(Repeats Friday column)
By Wojtek Dabrowski
TORONTO, April 20 (Reuters) - With first-quarter earnings season set to kick off in earnest, market watchers are expecting a relatively sturdy performance from Canadian companies and say it will be another three to six months before the weak U.S. economy truly hits results.
High oil and commodity prices should benefit energy and resource companies, though financial firms, which have seen their share prices battered amid the credit crunch, could deliver some bad news.
“Expectations are for softer growth in most industries, but growth nonetheless,” said Kate Warne, Canadian market strategist at Edward Jones.
Big names slated to report results before month’s end include energy powerhouses EnCana Corp (ECA.TO) and Suncor Energy (SU.TO), as well as Canadian Pacific Railway (CP.TO) and contract electronics maker Celestica Inc (CLS.TO).
The big banks will aren’t due to report earnings until late May.
Most analysts agree the weak U.S. economy will take some steam out the profit growth of Canadian companies, but doubt this will significantly manifest itself before the second or third quarter.
BlackBerry maker Research In Motion RIM.TO appeared to prove this lag hypothesis when it bucked any concerns over the state of the U.S. economy by reporting a profit earlier this month that topped expectations. Some had worried the company would stumble because of the slowdown, which could hurt sales of its smartphones.
“In terms of earnings, I very much doubt that (the first quarter) would be the trough,” said Elvis Picardo, investment strategist at Northern Securities in Vancouver. “We are beginning to see evidence of widespread damage across a number of sectors, not just the financials.”
But despite turbulence south of the border, the Toronto Stock Exchange’s benchmark index .GSPTSE remains near its record level of 14,646.82. On Friday, the S&P/TSX composite closed at 14,237.06.
Picardo said he finds the exuberance “a little scary,” and added U.S. earnings projections for the second and third quarters appear overly bullish, given the state of the American economy.
“There’s some sort of massive turnaround projected in the second half of the year,” he said. “I don’t really buy that scenario.”
For the time being, the results of commodity and materials producers should be a bright spot in first-quarter earnings season thanks to mounting gains in the price of oil and gold, Picardo said.
“The stocks in those two sectors still don’t reflect the potential upside from earnings due to dramatically higher commodity prices,” he said.
Bank shares, meanwhile, will likely continue to feel weakness in the wake of this earnings season, despite the fact that Canadian financial institutions have been relatively unscathed by bad loans, compared to their U.S. counterparts.
But, while investors shouldn’t expect a bath of red ink from Canadian companies this earnings season, the rest of the year could be much grimmer.
“I prepare my clients for a tough go in the next three to nine months,” said Adrian Mastracci, portfolio manager at KCM Wealth Management Inc, in Vancouver.
“I’m prepared for the worst.”
$1=$1.01 Canadian Reporting by Wojtek Dabrowski; editing by Rob Wilson