Australia has had a mixed equity market performance in this reporting season. Several firms recorded good profits, but stocks declined.
The question that investors are posing to themselves is why the stocks in ASX are declining even when the fundamentals appear to be stable. The trend is evident following the release of good half-year figures by Wesfarmers.
There was an improvement in revenue, profit and dividends. The share price, however, went down shortly after the announcement. Retail investors and institutional investors were confused by that reaction. It also served as a wider warning on ASX stocks that dropped in the earnings season.
There seems to be a tendency for traders to take short-term risks but not long-term value. The worry about consumer spending, interest rates and exposure on the portfolio is still intense. Consequently, good performance is not being converted into short-term price improvements.
The retail footprint and market presence of Wesfarmers are still dominating the Australian consumer economy. [Bloomberg]
Strong Earnings And Portfolio Strength Stand Out
The conglomerate received revenue of 24.21 billion increase of 3.2%. Underlying EBIT climbed to 2.49 billion, 8.4 per cent. The net profit after tax improved by 9.3 per cent compared to the previous period.
The interim dividend was increased by the management to $1.02 fully franked, equivalent to 7.3%. Bunnings was still the primary profit generator. The division provided 1.47billion EBIT, which increased by 10.7 per cent.
Kmart Group also stood at an impressive figure of 733 million, which is 13.8 up. WesCEF documented a 18% raise in profits to $210 million. Officeworks was the only company to drop, by 10.3.
Such numbers surpass the expectations of various brokers. Yet the stock fell on the day. Analysts believe that investors might have already factored in the strength. Others refer to broader market hesitation and profit-taking.
What Did The CFO Say Investors Might Be Missing?
Chief financial officer Anthony Gianotti shirked explaining day-to-day fluctuations in prices. Instead, he emphasised managing operations and productivity. He indicated that the growth of earnings is the fundamental goal.
In his opinion, steady implementation, in the long run, leads to increasing share prices. He observed good performances of Bunnings and Kmart. The two divisions again reported high earnings. It was also due to him that he highlighted lithium profits.
The lithium business has just started the ramp-up stage. The management believes that the second half will give better contributions. This message poses a hidden value within the portfolio. It is possible that markets are not taking note of that longer runway.
Leadership says long-term productivity and lithium expansion matter more than daily share moves. [Forbes]
Lithium And Growth Investments Build Future Value
Lithium unleashed numerous surprises on the audience. The break-even point was reached sooner than anticipated. Prices of commodities are also stabilised against a long-term decline. Such a climate may help it gain better margins in the future.
The company is extending downstream integration in order to realise additional value. Other segments, such as health, are also doing well. Officeworks is in restructuring, where one-off costs are being incurred.
These investments are projected by the management to start bearing fruit in FY27. These initiatives expand the sources of earnings, other than core retail. Long-term risk is usually minimised by diversification.
Nevertheless, investors are still on the alert nowadays. In part, such a warning contributes to the responses to ASX companies’ earnings reports in the market.
Does Bunnings Dependence Increase Market Risk?
Bunnings continues to give approximately 60 per cent of profits. Retail in general makes up nearly 80%. That exposure associates performance with housing activity and rates. The deceleration may strain the mood swiftly.
The model, however, is resilient in the eyes of management. Reduced prices and great value make clients spend. Housing demand recoveries are also a benefit to the brand. A shortage of housing facilitates the renovation activity in the long term.
This poses a danger as well as a chance. Also, investors can be scared of the short-term weakness more than the future upside. That anxiety contributes to the declines of ASX stocks during turbulent times.
The performance of Bunnings closely follows the cycles of housing and consumer spending in Australia. [Yahoo Finance]
Market Sentiment Explains The Share Price Drop
Ultimately, numbers tend to be overshadowed by sentiment. The traders are concerned with the macro uncertainty and global risks. Even following good reports, defensive positioning takes place.
Such behaviour justifies why stocks in the ASX declining may co-exist with good profits. In the case of Wesfarmers, the basics do not seem to be damaged. Profits, dividend and new areas of growth are still evident. Lithium and health optionality.
Margins are safeguarded through product productivity programs. In the long run, the share price might be reoriented by a long-term growth of profits. In the meantime, volatility will probably persist throughout the exchange.
Also Read: Will Rising Interest Rates Pressure ASX Bank Profits in 2026?
FAQs
Q1: Why are ASX stocks falling after earnings?
A1: Investors fear macro risks and slow consumer spending despite strong company profits.
Q2: Did Wesfarmers beat expectations?
A2: Yes, revenue, EBIT and dividends all increased above many forecasts.
Q3: How important is lithium to future growth?
A3: Lithium just turned profitable and could contribute to stronger earnings over time.
Q4: Should investors worry about Bunnings exposure?
A4: It adds risk, but also offers upside when housing demand improves.
