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Canadian corporate profits eased back in the second quarter following four quarters of modest growth. Profits of $62.1 billion remained near their record high, at 0.7% below first-quarter levels. Declines in the manufacturing and insurance sectors were partially offset by gains from wholesalers, retailers and real estate companies.
Non-financial industries' operating profits edged down 0.4% from the first quarter to $44.9 billion. Of the 17 non-financial industries, 8 showed profit growth, 6 posted declines, while 3 remained essentially unchanged.
Financial industries also lost ground as profits slipped 1.4% to $17.3 billion. Insurance carriers and depository credit intermediaries (mainly chartered banks) were responsible for the decline.
Manufacturing profits down for third straight quarter
Profits in the manufacturing sector were affected by the Canadian dollar's continued appreciation against the US dollar and by soft US demand for Canadian automotive and lumber products. Manufacturers' operating profits shrank 6.3% to $10.1 billion, following retractions of 1.7% and 0.3% in the previous two quarters.
Note to readersThese quarterly financial statistics are based upon a sample survey and represent the activities of all corporations in Canada, except those that are government controlled or not-for-profit. An enterprise can be a single corporation or a family of corporations under common ownership and control, for which consolidated financial statements are produced. Operating profits represent the pre-tax profits earned from normal business activities, excluding interest expense on borrowing and valuation adjustments. For non-financial industries, operating profits exclude interest and dividend revenue and capital gains/losses. For financial industries, interest and dividend revenue, capital gains/losses and interest paid on deposits are included in the calculation of operating profits. After-tax profits represent the bottom-line profits earned by corporations. Beginning with the first quarter of 2007, changes have been made to the content of the quarterly financial statistics for enterprises questionnaires and data tables. As a result, "loans and other borrowings" in the new publication replaces "loans and overdrafts from banks" and "loans and overdrafts from others" previously published. |
Overall, losses in motor vehicles and wood and paper industries overshadowed gains in the petroleum and coal, and chemical, plastic and rubber products industries. Motor vehicles and parts manufacturers' profits tumbled $770 million to a loss of $50 million for the quarter, despite a 4.4% growth in domestic new motor vehicle sales, as reported by the New Motor Vehicle Sales Survey. Profits have been volatile and on a downward trend since peaking at $2.5 billion in the second quarter of 2000. Wood and paper producers also fared poorly, reporting a loss of $130 million, partially due to declining lumber prices on the world market.
On the positive side, petroleum and coal producers benefited from swelling exports, propelled by strong global demand and rising oil prices, as operating profits jumped 14.2% to $3.2 billion, just shy of the $3.6 billion peak reported in the fourth quarter of 2005. On a similar note, high prices for inorganic industrial chemical products and fertilizers helped profits for chemical, plastic and rubber products manufacturers rebound 16.5% to $1.6 billion, following a decline of 13.6% in the first quarter.
Wholesalers and retailers set record profits
Wholesalers moved ahead in the second quarter, as profits rose 6.1% to a record high of $4.7 billion. Gains were seen in all wholesale industries, but wholesalers of machinery and equipment led the way with a profit increase of 14.4%.
Continued strong consumer spending boosted retail profits 4.1% to a record high of $4.0 billion. Clothing and department stores reported a 6.2% increase in operating profits. Other retailers boosted their profits by 5.5%. Building material and garden equipment stores as well as drugstores are among the companies classified in this group.
Financial sector
Operating profits in the financial sector fell 1.4% to $17.3 billion in the second quarter. Property and casualty insurers led the decline with operating profits down 16.0% to $1.1 billion. This was due to a decrease in premiums and reduced gains from the sale of securities and other assets. In the life insurance industry, operating profits slipped 4.4% to $1.3 billion as claims grew more than premiums.
Chartered bank profits dropped 2.6% to $6.9 billion, down from a high of $7.1 billion in the first quarter, as a result of lower net interest income.
Profitability ratios
Overall, slackening profits caused the operating profit margin to fall to 8.3%, below the recent high of 8.6% registered in the fourth quarter of 2006.
The return on shareholders' equity dropped to 11.1% in the second quarter, down from 11.4% in the previous quarter.
Available on CANSIM: tables 187-0001 and 187-0002.
Definitions, data sources and methods: survey number 2501.
The second quarter 2007 issue of Quarterly Financial Statistics for Enterprises (61-008-XWE, free) will be available soon.
Financial statistics for enterprises for the third quarter will be released on November 22.
For more information or to order data, contact Louise Noel (toll-free 1-888-811-6235; 613-951-2604). To enquire about the concepts, methods, or data quality of this release, contact Danielle Lafontaine-Sorgo (613-951-2634; danielle.lafontaine-sorgo@statcan.gc.ca), Mario Vella (613-951-1395; mario.vella@statcan.gc.ca) or Richard Dornan (613-951-2650; richard.dornan@statcan.gc.ca), Industrial Organization and Finance Division.
Table(s).
