You know Tina from Turners, she loves cars. Beep, beep! With Todd Hunter – from Turners, too. Photo / Turners Automotive Group
Graham Skellern reviews the latest company reporting season and performances, and discovers the outlook is not as gloomy as you might expect.
The leading stocks on the New Zealand sharemarket have, by and large, weathered the storm of the Middle East conflict and fuel price shock.
Toughened and wiser from earlier crises – the Covid pandemic and US tariffs – the blue-chip companies closely reviewed their operations and markets and saved costs where needed.
The result: in the May reporting season, there was more hope than despair.
Shane Solly, portfolio manager with Harbour Asset Management, says leading into the results season, the market showed signs of “anxious expectation. The common caution was around the geopolitical situation and input costs.
“The elevated fuel price and shipping and supply chain disruption – people were mindful of what impact the conflict would have on costs and confidence.”
As it turned out, says Solly, the results generally were better than expected. The rate of slowdown in activity or risk around outlooks could have been worse.
“I would say the company outlooks were cautiously constructive. The investors responded with a relief rally.”
The blue chip companies showed an underlying quality of earnings and strong balance sheets and debt control.
“Our market doesn’t have the Aussie miners or the US technology stocks,” says Solly. “But our leading companies keep chugging along and producing solid results through a challenging economic period.”
Mark Lister, investment director with Craigs Investment Partners, says there were certainly some bright spots in the reporting season. Fisher & Paykel Healthcare, Mainfreight and Fonterra all provided strong updates.
“Like other blue chips, they are well-run, high-quality businesses that you can have confidence in. They have strong balance sheets, an impressive track record and a management team of high integrity and trust. It’s important to have calm heads and leaders willing to take a long-term view.
“The reporting season went better than people were expecting. In a time like this, with an unexpected shock that very few saw coming, meeting market expectations and company guidance is a win,” says Lister.
“You will always get businesses that are less exposed than others, and some companies are doing it tougher. They are cautious and subdued, facing a cloudy outlook.
“Some would argue that the full force of what we are seeing – inflation, costs, pricing pressures and supply chain disruption – are still to come. We don’t know how things will play out.”
Lister was recently speaking to investors in Hamilton and was told from the floor: “We are not seeing the challenges you are talking about. We are doing all right.”
He says, “I’m happy to be told I’m wrong. There are pockets of strength out there, for sure, and many good businesses are getting on with it. But it’s a mixed bag.
“Waikato is one of those regions with its agriculture and diversified economy that is in better shape than, say, Auckland and Wellington.
“The export-driven companies are presently in a stronger position than the domestic-focused businesses,” he said.
Solly says, “If you dig below the surface, there are improving underlying results from the retirement village/aged care and property stocks – they have implemented self-help to their business operations. And the port companies are steady-as-she-goes.”
Market heavyweights, global medical devices supplier Fisher & Paykel Healthcare and global transport and logistics company Mainfreight, lifted investors’ spirits when they produced solid annual results and outlooks. The results were better than investors feared.
Fisher & Paykel Healthcare, the largest local stock on market capitalisation, increased revenue 14% to $2.31 billion, even in the face of US tariffs, and net profit 24% to $468.5 million, with a forecast of achieving $2.45b-$2.57b and $500m-$550m, respectively in the 2027 financial year.
Better still for investors, Fisher & Paykel increased its annual dividend 22% to 52c a share after paying a final dividend of 33c a share.
Mainfreight’s share price had slipped to $53.50 among the investor anxiety leading up to its result release. But never fear, it increased revenue by 2% to $5.38b, though net profit was down 8.5% to $251m for the 12 months ending March.
However, encouragingly, Mainfreight told the market that improved trading conditions and stronger-than-expected sales growth in the second half of the financial year continued in April and May, despite the disruption and uncertainty caused by the Middle East conflict and elevated fuel prices.
Mainfreight, a barometer of economic wellbeing, said “supply chain freight solutions continue to be a strong focus in our customer relationships as we offer an increasing range of services. During the year we have increased trading across all three divisions for our top 500 customers to 41%, from 39% the year prior.
“Maintaining an emphasis on underlying business improvements is a high priority as fuel volatility adds to economic growth uncertainty and inflationary pressure.”
Broker Forsyth Barr said after a tough few years of profit normalisation following the Covid congestion-driven freight rate super cycle, Mainfreight has now passed an inflection point, with greater profit growth certainty within its near-to medium term outlook.
Forsyth Barr revised Mainfreight’s full-year 2027 profit before tax estimate to $404m – almost double the full-year 2020 number of $206m – and set a target share price of $79.
After Mainfreight released its latest result, its share price shot to $65, its highest level in nearly five months. But the star of the show was utilities investor Infratil, which has an exposure to the rampant data centres and artificial intelligence.
Infratil’s share price surged from $10.65 to $16 within three weeks in May after making a series of updates: its associates CDC completed Australasia’s largest-ever data centre contract (a 30-year, 555MW deal with a US customer), and Longroad Energy is supplying a Meta data centre, with further opportunities emerging.
Infratil sold 5% of its 14% shareholding in Contact Energy for a windfall of $495m, and reported an 11% increase in proportionate operating earnings to $989m, mainly driven by investments in Australia-based CDC and US renewable energy business Longroad Energy as demand for AI infrastructure accelerates.
That’s good reason for Infratil to forecast strong growth, with full-year 2027 earnings guidance of $1.3b-$1.4b, up 21%. Capital expenditure would increase from $2.7b to $3.8b-$4.4b, and Infratil has a war chest of $1b for further investment opportunities.
At the end of May, Infratil was well ahead in the NZX top 50 share price performances, having risen 42.24% for the year to date.
Fonterra Shareholders’ Fund gained 20.97%, ever-steady Skellerup Holdings 19.22% and Channel Infrastructure 10.93% in the same period - the only ones with double-digit increases among the top 50 stocks.
Dairy giant Fonterra is playing a vital role in improving the farmers’ standard of living and the health of the New Zealand economy, especially rural communities.
Fonterra made a special payment totalling $3.2b to its more than 8000 farmer/shareholders following the $4.22b sale of the Mainland Group to Lactalis, and it has forecast another opening high milk payment for the 2026/27 season of $9.75 per kilogram of milk solids.
In its third-quarter update, Fonterra reported operating profit of $1.8b, up $102m and underlying earnings per share of 57c, up from 53c compared with the previous corresponding period. Full-year earnings were lifted to 60-70c a share from 50-65c.
New Fonterra chief executive Richard Allen says milk production is up considerably this season and, despite disruption in global supply chains, “our sales book is well contracted and our shipping volumes are strong, with the highest third quarter shipment volumes in a decade.”
Lister says Fonterra is providing impressive company results, earnings guidance and milk price forecasts.
“Looking back 10-20 years, Fonterra was underperforming, with poor governance and questionable strategic objectives.
“Miles Hurrell [previous chief executive] did a great job turning around Fonterra, which has become an important piece in the agricultural backbone of New Zealand and rural communities.
“There was a time when you met farmers and they had little to say about Fonterra. But not now,” Lister says.
Sitting in the top 11 of the NZX performers are five energy stocks – Genesis, Mercury, Vector, Meridian and Contact. The hydro lakes are full for increased generation and their balance sheets are strong enough to invest in further renewable energy.
They are steady, well-managed businesses that strongly contribute to the defensive nature of the New Zealand sharemarket.
While conservative in producing consistent and solid financial results, the energy companies are not averse to sticking their heads out, politically.
Meridian, having the grunt as NZX’s second-largest local company on market capitalisation ahead of Infratil, challenged the Government over its planned LNG import terminal.
It is not needed to manage dry-year electricity risks, said Meridian. Existing measures, including the Huntly Power Station reserve and demand-response agreements with users such as Tiwai Point aluminium smelter, provided sufficient security of supply for at least the next decade.
Lister places Turners Automotive and apple and protein exporter Scales Corp in the blue chip camp. “They are great businesses and run well,” he said.
“Turners is clear on the long term and is one of the few companies that offers multi-year targets – it’s brave to put them out there for all to see. And they are meeting them. Turners had a great result and was well flagged by the company in advance.”
Turners delivered a 9% increase in revenue to $451.2m for the 12 months ending March and a record net profit before tax (NPBT) of $63.2m, up 16% on the previous year. All three divisions - auto retail, finance and insurance – had profit growth, with a record fourth quarter for the business.
Turners brought forward the NPBT target of $65m a year earlier into the 2027 financial year. It is the third successive multi-year target Turners has met and is heading for its new goal of $100m by full-year 2031.
Scales Corp confirmed market guidance of $50m-$55m net profit for the year ending December.
Managing director Andy Borland says, “Trading across the group has been positive for the first five months of the year, with financial performance across all divisions at expected levels, despite the impact of the Iran war.”
Stocks such as Ebos Group, Spark, a2 Milk, Fletcher Building and Gentrack have (temporarily, let’s hope) lost their blue-chip status as they work hard to get back to their former glories.
Companies in this volatile market environment are punished with earnings downgrades. In late April, Ebos lowered its full-year operating earnings forecast to $610m-$620m, from $615m-$6.35m, and talked about “elevated fuel prices and broader energy cost pressures” impacting the business.
Ebos, one of Australasia’s biggest suppliers of medical, pharmaceutical and animal care products, has been on a slippery slide since losing the Chemist Warehouse distribution contract and its share price (at the beginning of June) was trading an eight-year low.
Solly says Ebos was facing a more challenging growth environment and the market was concerned about increased competition, waiting to see evidence of its cost recoveries.
Analysts have downgraded Spark because of concerns over its earnings momentum in a competitive and challenging economic environment. Spark did provide an improved first-half net profit of $73m on an adjusted basis but it fell short of analysts’ consensus of $96m for the six months ending December.
When Spark’s share price hit $1.875 on June 3, it was its lowest level in 15 years.
Infant formula supplier a2 Milk was going swimmingly when its share price hit $11.84 in early March. Suddenly, back-to-back announcements knocked its progress.
A2 Milk recalled three batches of its Platinum infant formula in the US due to the presence of cereulide. Main rivals Nestle and Danone had experienced the same issue in other markets.
Before then, a2 Milk told the market it was experiencing in-market product availability, with shortfalls of China-label formula at Chinese distributors and retailers, compounded by low inventory levels because of Synlait’s manufacturing challenges and increased red tape for Customs clearance and product releases in China.
A2 Milk lowered its full-year revenue growth guidance and its share price slipped to $6.59 (on June 3) – a fall of more than 38% year-to-date.
Fletcher Building, the once mighty tōtara of the construction sector, is resetting its business to lower debt and streamline operations. It has sold its construction division to Paris-based Vinci for $334m, and is exiting its Fijian construction interests as part of a wider asset programme including selling Fletcher Reinforcing and property in Auckland and Australia.
Fletcher Building, a cyclical stock sensitive to the swings of the New Zealand and Australian economies, wants to focus on being a building materials and distribution business.
Utilities software provider Gentrack ended up the worst performer in top 50 – its share price falling 56.41% to below $4 at the end of May – following a soft half-year result and earnings downgrade.
Gentrack, whose share price peaked at $14.24 in December 2024, reported 1.6% decrease in revenue to $110.14m and 28.86% fall in net profit to $5.11m because of delays to new project revenue.
Chief executive Gary Miles told the market its deals pipeline remains intact, and prospective deals flagged to investors in November had been delayed rather than lost to competitors.
Gentrack said it is concentrating on product development and international growth for the longer term rather than short-term gain, but the market keeps waiting for the new project announcements.
Retirement village and property stocks – hampered by the slowdown in the housing market - are fighting hard to regain their blue-chip status.
Solly says the retirement/aged care sector is quietly regrouping, showing that “if you change your focus and run your business harder, then you can get returns. A lot of self-help is required.”
Ryman Healthcare, Summerset Group and Oceania Healthcare were all in the bottom 11 of share performance in the top 50.
Ryman’s strategic reset resulted in a 94% increase in full-year operating earnings to $88m and the first positive free cash flow in a decade of $188m.
Forsyth Barr said the reset gave Ryman greater flexibility to grow when market conditions improve, after scaling back development activity and focusing on returns from existing assets.
Oceania Healthcare also made a step-change and reported a 20% rise in full-year operating earnings to $97.7m, record sales settlements and reduced net debt through divesting assets.
Property stocks such as Argosy, Goodman NZ, Investore, Stride and Property for Industry – though generally in the bottom rung of share price performance - reported steady annual results and met their dividend guidance.
But a more corporatised Goodman NZ and Property for Industry were stand-outs, with gains of 2.68% and 1.86% in their share price to the end of May.
Goodman more than doubled its annual profit to $248m on a $111.2m gain in property values and share of earnings from associates. Its total properties under management are valued at $4.9b and Goodman has forecast an increased dividend of 7.17c, up 5%, for the 2027 financial year.
Property for Industry also upgraded its full-year cash dividend to about 9.5c a share, an increase of 10.5%.
Summing up the latest reporting season and share price performance, Solly says: “It’s the underlying quality of the earnings that powers the returns.”