Commodities to hold back TSX profit growth

Sun Apr 22, 2012 12:28pm EDT
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By Claire Sibonney

TORONTO (Reuters) - Earnings growth at many of Canada's biggest companies is expected to have slowed to a crawl in the first quarter due to weakness in commodity prices spurred by nagging worries about the health of the European and Chinese economies.

The first quarter earnings season for the country's blue chip corporations starts in earnest this week with Canadian National Railway CNR.TO, Rogers Communications RCIb.TO, Goldcorp Inc G.TO, EnCana Corp ECA.TO and Potash Corp POT.TO reporting results.

Companies whose shares comprise the blue-chip S&P/TSX 60 index .TSE60 are expected to report earnings growth of only 0.7 percent from a year earlier, according to Thomson Reuters StarMine SmartEstimates.

That's well below StarMine's 10.6 percent estimate for companies on the U.S. Standard & Poor's 500 .SPX, a much broader index.

The first wave of S&P 500 results has been substantially stronger than expected, with 81 percent of companies exceeding expectations thus far, according to Thomson Reuters data.

"We think there is a greater likelihood of negative revisions in Canada because of our leverage to commodities," said Pat McHugh, Canadian equity strategist at Manulife Asset Management.

"The U.S. index has a greater leverage to consumer spending and we are seeing a slow but steady improvement in jobs," he said. "We are seeing a slow but steady decrease in the unemployment rate. All of that should eventually factor into better housing starts, so the consumer in the U.S. is slowly improving."

The biggest soft spot on the Canadian index may be the energy space, which has been hit by a drop to 10-year lows in natural gas prices due to moderate weather and record-high supplies. <NGA/> <NGA/CAN>   Continued...