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Miners and banks star in mixed earnings season
Clancy Yeates
February 25, 2011

THE corporate earnings season has underlined the widening gap between the mining industry and the rest, as non-resources companies are squeezed by higher costs and a thrifty household sector.

As the flood of company results nears its end, analysts said the bumper mining profits and weaker performance from many industrial companies underlined the emergence of a two-speed economy.

After record profits from mining giants, figures released yesterday show mining investment is estimated to hit $55.5 billion this year, a 34 per cent rise on the estimate for 2009-10.

But highlighting the tough conditions facing many manufacturers, Pacific Brands shares were pummelled after the clothes maker warned sales would continue to slump in the second half.

Fairfax Media shares also fell 5 per cent after the Herald’s publisher gave an uncertain outlook for the second half, owing to the weak retail advertising market.

While brokers say this season has held fewer surprises, outlook statements remain guarded, with companies reluctant to promise too much.

Wilson Asset Management’s principal, Matthew Kidman, said that outside the mining and banking sectors, many smaller industrial companies would find it hard to post growth this year.

”Overall the outlook statements have set people back a bit. The majority of companies have said it’s going to be tougher for a bit longer.”

A fund manager at Pengana Capital, Rhett Kessler, said growing competition for labour also meant rising costs were starting to bite – a trend that is likely to intensify.

”We have a number of cost pressures starting to emerge, including labour and energy,” he said.

The engineering company United Group complained this week about rising wages as it was forced to compete with the mining boom.

While the banks are able to pass on some of the pain because of their dominant position, Mr Kidman said many smaller companies were being forced to absorb the costs – as discounting remained common.

He said that there was not much scope for ”top-line growth”.

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