SHAREHOLDERS are bracing for a poor profit reporting season this year after one of the worst 12 months for Australian companies since the global financial crisis.
Deteriorating business conditions, including hefty retrenchments, weak consumer sentiment, household deleveraging and a high dollar are among the reasons why analysts warn full-year profits are likely to be worse than expected.
In the past six months, analysts have downgraded earnings forecasts for Australian companies by about 5 per cent, with the ratio of earnings downgrades to upgrades at 3:1, Patersons Securities says.
In contrast to recent years that have been buoyed by the mining boom, the biggest downgrades to 2012 forecasts have hit energy, gold, steel, transportation and mining stocks.
Resource giants BHP Billiton and Rio Tinto are expected to post declines in profit of 19 and 24 per cent respectively for the full-year, after a 16 per cent fall in global commodity prices over the financial year.
The warning comes as corporate Australia prepares to open its full-year books in coming weeks to weary investors, tired of watching stock values erode: in the 12 months to June 30, more than 11 per cent in value was wiped from the bourse as Europe's banking crisis, the economic contraction in the US, and fears of a slowdown in China battered stocks.
"Despite a slowdown in the rate of earnings downgrades, there are still no signs that the earnings cycle has reached a low," Patersons Securities' Kien Trinh wrote in a client note.
"Over the quarter, mining, airlines building materials and media have experienced the largest downgrades to earnings. [But] earnings for property, healthcare, telecoms, utilities and insurance remain resilient." Retail is also expected to struggle, with David Jones and Myer offering a muted outlook.
Industrial stocks - made up of construction, engineering, infrastructure and transport companies - could suffer their fifth consecutive year in which earnings per share growth has been below 5 per cent, Goldman Sachs says.
And defensive stocks are now trading at their highest price to earnings premium compared with cyclical stocks since the market bottomed in early 2009, a sign of the structural and cyclical changes working their way through the economy.
But some analysts believe investors have prepared themselves for companies to announce results below expectations. "With European debt concerns dominating market sentiment during May and domestic profit warnings and capital raisings weighing on investors' minds in June ... how much earnings risk has already been priced in?" Goldman Sachs' Hamish Tadgell said. "We ... believe that much of this pricing risk could already be well priced in, particularly for cyclical stocks."