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Canada: A Difficult Start To Q2 Earnings Season

ByThe National Bank of Canada
Published 08/08/2012, 07:01 AM
Updated 05/14/2017, 06:45 AM

The S&P/TSX Composite index’s Q2 earnings season is well under way with over 100 constituents having reported. However, results so far point to another disappointing outcome. Earnings for companies having already reported are showing a 17.8% contraction compared to quarterly results observed one-year earlier. This is worst than expected with the surprise factor for earnings growth at -2.4%. Sector breadth is negative with 6 of 10 sectors showing earnings contraction so far. The worst performing sectors include Info Tech (-101.6%) and Energy (-20.5%) while Health Care (+28.0%) is showing the strongest growth. Sales have nevertheless continued to expand (+1.7%) at a stronger than expected pace. Eight of 10 sectors are showing sales growth outpacing earnings growth implying that a majority of sectors are experiencing a profit margin contraction in Q2. Looking ahead, a turnaround in the profit outlook remains doubtful, at least for now. Analysts are continuing to revise down earnings expectations with the 3-month change in 12-month forward earnings falling 6.6% as of late, the sharpest negative revision so far this cycle. Unless global prospects improve and resource prices begin to show a marked improvement in momentum the outlook over the next few months will remain uninspiring.
A difficult start to Q2 earnings season

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