A worker waits to connect a drill bit on Endeavor Energy Resources LP's Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas, U.S., on Friday, Dec. 12, 2014.Brittany Sowacke/Bloomberg
Canadian earnings season kicked into high gear in February, and so far about one-third of the members of the S&P/TSX Composite index have posted their results for the final three months of 2014.
CIBC World Markets senior economist Peter Buchanan and economist Nick Exarhos are offering their take on how the results have compared relative to analysts' expectations so far.
"Just 46 per cent of the third of Composite members to report have topped the Street's expectations," they wrote in a note published prior to this week's trading. "While that's 5-10 per cent below the historical average, the story is unsurprisingly energy – a sign analysts didn't use the butcher knife aggressively enough, earlier on," they said in a note issued prior to this week's trading.
Here's their chart on Q4 earnings beat rates by sector:
Admittedly, the sample size in some sectors is rather small, so let's key in on this tidbit: Canadian oil and gas companies have proved themselves capable of limboing under a bar that had been lowered substantially heading into these results.
From early October until the end of January, fourth-quarter profit estimates for energy firms had been slashed by more than 60 per cent. As we noted in our preview for the Canadian earnings season, the speed at which analysts were cutting estimates provided a hint that the adverse impact of lower crude hadn't been fully factored in.
"For the overall Composite, index adjusted earnings are now expected to be up a slightly pared back 9.5 per cent on the year in Q4, then sagging by 8 per cent in Q1, twice the earlier-expected drop as oil's price collapse hits hard," CIBC's economists added.
According to Bloomberg, 20 per cent of S&P/TSX-listed oil and gas companies have reported fourth-quarter results, and of this group, earnings have declined by nearly 65 per cent year-over-year.
Thus far, the energy companies to post results have predominantly been the large, integrated firms, such as Suncor Energy Inc., Husky Energy Inc., Imperial Oil Ltd., and Cenovus Energy. Investors will have to wait a while longer to get an accurate read on how the collapse in oil prices affected upstream firms, as well as any revised guidance for the year ahead. But, as Mr. Buchanan and Mr. Exarhos observe, what we've seen so far has not been pretty.
Since Dec. 15, Canadian energy exploration and production stocks have substantially outperformed West Texas Intermediate crude oil (adjusted for Canadian dollars), suggesting that these early disappointments haven't caused investors to flee the sector.