Tuesday, 12 February 2008

Lesson This Earnings Season - Don't Disappoint !

A couple of weeks ago in Worst January for XAO in at least 24 years I noted that companies that disappoint either on earnings or in their outlook, will get severely punished by the market. That has certainly rung true this week.

Yesterday, United Group (UGL) shares were absolutely smacked losing -25% even after recording a 46% rise in half year profits. It was a little less than the market had been anticipating and they compounded the disappointment by trimming their full-year forecasts from 50% net profit growth to approximately 40%. The stock recovered about 10% today but is still -45% below it's November highs.

Today Cochlear (COH) turned in a solid 17% in increase in half year profit and reaffirmed guidance for the full year. Obviously that wasn't good enough for the market which marked the shares down -9.3%.

Also today, JB Hi-fi (JBH) turned in a stellar half year performance with a 60% increase in NPAT, increased it's dividend 100% and lifted it's full year guidance. It seems the market was more concerned about the impact of climbing interest rates and petrol prices on the consumer and chose to mark the stock down -8.3%.

The message this earnings season is clear, if there is even the slightest hint of risk to a company's earnings going forward they are going to get smacked around. The good news is that some excellent businesses are looking more attractively priced.