll ever see weather adding to a positive result but you'll always see it as an excuse for a bad result."

Red flag

He nominates currency "headwinds" as another red flag. "You won't find the most successful businesses every [making excuses], they just go through good periods and bad periods and take it on the chin." Currency headwind mentions rose to 52 from 40.

Western Australia did experience near-record-breaking rainfall at the start of the year, especially in the north, affecting access to mines and delaying site work. Mentions of "rainfall" are up to 54 times versus 28 this time last year.

"Investors need to look closely at whether or not this is another excuse in a long list of excuses, or whether or not there is some validity in terms of what the company is putting forward," said Perth-based fund manager Romano Sala Tenna. He also noted "greenshoots" in WA economic conditions.

Former Coca-Cola Amatil boss Terry Davis was a keen observer of the weather in his time at the company. But there was little mention of the skies at Coke's results this month when chief executive Alison Watkins delivered the bottler's interim results.

NAOS Asset Management's Sebastian Evans said lumpiness was part of the picture for some companies and it was also up to investors to figure out how to read the earnings profile

Source: The Sydney Morning Herald

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