Six industries face declining profits

Canada’s economy has shown some tepid signs of recovering, but the Conference Board says that most industries it tracked in a recent study are still experiencing trouble.

TORONTO — Canada’s economy has shown some tepid signs of recovering, but the Conference Board says that most industries it tracked in a recent study are still experiencing trouble.

A report suggests that profits are expected to fall more than 20 per cent this year in most of the six industries the board monitors in an industrial report, which include food services, retail, transportation and wholesale.

Michael Burt, associate director of industrial economic trends at the Ottawa-based forecaster, said the industries are grappling with lower demand and downward pressure on prices.

The Conference Board’s study noted that transportation sector profits have fallen 29 per cent to $5.2 billion.

Wholesale profits also declined as lower demand in the auto and construction sectors helped pull overall results down to $11.2 billion.

The Canadian shopper hasn’t given the retail sector much to cheer about either as both lower consumer demand and price cuts have slashed its profits by 32 per cent to $8.6 billion.

The findings could be particularly worrisome to investors because any sign of weaker profits adds pressure to shares. Lower profits tend to halt future capital spending, and research and development plans, both of which are a major sources of economic growth.

Tighter profits can also mean smaller dividends and distributions to shareholders.

Burt noted that the numbers look particularly dramatic right now because they’re compared to financial results logged a year earlier, before the recession took hold.

“If you look at where we are right now, even if we’re flat month-to-month compared to where we were in summer of 2008, it can be a significant drop in activity,” he said.

“What we’re seeing now are varying effects. There’s some indications the economy has found a bottom and may be starting to improve a little bit.”

Also in the report, the food services industry saw lower results in full-service restaurants, which diminished profits to $826 million from $1.2 billion last year.

Fewer foreign travellers visited Canada, which contributed to pulling down profits for hotels and other accommodations by eight per cent to less than $500 million after dropping 25 per cent last year.

The Conference Board remained optimistic about a recovery in the transportation, retail and wholesale industries as the recession winds down, but noted that the hospitality and food services industries might face a tougher battle if an H1N1 outbreak occurs.

“These industries were among the most affect as a result of SARS and a serious H1N1 pandemic here in Canada would definitely have a negative effect on them,” Burt said.

However, not all of the findings were dismal. The report said food and beverage manufacturing has proven to be relatively recession-proof with a slight uptick to $3.4 billion, with domestic food demand holding steady and exports rising despite the stronger loonie.

Bank of Montreal economist Michael Gregory said he believes optimism is key when looking towards the results for next year.

“As the dust settles I think corporate Canada is probably in much better shape than they have (been) coming out of any other recession,” he said.

“Yes the recession hurt, but business bankruptcies have actually declined during this recession.”

He said Canadian industries began making major adjustments to productivity and efficiency to contend with the loonie’s parity in late 2007, which better prepared them to face further economic woes.

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