Canadian companies feel the world's pain

Sun Jan 20, 2013 10:55am EST
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By Claire Sibonney

TORONTO (Reuters) - Financial results from Canada's biggest companies are likely to disappoint investors in the coming weeks with weak global growth and mixed commodity prices expected to have pummeled the quarterly earnings of oil companies and miners.

Energy and materials shares make up about half of the value of the Toronto Stock Exchange's benchmark S&P/TSX composite index and include such blue chips as Suncor Energy Inc, Teck Resources Ltd and Goldcorp Inc.

All three companies are expected to post year-on-year drops in fourth-quarter earnings per share when they report in February.

Overall, companies in the TSX are expected to report quarterly earnings growth of only 0.3 percent from a year earlier, according to Thomson Reuters StarMine SmartEstimates. Analysts see full-year 2012 earnings dropping 1.4 percent, but they expect profits to climb around 9 percent next year.

"This earnings season might be a mild disappointment in some cases, or a mild disappointment overall," said George Vasic, chief economist and strategist at UBS Securities Canada.

Vasic noted that TSX valuations are higher than they were last year, increasing the risk that stock prices could fall on negative news. He said investors will be especially sensitive to earnings outlooks, and that capital spending plans will be scrutinized.

In the United States, where the fourth-quarter earnings season is already well underway, shares of such top financials as Bank of America and Citigroup have fallen on disappointing results.

By the time reporting is done, S&P 500 fourth-quarter earnings are expected to have increased just 2.5 percent, according to Thomson Reuters data, but that is still far better than what is expected from TSX companies.   Continued...

A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007. REUTERS/Mark Blinch