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First Quarter 2008
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Analysis — First quarter 2008 (preliminary)
Operating profits for Canadian corporations decreased in the first quarter of 2008. Results were mixed as 12 of 22 industry groups reported lower profits. Corporate profits amounted to $67.8 billion, down 1.1% from the fourth quarter of 2007.
Of the industry groups reporting lower profits, three main sectors led the way: financial, transportation and warehousing, and manufacturing. These declines were offset by gains in information and culture, retail trade and oil and gas.
Profits in the non-financial sector edged up 0.5% to $48.7 billion, while those in the financial sector fell 5.0% to $19.1 billion.
Increased input costs and continuing adjustments to higher loonie slows manufacturing
Overall operating profits in the manufacturing sector contracted 2.3% to $11.2 billion in the quarter. Profits in the sector have fallen in three of the last four quarters.
Note to readers
These 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.
Profits referred to in this analysis are operating profits. 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.
Operating profits differ from after-tax profits, which represent the bottom-line profits earned by corporations.
Please note, effective this quarter, our program has converted to the 2007 version of the North American Industry Classification System (NAICS).
The quarterly financial statistics for enterprises for the period covering 2005 to date have been revised following reconciliation to the 2005 and 2006 annual series and seasonal adjustment revisions.
Leading the decline in the sector were wood and paper manufacturers, whose profits fell $240 million. More layoffs, plant closures, and scaled back production, brought on by slumping demand from the US housing market and a strong Canadian dollar, contributed to significant losses in the first quarter.
Rising worldwide grain prices, coupled with higher fuel costs, boosted operating expenses for food and soft drink manufacturers. This resulted in a decline in first-quarter profits.
Chemical, plastics, and rubber product producers also saw profits weaken, as rising prices for production inputs cut into margins. As in the case of wood and paper manufacturers, a number of plant closures in this sector have been recently announced.
First-quarter profits for petroleum and coal products manufacturers, which currently make up the largest share of manufacturing profits, improved slightly. However, maintenance on machinery and equipment, coupled with temporary production issues at refineries, acted as a drag on results.
In addition, soaring costs in crude oil, the main production input for refiners, along with evidence of weakening demand for petroleum products other than gasoline, have pinched profit margins.
Profits in oil and gas extraction industry continue to climb
Corporate profits in oil and gas extraction rose 3.7% to $7.1 billion, their highest level in six quarters. The industry benefited from strengthening crude oil prices and a rebound in natural gas prices.
Other non-financial industries
First-quarter profits for the transportation and warehousing industry declined a substantial 8.5% to $2.9 billion. Strong demand for air travel was more than offset by declining shipments to the United States, combined with a severe winter that forced the suspension of operations in parts of the country.
Despite the tough winter, consumers remained resilient, as retailers registered an impressive 6.5% gain in profits, which hit $4.7 billion in the first quarter. Retail profits have grown in seven of the last nine quarters.
Profits in the information and cultural industry rebounded to $3.8 billion, up 14.4% from the previous quarter.
Financial sector: Declines in equity markets and slow sales
Slower mutual fund sales, partly as a result of weakness in equity markets, dragged down profits for securities, commodity contracts and other financial companies. In addition, bank profits showed a modest decline, primarily due to lower fee revenue.
| Seasonally adjusted | |||||
|---|---|---|---|---|---|
| First quarter 2007 r | Fourth quarter 2007 r | First quarter 2008 p | First quarter 2007 to first quarter 2008 | Fourth quarter 2007 to first quarter 2008 | |
| billions of dollars | percentage change | ||||
| All industries | |||||
| Operating revenue | 742.8 | 769.7 | 779.0 | 4.9 | 1.2 |
| Operating profit | 64.6 | 68.6 | 67.8 | 5.1 | -1.1 |
| After-tax profit | 43.5 | 47.6 | 45.4 | 4.4 | -4.5 |
| Non-financial | |||||
| Operating revenue | 668.5 | 689.3 | 698.7 | 4.5 | 1.4 |
| Operating profit | 46.1 | 48.5 | 48.7 | 5.7 | 0.5 |
| After-tax profit | 30.8 | 34.4 | 33.3 | 8.2 | -3.1 |
| Financial | |||||
| Operating revenue | 74.2 | 80.3 | 80.2 | 8.1 | -0.1 |
| Operating profit | 18.5 | 20.1 | 19.1 | 3.5 | -5.0 |
| After-tax profit | 12.7 | 13.2 | 12.1 | -4.8 | -8.2 |
