Earnings outlook at decade high

Australian companies face their strongest earnings growth prospects since 2003

Australian companies are reporting their strongest profit expectations since 2003, according to Dun & Bradstreet's Business Expectations Survey.

The survey found that firms expect strengthened sales and stabilised prices to send their earnings higher in 2014.

In all, 36 per cent of companies surveyed said they expect profits to gain during the first quarter of 2014, helping to push the survey's profits index to 34.9 points, which represents a 10-year high and is well above the previous quarter's 21.1 points and the 22.9 points seen at the same time a year ago.

Sales expectations for the first quarter of 2014 have climbed to 13.9 points, which is its highest in a year, as 16 per cent of businesses said they expect stronger sales, while only two per cent said they expect sales to decline.

“Although these are still early days, there’s a clear shift in the near-term optimism of businesses,” Dun & Bradstreet chief executive Gareth Jones said.

“In recent years we’ve see a temporary improvement in the run towards Christmas, so it’s encouraging to see that the business outlook into early 2014 isn’t tailing off – indeed, there’s a big lift when it comes to profit expectations and a strengthening in the forecast for sales.

“We’ve recently seen the effect of rate cuts on consumer confidence levels through a rebounding property and sharemarket, and it now appears we’re seeing that same positive impact finally filter through to the business sector.

“It appears that the missing pieces for a sustained improvement now lie with credit, investment and employment activity,” Mr Jones added.

Not all was entirely upbeat for companies surveyed, as firms reported muted investment plans. Only one per cent of businesses surveyed said they intend to increase spending and only two per cent said they plan to expand hiring in early 2014.

In addition, 36 per cent of businesses said they are more optimistic about growth, while the same proportion said they are less optimistic and 28 per cent are divided. Operating costs, online trading of competitors and unpaid invoices were cited as key concerns for companies.

D&B economic advisor Stephen Koukoulas said that despite some mixed feedback from companies, they are for the most part displaying reinvigorated confidence as economic conditions stabilise both at home and abroad.

“The business expectations results are unambiguously good news for the economy,” Mr Koukoulas said.

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