Monday, 3 December 2007

Australian Company profits fall in September

Gross Operating Profit as reported by the ABS includes all listed and non listed companies so it will no doubt differ from listed company profits. However the vast majority of Australian company profits come from listed entities so it is a reasonable proxy for ASX listed company operating profits.

The ABS reported today that Gross Operating Profits for Australian companies fell for the first time in two years. For the quarter ended Sep 30th 2007 company profits fell a seasonally adjusted -2.1% from the June quarter but are still 8.4% above the same period last year.

Whilst profits fell from June the more important measure is the year over year growth in profits and that still looks healthy as does the outlook for overall Australian profit for the next few quarters.

The last time profits fell on a year over year basis was June 2003. The XAO bottomed out earlier that year in February after an -18.5% decline in the preceding 12 months.

The current quarter's fall can be largely attributed to a decline in profits from the mining sector. Mining operating profits were down -12% from the June quarter and are down -15% year over year.

Profits from the Australian Mining sector have exploded in the last 3 years from 15% of total company profits in March 2004 to a peak of 33% in June 2006. In the latest quarter the mining sector's share of operating profits has fallen back to 24%.

Lower commodity prices in recent months may see Mining sector profits decline further in the December quarter and put a cap on overall profit growth for Australian companies. Presently the strong Australian economy can offset a weaker mining sector however the effect of a US hard landing could have a more pronounced effect on overall Australian profit growth in late 2008 - early 2009.