Bay Street: Weak commodities set to punish company profits

Sun Oct 14, 2012 10:43am EDT
 
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By Claire Sibonney

TORONTO (Reuters) - Canada's biggest companies may join their Wall Street peers in posting poor financial results for the latest quarter as miners and energy producers struggle with soft global demand and volatile commodity prices.

Energy and materials shares make up about half of the value of the Toronto Stock Exchange's benchmark S&P/TSX composite index .GSPTSE and include such blue chips as Cenovus Energy (CVE.TO: Quote), Teck Resources Ltd TCKb.TO and Goldcorp Inc (G.TO: Quote). All three are expected to report a year-on-year drop in third-quarter earnings per share in the coming weeks.

Overall, companies in the blue-chip S&P/TSX 60 index are expected to report an earnings decline of 0.4 percent from a year earlier, according to Thomson Reuters StarMine SmartEstimates.

And if warnings from U.S. resource giants Alcoa (AA.N: Quote) and Chevron (CVX.N: Quote) last week are any indication, there's also a high risk that Canadian companies could issue disappointing outlooks that could hit their stock prices.

"We have had strong earnings for the last two to three years for S&P and TSX," said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis. "Those trends have powered equities higher during that time but we're now running up against the situation where the economic environment on a global scale has softened.

"Corporations are struggling a little bit more now to deliver that profit growth because much of the cost savings that they were extracting over the past couple years have been realized."

TSX LAGGING S&P 500

With the global economy sputtering because of Europe's debt crisis and a slowdown in Asia, it's no surprise that growth-sensitive sectors such as energy and materials have been among the worst-performing sectors this year.   Continued...

 
A Bay Street sign is seen at the financial district in Toronto, October 10, 2008. REUTERS/Mark Blinch (CANADA)