Strong economy silences profit warnings

For now, Australia’s thriving economy has led to a “quiet confession season”, according to Ernst & Young’s bi-annual ‘Profit Warnings Watch’.

The 32 percent reduction in profit warnings, issued by companies between January and June this year, has been welcomed after a period of cautious expectations management.

“It seems that as corporate profits and share prices have increased over the past two years the number of profit warnings have declined,” says John Georgakis, a partner in Ernst & Young’s Corporate Restructuring division.

All of this could change if spending is slowed by more Reserve Bank of Australia initiated rate rises.

“If the Australian dollar remains at current levels or rises, we could expect to see more warnings overall, particularly from Australia’s export producing companies,” says Georgakis. “Additionally with share prices reflecting strong growth any company required to lower expectations through a profit warning can expect a brutal share price reaction.”