Pricing power is the only earnings metric that matters right now

The number that flatters and the number that matters

The NZX 50 has been hitting record highs, but index levels are a lagging, sentiment-driven number. Earnings season is where sentiment meets the accounts. Over the coming fortnight, Newsroom’s Andrew Patterson flags the August round as the first systematic read on whether the sharemarket’s optimism is grounded in real operating performance or has run ahead of the underlying earnings reality.

The defining tension for August 2026 is simple. The oil shock has raised input costs across fuel, energy and freight while simultaneously pushing inflation in a direction that forces the Reserve Bank’s hand on rates. Companies with genuine pricing power, meaning the ability to pass those cost increases through to customers without losing volume, will show it in their gross margin lines. Companies without it will report revenue growth alongside margin compression. That divergence is the whole story.

NZX’s own accounts show the trap

The exchange operator is a useful worked example of why headline revenue lies. In August 2025, NZX reported a 46 percent drop in half-year net profit to $8.3 million, down from $15.55 million, driven by write-downs on its Quay Street Management acquisition and energy contracts. Revenue actually rose to $61.7 million from $58.3 million, and operating earnings improved. The top line grew while the bottom line was gutted.

By February 2026 the full-year picture had recovered sharply, with normalised EBITDA of $53.5 million, up 11.6 percent, and NPAT of $21.5 million, up 20.2 percent on a like-for-like basis. NZX Board Chair John McMahon said NZX had produced a strong operating result despite a mixed year for the local market. Its funds management arm, Smart, finished 2025 with $15.8 billion under management, up 17.6 percent. The lesson for anyone reading results this month is to look past the revenue line to what one-offs, impairments and financing costs are doing underneath it.

The analyst lens is operating leverage

The framework that mattered in February still applies now. Forsyth Barr told the February 2026 season that many NZ corporates had spent three-plus years right-sizing, so how they speak to cost control and operating leverage would be the key litmus test. Senior analyst Matt Montgomerie made the case directly, arguing that reluctance to re-expand costs creates strong operating leverage, so net earnings growth during upswings can materially outpace consensus expectations.

That is the bull case. He singled out building product firms, retailers and service businesses, the sectors hardest hit by the recession that had done the most restructuring, as the most likely upside surprises. Forsyth Barr expected about 40 percent of reporting companies to carry positive outlooks in February. That was the baseline before the oil shock and its inflation feed-through arrived to test whether the leverage has held.

Spark is the immediate test case

Spark’s half-year result on August 20 is the sharpest focus. Its recent underperformance makes it a clean test of whether a large-cap telco with heavy infrastructure costs and a cut-throat retail market can protect margins while energy and labour costs climb. Freightways is the domestic bellwether, with its customer volume trends offering a direct read on economic activity. The big four power companies, Meridian, Contact, Mercury and Genesis, will be watched for dividend signals, while Fletcher Building, SkyCity, Sky TV and EBOS sit under close scrutiny.

Exporters with offshore revenue should be the relative winners, cushioned by a weak New Zealand dollar. The harder test falls on domestically focused retailers, property-related firms and consumer-facing services, exposed to the pincer of higher rates and softening household spending.

Watch the guidance, not the result

For business owners the practical instruction is straightforward. A company that posts a solid first half but hedges its second-half outlook is telling you something important about its own confidence in its pricing power. A company that guides up is telling you the opposite. In an environment where rising financing costs will show up plainly in the accounts of anyone leveraged, forward guidance is worth more than the reported number.

Record index highs will not survive an earnings season that reveals margin compression dressed up as revenue growth. The next fortnight decides which listed companies were actually earning their valuations, and which were riding sentiment that the accounts are about to correct.

Sources

• Newsroom: Earnings season to reveal listed companies’ half-year performance (2026-08-09)
• NZX: Full Year Results – Operating Earnings and Guidance (2026-02-26)
• RNZ: Six-monthly company reporting season hoped to start to reflect turnaround in economy (2026-02-16)
• RNZ: NZX reports drop in half-year profits due to write-downs (2025-08-22)