Here are the earnings season standouts and disappointments
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Another reporting season has come and gone, and with it the usual mix of pleasant surprises and bitter disappointments for investors.
Amid subdued expectations, which were the biggest winners and losers?
Morningstar's head of equities research, Peter Warnes, said the 2016 season "was reasonable and a little better than generally expected" under the circumstances.
"Management teams moved much earlier than normal to inform the market about earnings downgrades, and the traditional June confessional period was much quieter than in the past. So they massaged the market's expectations to a subdued level, with the ones that missed being belted," he said.
Warnes said below-trend economic growth and low inflation made meaningful revenue growth "difficult to achieve," requiring a continued focus on cost management.
With conditions set to remain challenging, he said the market was expecting earnings growth in fiscal 2017 from resources and mining services companies, benefitting from an upturn in prices.
Generally, "consensus has been too optimistic for many years, and this will be proved correct again," he said.
For investors, dividend growth slowed markedly, although total dividends paid to shareholders in fiscal 2016 are expected to hit a new record.
"Payout ratios have reached their peak and investors can expect more pedestrian income growth in future," he said, with the big four banks leading the expected slowing in dividend payments.
Meanwhile, the benefits of falling bond yields for infrastructure, utilities, REITs and other leveraged companies are expected to dissipate.
"The halcyon days of falling interest rates driving share prices higher are likely over," Warnes said.
Despite the subpar trend, some standouts emerged during the recent reporting season, including in the healthcare sector.
Warnes pointed to private hospital operator Ramsay Health Care (ASX: RHC) along with rival Healthscope (ASX: HSO), and Sonic Healthcare (ASX: SHL), while the major global players including hearing implant maker Cochlear (ASX: COH) and sleep device maker ResMed (ASX: RMD) "continued to perform well".
He also identified financials such as stock-market operator ASX (ASX: ASX), investment manager Challenger (ASX: CGF) and financial technology provider IRESS (ASX: IRE) as also performing well, while infrastructure companies Sydney Airport (ASX: SYD) and Transurban (ASX: TCL) "delivered strong results, driven by their dominant market positions".
However, vet company Greencross (ASX: GXL) "looks undervalued and the positive thesis around pet care appeals".
Elsewhere, in the resources sector Fortescue (ASX: FMG) "shot the lights out" by slashing costs and benefitting from a higher iron ore price, while major miners BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) slashed spending and dividend payments while strengthening their balance sheets.
Not all companies outperformed, however, with traditional media players such as Fairfax (ASX: FXJ), Nine Entertainment (ASX: NEC) and Seven West (ASX: SWM) all facing earnings pressure amid an ongoing shift to digital media.
And while blood products company CSL (ASX: CSL) missed its targets due to losses in its new Seqirus division, it still showed promise, he said.
Looking ahead, Warnes pointed to sectors that provide exposure to the world's ageing population and inbound tourism as being beneficiaries of favourable demographic trends.
"Tailwinds from macro trends are likely to drive investment and earnings growth at faster rates than the overall economy," he said, suggesting developed economies would struggle to generate "meaningful growth" with monetary policy options nearly exhausted and governments reluctant to use fiscal policy as a growth driver.
For Australian investors, after the recent period of solid capital growth, Warnes said income growth would now become the main driver of total shareholder returns "for the foreseeable future".
"The total shareholder return will likely come back to single digits from mid-teens, with a dividend yield of around 5 per cent. Since the ASX 200 is yielding around 4.4 per cent, the total return you would have to be comfortable with is around 7 to 8 per cent, with franking credits the icing on the cake," he said.
"So a total return of 8 per cent, with 4.5 per cent dividend and 3.5 per cent capital growth, that's probably what we can expect."
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Anthony Fensom is a Morningstar contributor.
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