The Daily. Thursday, August 30, 2001

Quarterly Financial Statistics for Enterprises

Corporate operating profits edged up 0.6% in the second quarter of 2001, ending a string of three consecutive quarter-to-quarter declines. Corporations earned $44.7 billion in profits, up from $44.4 billion in the first quarter but well below the peak of $50.4 billion earned in the second quarter of 2000.

In total, 18 of the 24 broad industry groups reported higher second quarter profits, led by funds and other financial vehicles (+46.0%), depository credit intermediaries (+10.1%) and utilities (+69.9%).

Largely offsetting these gains was a 22.3% profit slide in the oil and gas extraction industry, as natural gas and crude oil prices moderated in the second quarter. The manufacturing sector saw profits sag 10.4%, pulled down by the continuing slump in the electronic and computer industry, where profits retreated from $0.5 billion in the first quarter to a loss of $0.2 billion in the second quarter.

Overall, the financial industries rebounded in the second quarter with a 18.9% surge in profits, following a 25.9% tumble in the first quarter. Meanwhile, non-financial industry profits fell 4.7% in the second quarter, their largest quarterly decline in over three years.

Gains by investment funds led the financial industries

The financial group of industries had a resounding 18.9% quarter-to-quarter gain in operating profits, recovering much of the ground lost with last quarter's 25.9% profit slide. The profit rise was concentrated in the investment funds and the banks.

Note to readers: These quarterly financial statistics cover the activities of non-government corporations in Canada. Operating profits include estimates for funds (except pension funds) and some capital gains of the financial industries, both of which are excluded from corporate profits as reported through the National Economic and Financial Accounts.

Operating profits of funds and other financial vehicles jumped from $3.0 billion in the first quarter to $4.3 billion in the second quarter. Gains on the sale of securities and other assets, usually a major component of operating profits, rebounded to $1.4 billion from just $0.1 billion in the previous quarter. These gains averaged $4.4 billion per quarter last year, but fell steadily throughout the year.

Profits up for depository credit intermediaries

The depository credit intermediaries (banks and credit unions) earned $4.3 billion in second quarter operating profits, a 10.1% increase over the first quarter.

The chartered banks led the way, as their profits rose to $3.9 billion from $3.4 billion in the previous quarter. The bulk of the gain was due to a $0.3 billion decline in other operating expenses, which appeared to result from improved productivity and restructuring of operations. Meanwhile, the provision for credit losses increased by $0.1 billion.

Net-interest income of the banks (interest revenue minus interest expense) edged ahead by $0.1 billion, due in part to higher interest margins. This gain was offset by a slide in non-interest income, as the economic uncertainty and the sluggish market conditions dampened brokerage fees and trading commissions.

Operating profits of credit unions slipped 12.6% to $0.4 billion, more in line with profit levels earned over the past year.

Oil and gas fueled downturn in non-financial sector

The non-financial group of industries suffered a 4.7% slide in second quarter operating profits, the third straight quarter of decline. Profits fell to $32.9 billion from $34.5 billion in the first quarter and a high of $35.3 billion in the third quarter of last year.

The oil and natural gas producers were the hardest hit, as their profits fell 22.3% to $6.2 billion in the second quarter from the record high profits earned in the first quarter. Operating revenue tumbled 16.3%, reflecting a retreat in prices from the strong first quarter levels. Natural gas prices peaked in March of this year at almost twice the levels seen a year earlier, but have been tailing off over the last three months.

Manufacturing profits down again

Manufacturers turned in $9.7 billion in second quarter operating profits, a 10.4% slide from first quarter levels. This was the fifth consecutive decline in manufacturing profits, as the sector remained mired in a prolonged slump, particularly in the high-tech field. Operating revenue slipped 0.2% from the first quarter and has shown no growth over the first six months of 2001. The June release of the Monthly Survey of Manufacturing confirmed a declining trend in manufacturing shipments over the past several months, as manufacturers have been challenged by lower demand and rising inventory levels.

Electronic and computer manufacturing still in retreat

Manufacturers of computers and electronic products experienced five straight quarterly profit declines since the first quarter of 2000. Operating profits fell from $0.5 billion in the first quarter of 2001 to a loss of $0.2 billion in the second quarter, on a 12.5% drop in operating revenue. Global demand for telecommunication equipment, computers and other electronic products remained lacklustre, as manufacturers struggled with rising inventories and production cutbacks.

Low prices and profits for primary metal producers

Four straight declines trimmed quarterly operating profits in the primary metals industry to $0.2 billion, 42.9% below first quarter levels and a fraction of the $0.7 billion earned in the second quarter of last year. The steel industry has been hammered by high fuel costs and slow demand, particularly from the automotive sector. Producers have blamed low priced imports for softening steel prices over the past few quarters.

Wood and paper showed little change

Operating profits in the wood and paper manufacturing industry edged down to $1.3 billion from $1.4 billion in the first quarter. Operating revenue remained essentially flat at $17.8 billion. Demand for lumber products remained firm with strong Canadian and U.S. housing activity. However, as reported in the May release of Gross Domestic Product, the expiration of the Canada-U.S. softwood lumber agreement at the end of March has left lumber exporters cautious about the possibility of retroactive countervailing duties. Meanwhile, there has been steady downward pressure on newsprint prices with reduced consumption due to lower advertising lineage.

Stable results for motor vehicles and parts manufacturers

Operating profits in the motor vehicles and parts manufacturing industry were unchanged from the first quarter at $1.7 billion. Operating revenue totalled $31.5 billion for the second straight quarter. Upbeat domestic and U.S. automotive demand, fueled by favourable financing rates and manufacturers' incentives, may have halted the downward trend in the automotive sector.

Strong consumer spending boosted retail profits

Retailers enjoyed a buoyant second quarter, as operating profits rose 4.9% to $2.2 billion. Operating revenue increased 0.9% following a 1.8% gain in the first quarter. Five of the seven retail groups posted increases in revenue and profits. Notably, retailers of motor vehicles and parts saw operating revenue advance 2.7% and profits improve 33.1%.

General merchandise stores accumulated $0.2 billion in second quarter profits, almost double those earned in the first quarter. Operating revenue remained at $9.0 billion for the second straight quarter.

Utilities profits strengthened despite lower revenue

Operating profits of utility companies surged 69.9% to $0.8 billion in the second quarter, despite lower operating revenue. The utilities industry encompasses utilities engaged in the generation and distribution of electric power as well as natural gas distributors. The natural gas component of the industry has been rapidly expanding over the past year. The result has been a more than doubling of quarterly operating revenue since the second quarter of last year and increased volatility in the quarterly results.

Profitability ratios improved (all industry)

The operating profit margin edged up to 8.4% in the second quarter from 8.3% in the first quarter. Nonetheless, margins remained well below the average of 9.5% earned throughout 2000.

The return on equity of corporations rose to 6.3% from 5.8% in the first quarter. This increase was attributable to the financial industries, where profit gains in the funds industry boosted the financial industry return on equity to 3.7% from only 1.7% in the first quarter. The after-tax profits (the numerator in the return on equity calculation) of financial industries more than doubled to $6.3 billion in the second quarter, led by gains in the funds industry.

The non-financial industries' return on equity fell to 8.2% in the second quarter from 8.9% in the previous quarter.

Financial Statistics for Enterprises

Available on CANSIM: tables 1870001 and 1870002 and matrices 8330-8383.

As of September 17, Daily releases will refer only to CANSIM II table numbers. CANSIM II contains more than 2 million data time series depicting economic and social conditions in Canada. Data are updated on the day that new values for these series are released. Real-time access to CANSIM II is available on Statistics Canada's Web site () from the Our products and services page. For more information, contact Louis Boucher (613-951-8906; louis.boucher@statcan.gc.ca).

Quarterly financial statistics for enterprises (61-008-XIE, $26/$86) will be available soon.

For data or general information, contact Jeannine D'Angelo (613-951-2604), Client Services Unit. For more information, or to enquire about the concepts, methods or data quality of this release, contact Bill Potter (613-951-2662; potbill@statcan.gc.ca) or Jean-Pierre Simard (613-951-0741; jpsimard@statcan.gc.ca), Industrial Organization and Finance Division.