Australia’s Business Profit Growth Slows to 5.2%

By Jacob Greber

Dec. 1 (Bloomberg) -- Australian company profit growth slowed in the third quarter as earnings at retailers, transport businesses and manufacturers dropped.

Gross operating profits rose 5.2 percent from the second quarter, when they surged a revised 15.7 percent, the Bureau of Statistics said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg News was for a 3 percent gain.

Weakening corporate earnings increases the risk Australia’s economy will slip into its first recession since 1991. Declines in consumer spending and house prices, as well as concern about fallout from waning global growth, will prompt central bank Governor Glenn Stevens to cut borrowing costs tomorrow for the fourth straight month, according to economists.

“It’s a signal that the domestic economy is slowing,” said Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “The strength in profit was largely driven by the mining sector, but profits fell quite sharply” among some other industries, she added.

Profits for transport and storage companies slumped 16.2 percent in the quarter, earnings for manufacturers declined 9.9 percent and those for retailers fell 7 percent. Profits at mining companies surged 19.4 percent.

The Australian dollar fell to 64.62 U.S. cents at 12:18 p.m. in Sydney from 65.02 cents before the report was released. The two-year government bond yield declined 1 basis point, or 0.01 percentage point, to 3.14 percent.

Rate Cuts

Stevens and his board have cut borrowing costs since early September by 2 percentage points, and will probably lower the benchmark rate again tomorrow by three-quarters of a point to 4.5 percent, according to 15 of 20 economists surveyed by Bloomberg last week. Two tipped a half-point reduction, and three forecast a 1 percentage point cut.

Economic growth probably cooled to 0.2 percent in the third quarter, the weakest pace since the fourth quarter of 2002, as consumers reduced spending, according to the median estimate in a separate Bloomberg survey of 22 economists.

The nation’s benchmark S&P/ASX 200 Index of stocks has tumbled 42 percent this year amid concern slower growth will erode earnings at banks and mining companies such as BHP Billiton Ltd.

Retail Sales

David Jones Ltd., Australia’s second-biggest department store chain, said last week that sales in the three months ended Oct. 25 fell 6.3 percent.

Chief Executive Officer Mark McInnes said his outlook for the rest of fiscal 2009 is worse than that experienced by the company in the last recession of 1990 to 1991.

Qantas Airways Ltd. may further cut passenger capacity and defer orders of new planes if waning economic growth continues to reduce demand for air travel, Chief Executive Officer Alan Joyce said on Nov. 27.

Australia’s biggest carrier eliminated 10 percent of international seats last week as it forecast profit will drop 64 percent in the year ending June 30, 2009.

Inventories held by companies climbed 0.7 percent in the third quarter from the previous three months, today’s report showed. That matched economists’ estimates.

Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign-exchange gains or losses.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net