Upcoming reporting season will mark the end of the earnings recession in Canada, says a new report from CIBC World Markets. After four down quarters, operating profits for S&P/TSX composite companies are expected to be up 43% when earnings for the final three months of 2009 are tallied.
One expert noted that TSX earnings will only need to rise by 5% to 6% from the previous quarter to meet expectations. The economist expects the insurance and mining sectors to account for about three quarters of the total year-on-year rise in earnings.
Insurers lost more than $1 billion in the fourth quarter of 2008 as a result of adjustments on segregated funds and other assets and liabilities. He noted that the sector should see a positive swing in profitability of well over $3 billion.
The diversified mining group, meanwhile, is forecast to see a $1.5 billion year-over-year improvement due to the strong metals-led rally in commodity prices.
Some market watchers feel that the greater challenge may not be this quarter, but rather the targets for the coming year. Analysts on both sides of the border have been raising their near-term expectations for earnings in response to improvements in the economy and commodity prices.
In Canada, positive revisions have accounted for 53% of all revisions for the quarter ahead, while that number is 73% in the United States.
Meanwhile, the Canadian dollar's 20% appreciation since its lows of the spring may help sectors like retail, which sells a large proportion of imported products, buy the currency is expected to restrain earnings in other areas.
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