Earnings from more than a quarter of Canada’s blue chip companies will be released in the coming week, painting a picture of corporate Canada’s rebound from the depths of the recession last year.
CIBC economist Peter Buchanan is predicting 45 per cent year-over-year growth with the materials and financial sectors leading the way, based on a compilation of analyst estimates.
“It’s consistent with some of the other (economic) indicators that Canada’s recovery has moved up a notch in the last quarter or so, so it’s certainly a positive sign,” he said.
Buchanan said if companies meet analyst expectations it will be the largest year-over-year increase since the first quarter of 2003, when the economy saw a sharp recovery.
But, he cautioned, the results will benefit from extremely weak year-ago results.
First-quarter earnings reported so far have “absolutely burst out of the gate,” said Douglas Porter, deputy chief economist at the Bank of Montreal.
“The underlying recovery seems to be progressing faster than the market and analysts expected.”
He said strong earnings will increase confidence among Canadian corporations, pushing them to begin hiring again.
Canadian companies didn’t resort to as many cost-cutting measures as U.S. firms, resulting in more modest productivity gains this quarter, Porter said. But corporate Canada has still seen a formidable rebound driven largely by higher commodity prices.
“It was the slide in commodities that led the way down and it’s the rebound in commodities that’s leading us back up,” he said.
The strong results so far have been good news for shareholders, who are starting to benefit in the form of share buy backs and higher dividends, Buchanan said.
Teck Resources Ltd. (TSX:TCK.B) reinstated its semi-annual dividend after repaying a $9.8-billion debt and reporting strong first-quarter results. Analysts have predicted other large miners will follow suit.
Canadian miners reporting this week include Barrick Gold Corp. (TSX:ABX) and Goldcorp Inc. (TSX:G).
The financial sector, led by Fairfax Financial Holdings Ltd. (TSX:FFH), will also drive overall growth after rebounding from very weak year ago performances, Buchanan added.
Even the beleaguered forestry industry has seen higher revenues from rising lumber prices. Both International Forest Products (TSX:IFP.A) and West Fraser Timber Co. Ltd. (TSX:WFT) reported sharp revenue growth and improved earnings last week.
Overall, earnings are expected to rise in nine out of 10 sectors, with the energy sector as the exception where sliding natural gas prices have offset higher oil prices, Buchanan said.
Porter said he expects strong growth in the consumer discretionary sector, given that domestic growth has played such a large role in the economic rebound.
“Canadian consumer spending is almost back to square one, it’s almost back to pre-recession levels,” he said.
Buchanan said first-quarter growth will likely be the biggest year-over-year increase in 2010 because it was the weakest quarter last year.
But Porter said it is possible growth in the second quarter could be even better as the rebound increases this year, compared to a year ago, when results in some sectors continued to slide.