Earnings season shakes up the ASX

For Australia’s largest names, simply meeting expectations seemed insufficient. Commonwealth Bank (ASX: CBA) dropped 4.8% post earnings as concerns over margin compression and stretched valuations loomed large. JB Hi-Fi (ASX: JBH) also fell 8.4% after earnings as executive management changes overshadowed otherwise decent results.

Several companies, including CSL Ltd (ASX: CSL), attributed their earnings misses to low productivity, which the Australian government addressed at its recent Economic Forum Roundtable.

On a market weighted basis, mid-caps, as represented by the S&P/ASX Midcap 50 Index, delivered solid results, with a net beat rate of 2.9% versus the S&P/ASX 200 Index’s 1.2%. These companies benefited from macro tailwinds including falling interest rates, resilient retail sales and improving growth. They also benefited from higher consensus 12-month price target revisions.

By sector, consumer discretionary was among the best performers, reporting a 55% net beat rate (S&P/ASX 200 Index had a net beat rate of 5%) and a positive average one-day price reaction of 1.6%. Healthcare was the worst performing, with a net beat rate of only 1% and a negative average one-day price reaction of -8.3%.

Chart 1: Average one day price reaction post earnings release

Source: VanEck, Bloomberg. S&P/ASX sector indices. Data as at 29 August 2025, performance in AUD.

Sector highlight:  Healthcare under pressure, but some segments in fine form

Healthcare continued its year-to-date trajectory of underperformance, falling 13.21% in August. US tariff uncertainty and subdued industry growth contributed to this weakness.

Healthcare heavyweight CSL Ltd (ASX: CSL) fell 17% post-earnings due to weakness in its core business line(revenue undershot expectations by 4-7%) and a softer near-term outlook driven by productivity concerns. Ramsay Health Care (ASX: RHC) and Healius Ltd (ASX:HLS) dropped more than 10% after reporting margin pressures from increased wages and insurance costs, as well as softer revenue outlooks driven by tariff-related uncertainty across the sector.

However, there were green shoots. Among smaller names that reported positive earnings growth. For example, Ansell Ltd (ASX: ANN) rallied 10.3% post-earnings as investors rewarded solid sales and margin growth after integrating KBU (formerly Kimberly-Clark’s Personal Protective Equipment business).

Sector highlight: Retail surprised to the upside

The consumer discretionary sector has benefited from an improved growth outlook, easing rates and resilient consumer spending, gaining almost 19% year-to-date, as of 31 August 2025.

Continuing on from the broader earnings theme, several consumer discretionary stocks that beat/met expectations saw large drawdowns on weak margin guidance and/or negative headlines, such as Guzman y Gomez Ltd (ASX: GTG), which slumped -18%. Smaller names with a clear growth story, meanwhile, rallied. Super Retail Group Ltd (ASX: SUL) gained around 12% post earnings off the back of record sales and store expansion.

Mid-caps and small caps still have an edge

Over the course of this earnings season (31 July to 31 August 2025), mid-caps (5.5%) and small caps (8.4%) have delivered strong outperformance against large caps (2.1%) and the broader S&P/ASX 200 Index (3.1%). A major driver was the higher consensus price target revisions from sell-side analysts for the next 12 months.

Chart 2: 12-month price target revisions

Source: VanEck. Bloomberg. Data as at 31 August 2025. Large cap is S&P/ASX 20 Index. Mid cap is S&P/ASX Midcap 50 Index. Small cap is S&P/ASX Small Ordinaries Index. Price targets are not guaranteed and subject to change without notice.

Looking ahead, we remain constructive on the prospects for Australia’s mid- to small-cap stocks. Continued growth in household spending, as shown in the latest GDP print and monthly household spending indicator, bodes well for this more macro-sensitive segment of the market. However, given the wild swings we saw during the earnings season, diversification is key.

Investors seeking exposure to the growth potential of mid-caps and small caps on the ASX will need to look past ETFs tracking the S&P/ASX 200. This is because the top 10 largest companies by market capitalisation represent roughly 50% of the S&P/ASX 200, with the other 190 stocks squeezed into the other half of the portfolio. The VanEck S&P/ASX MidCap ETF (MVE) provides access to a diversified portfolio of ASX-listed mid-sized companies. It is also Australia’s only dedicated Mid-Caps ETF. The VanEck Small Companies Masters ETF (MVS) gives investors exposure to a diversified portfolio of ASX-listed small companies that are considered to offer growth potential for a reasonable price (GARP).

Key risks

An investment in the ETF carries risks associated with: financial markets generally, individual company management, industry sectors, stock and sector concentration, fund operations and tracking an index. See the PDS and TMD for more details.