Twin economy reveals sharply diverse results

When the earnings season kicked off in earnest at the start of the month, world markets were gripped by panic. Shareholders have thus been relieved by a relative lack of nasty shocks from companies reporting their results.

Though a global meltdown has apparently been averted for now, analysts warn the risk of further earnings downgrades in industrial stocks remains high - particularly for companies lacking exposure to the booming resources sector.

"You could argue [earnings expectations for] industrials still need to come down a bit more, and certainly there's a lot of uncertainty in guidance," Deutsche Bank strategist Tim Baker said.

"And as AGM season rolls around, you might find that corporates are still pretty cautious on the outlook, which could lead to more downgrades," he said.

David Cassidy, an equity strategist at UBS, said the "overwhelming theme" of this reporting season had been the increasingly divergent two-speed economy and its effects, including on manufacturers and retailers who continue to struggle against a high dollar and soft consumer demand.

"The drag from the currency and the soft retail demand was pretty evident in a lot of results," Mr Cassidy said.

Surfwear clothing brand Billabong and electronic retailers JB Hi-Fi and Harvey Norman have struggled under "recession-like" trading conditions. Department store giants Myer and David Jones have issued hefty profit downgrades before their results next month.

For Macquarie Bank's Tanya Branwhite, the haves and have-nots of the China-led resources boom can be summed up by the opposite fortunes of two companies.

"The way to read the two-speed economy is to contrast BHP on one hand and look at BlueScope Steel on the other," Ms Branwhite said.

While BHP Billiton announced a record $22.6 billion annual profit, the company it spun off nine years ago, steel maker BlueScope, slumped to a $1 billion loss and announced it would axe 1000 jobs as it reeled under the impact of a high dollar and cheap imports.

Mr Baker said analysts had revised their growth forecasts downwards for next year, but said the consensus of about 14 per cent growth for industrials had implicitly built in over-optimistic assumptions about a swift return to consumer confidence.

"I just think that could prove to be false hope," he said.

"What we're seeing are not cyclical challenges for the economy, we're seeing structural challenges and they're not going anywhere."

The volatility in US and European markets left investors downbeat - and perhaps short-sellers upbeat - leading into reporting season. Transport stocks such as Toll, and media stocks such as Seven West and Fairfax, were heavily sold before their results, but they rallied sharply after - in line with guidance.

Earnings for contractors were broadly flat, with UGL and particularly Transfield punished for issuing lower-than-expected guidance.

Food and beverage stocks such as Coca-Cola Amatil and Foster's were affected by cold weather and flooding in Queensland and Victoria.

These natural disasters and many more worldwide led to disappointing results for insurers QBE and IAG.

Banks and wealth managers reported largely in line with expectations.