Business earnings are expected to return to pre-GFC highs during the final three months of this year on the back of sustained levels of optimism and healthy sales forecasts, with retailers particularly upbeat about increasing their profits.
According to Dun & Bradstreet’s latest Business Expectations Survey, the profits expectations index has lifted to 29.1 points, up from 19.9 in the last quarter and 21.1 last year. With 40 per cent of businesses anticipating higher profits during Q4 2014, compared to 11 per cent that expect a weaker return and 59 per cent that anticipate flat results, the index is now edging its 10-year high of 29.7 points.
After diverging from forecasts over the past 12 months, actual profits reported by businesses for the past quarter have begun to trail expectations, with the actual index for Q2 profits rising to 6.03 points.
Retailers appear to be banking on strong Christmas trading this year, with the sector lifting its expectations for higher profits to 20.3 points, up from just 1.3 last quarter and 8.7 last year. Thirty-six per cent of retailers are expecting to increase their takings during Q4 2014, while 16 per cent are forecasting a decline in earnings.
According to Gareth Jones, CEO of Dun & Bradstreet–Australia and New Zealand, the latest survey results highlight a resilience in the business sector’s outlook. “Over the past 12 months, the majority of businesses have been reporting greater levels of optimism about the current business environment compared to 2013,” said Mr Jones. “This view has now been carried through to the end of 2014, with 68 per cent of businesses more confident about growing their operations in the fourth quarter, while sales and profits expectations have also jumped. “Despite the general improvement, however, it is clear that the economy is delivering a mixed performance and that some sectors expect further headwinds,” Mr Jones added.
Driving the overall increase in the profits outlook are the retail; wholesale; services; and finance, insurance and real estate sectors, which have all lifted their fourth quarter expectations. Compared to the same period in 2013, however, fewer companies in manufacturing; construction; transportation, communications and utilities are anticipating higher profits.
To read the full commentary click on this link: DB Business Expectations Survey – Q4 2014 – interim