Canada's second-quarter reporting season kicks into high gear this week, giving investors a clear look at whether the country's underperforming benchmark index has what it takes to make up some lost ground.
The companies scheduled to unveil their quarterly financial results represent a wide cross-section of the S&P/TSX composite index, following a trickle of results last week.
Canadian National Railway Co., WestJet Airlines Ltd., Barrick Gold Corp., Loblaw Cos. Ltd., Suncor Energy Inc., Fairfax Financial Holdings Ltd., Potash Corp. of Saskatchewan Inc., Bombardier Inc., Fortis Inc. and TransCanada Corp. are among the companies that will provide glimpses into the health of Canada's transportation, energy, mining, utilities, financial and retail sectors.
The corporate results come at a time when central banks are tightening monetary conditions in response to an improving global economy. The U.S. Federal Reserve will release its monetary-policy decision on Wednesday. After raising its key rate in June, the Fed is expected to maintain the current level at least until the end of this year.
The Bank of Canada raised its key interest rate earlier this month, marking the first rate hike in nearly seven years. The move reflected the central bank's view that "growth is broadening across industries and regions and therefore becoming more sustainable."
But investors are not embracing this optimistic tone. The S&P/TSX composite index is virtually unchanged in 2017, and down about 4 per cent from its highs in February.
The index lags gains of more than 10 per cent for the S&P 500, 6 per cent for European stocks and more than 5 per cent for Japan's Nikkei 225 – a remarkable divergence that raises questions about the performance of Canadian companies.
Will their second-quarter profits provide the answers?
Analysts are upbeat about Canadian National Railway, which releases its results on Tuesday: They expect adjusted profit of $1.32 a share, an increase of 19 per cent over last year. They expect revenues will rise 15 per cent.
Better-than-expected results from Canadian Pacific Railway Ltd. last week likely bolster their confidence for a good quarter: CP's profit, after making some one-time adjustments, rose 1.5 per cent and beat analysts' estimates by about 2 per cent. Revenue rose 13 per cent, bolstered by strong shipments in grain, potash and coal.
Recent rail traffic also supports analysts' optimism. Based on data from the Association of American Railroads, CN led North American traffic for the week ended July 14, with gains of 17 per cent over last year – a solid indication that the North American economy is humming.
Perhaps Potash Corp.'s results will support this trend. The fertilizer producer, whose name will change to Nutrien when its merger with Agrium Inc. is completed in the third quarter, has been struggling with low commodity prices. However, it expects that global potash shipments will rise by 4 per cent this year – something that investors will hear more about when the company reports its results on Wednesday.
Analysts are cautious on this one. They expect adjusted profit will rise to 18.4 cents a share, up just 2.5 per cent over last year. Revenue is expected to rise 5.7 per cent.
Expect bigger increases from Barrick. The world's largest gold producer has been shedding assets to repay debt at a time when the price of gold is up 8 per cent year-to-date.
Analysts expect it will report a profit of nearly 18 cents a share on Wednesday, up 28 per cent over last year. Expect some nail-biting, though: Last quarter, Barrick delivered a profit that was 30-per-cent shy of expectations, sending the shares down 11 per cent when trading resumed.
Suncor should also show a marked improvement with its results, even as the price of crude oil has been trending sideways for the past year. Analysts are expecting a profit of 19.4 cents a share, up from a loss of 36 cents a share last year. The oil producer's profit has soared past expectations for the past three quarters, though, beating estimates by an average of 87 per cent.
Lastly, Loblaw is expected to report a profit of $1.10 a share, up 8.8 per cent from last year. The shares have been struggling – they're at 2015 levels – over food price deflation and, more recently, concerns that Amazon.com Inc.'s proposed takeover of Whole Foods Market Inc. will increase competition.
But the grocer believes that food prices should level off this year, even as competition remains intense. Its results should reveal some details on both trends.