Analysts’ low expectations of the 2015 financial year reporting season were certainly met. Earnings growth for the period came in at minus 2 per cent.

This fall was largely driven by the weak energy and resources sectors.

Once again we saw a heightened level of short-term volatility accompanying results announcements.

For example, digital real estate advertising business REA Group’s result announcement was met with a 3.8 per cent share price dive on the day. As the market fully digested the results the following day, REA shares rallied 6.5 per cent against the S&P/ASX All Ordinaries Accumulation Index’s flat performance.

Some of the small cap players stood out, with strong results coming from Pacific Brands, The Reject Shop and SMS Management & Technology.

Winners and losers aside, the reporting season provided three key themes: southern states outperform, businesses are reinvesting and cost-cutting programs are largely complete.

NSW is the nation’s economic powerhouse. The wealth effect driving western Sydney – marked by some property prices doubling in the past five years – has lifted the state’s economic output, as has the Baird government’s ambitious infrastructure program.

Through this program, western Sydney will grow as an economic hub faster than any other centre in Australia over the next decade.

Victoria occupies a strong second place, while Queensland and Western Australia are continuing to languish as they adjust to the end of the mining boom.

The impact of the federal government’s small business stimulus package, in particular the $20,000 tax deductible allowance, provided a boon to retail businesses. In presentations to the market, both JB-Hi Fi and Harvey Norman said this package assisted their performance at the end of the financial year.

In response to slowing sales growth and anaemic economic growth, a few companies announced significant capital reinvestment programs. All programs were generally met with negative share price reactions, indicating the market’s short-term focus is not ready to acknowledge the need. Both SEEK and Telstra traded lower after announcing spending programs.

Even Fairfax dropped the day after announcing it would continue its Domain investment, which began more than a year ago.

Since the recovery from the global financial crisis, Australian companies have managed margins quite well by reducing costs. However, companies have generally finished their cost out programs and no notable revenue growth has come through yet primarily because of the patchy economy.

As a result, cost reductions are a less effective tailwind for margins now than in recent years. For this reason, it was interesting to see a few companies looking to deploy capital back into their business to help drive organic growth. As a whole, company outlook statements were particularly downbeat this season and more meaningful earnings growth is necessary to help equities trade higher.

For the current financial year, earnings per share growth is now sitting at 4 per cent. After stripping out the weak energy, resources and financial sectors, this is a fairly respectable 12 per cent.

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