Josh Gilbert, Market Analyst at eToro Group Ltd, shares his three things to watch in Australia in the coming days.
Coles + Woolworths earnings
Supermarket giants Coles and Woolworths will be sizing each other up this week, with both companies posting earnings on Tuesday and Wednesday, respectively.
This year, Coles seems to have truly managed to break ahead of the competition following a prolonged period under a cloud of COVID-era setbacks. We’ve seen some impressive growth in the year so far, with climbing sales and a decent revenue jump, all of which have contributed to shares climbing 12% YTD.
Woolworths is a much different story. While shares have bounced off recent lows, the company’s financial performance has been bleak, with industrial action, missed estimates and falling margins marring its run. One silver lining is that the A$400 million cost-saving initiative announced by CEO Amanda Bardwell earlier this year may show some early positive results in this set of earnings.
Despite the asymmetrical playing ground, both supermarkets now have a much clearer runway towards growth than they did this time last year. The level of scrutiny put upon them at the height of cost-of-living pressures over the last 24 months has largely subsided. Even the ongoing ACCC action against the duopoly over alleged sham discounts doesn’t seem to be a cause of much concern in the boardrooms.
Like most Aussie businesses, it seems supermarkets are shifting from survival to recovery mode, and I expect that - at least in the case of Coles - some of that optimism will shine through in this week’s results.
Qantas earnings
CEO Vanessa Hudson’s concentrated effort to improve the brand’s damaged reputation while also keeping profits on track has taken a severe blow this month, with a hefty A$90m fine handed down due to unlawfully sacking 1,820 ground workers in 2020.
While that won’t show up on the runsheet when the airline posts results this Thursday, it’ll no doubt have a severe impact on the outlook for the rest of the year. The refreshed leadership team has been making some big moves to get the airline’s finances and reputation back above the clouds, so this will sting.
The removal of the Frequent Flyer system’s ‘Loyalty Bonus’, announced late last week, will be an unpopular decision among brand loyalists but it also removed a lot of unredeemed liability from the company’s balances. The closure of Jetstar Asia will also likely save costs – but it’s yet to be seen whether this is a strategic misstep long term. Virgin Australia’s continued jostle for market share remains a cloud over the company’s outlook – but, let’s be clear, the market likes what’s happening at Qantas, shares are up 27% this year and over 82% in the last 12 months.
Even under the pressure of some heavy setbacks, we’ll probably see a solid set of earnings from Qantas regardless, with air travel demand still flying high and the company holding a very good position in the Australian market. There will probably be an estimate adjustment, however, given the severe impact of fines and union action.
Nvidia earnings
In the same way Apple symbolised the smartphone era, Nvidia now defines the AI era. The stock has become the heartbeat of the market, making up around 8% of the S&P500 weight, the single largest in history. Given that, its earnings dates are fast becoming just as vital to investors as economic and central bank data.
Its last earnings in May solidified its position with continued growth, margins most businesses would envy, and a war chest that gives the company the firepower to keep innovating. Demand remains robust, and while there are some bumps in the road due to US tariffs, issues with the Chinese government and a short-term halt on H20 chip production, confidence in the company persists. Though the H20 chip halt will come with short-term uncertainty, demand from US hyperscalers and adoption of its Blackwell chips will likely offset weakness in China.
Margins will be heavily in focus after dipping on Blackwell buildout, but with adoption growing, margins look set to rise once again. In this current quarter, US mega caps have once again increased their capital expenditures for AI, and that’s likely to land in the lap of the best in the business, Nvidia. It’s in a highly enviable position as the go-to hardware manufacturer, and that’s not likely to change anytime soon. The market is expecting EPS of USD$1.01 (48% YoY) on revenue of USD$46.1 billion (54% YoY).
Nvidia may be the market’s heartbeat, but that comes with the expectation of perfection, meaning even the smallest disappointment could spark outsized volatility across broader markets, not just Nvidia shares.