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Analysis — Fourth quarter 2008 (preliminary)
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Canadian corporations earned $65.4 billion in operating profits in the fourth quarter of 2008, down 16.3% from the third quarter. This marked the largest quarterly decline in 16 years. Declines were widespread as 16 of 22 industries reported lower profits.
Non-financial industries' profits fell 14.4% to $49.5 billion while those in the financial industries declined 21.8% to $15.8 billion. Lower profits in the quarter were attributable to decreases in revenue as oil and gas extractors, depository credit intermediaries, and manufacturers led the decline.
Energy prices lower profits
Oil and gas extractors and refiners (petroleum and coal products manufacturers) earned less as both industries coped with declining oil and gas prices. Extractors' profits dropped 41.2% from the previous quarter to $7.1 billion. Refiners' profits retreated 47.3% to $2.3 billion, following double-digit growth during the two previous quarters.
Manufacturing declines
Manufacturers' earnings declined 16.7% to $10.5 billion in the fourth quarter, with much of the decrease coming from the petroleum and coal industry.
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 and earnings referred to in this analysis are operating profits earned from normal business activities, excluding 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 net profits. Net profits represent the bottom-line profits earned by corporations after taxes and extraordinary gains or losses.
Quarterly profit numbers referred to in the text are seasonally adjusted.
The quick ratio is defined as current assets less inventories, divided by current liabilities. It measures a company's ability to pay its short-term liabilities (those that are due within a year).
Chemicals, plastics and rubber products manufacturers' earnings were off 8.0% to $1.9 billion, as fertilizer producers temporarily shut down plants in the quarter citing lower demand.
December plant shutdowns for motor vehicles and parts manufacturers were longer than normal, keeping operating profits down. These corporations posted a loss of $1.4 billion, their fourth consecutive quarterly loss.
Retail trade: Declining car sales lower profits
Retailers earned $4.5 billion in the final quarter of 2008, down 3.2%, representing their first quarterly decline in nearly three years. Declines were partly due to motor vehicle and parts dealers as they coped with slowing sales. Results from the New Motor Vehicles Survey showed the number of units sold declined each month in the fourth quarter.
Trading losses lower bank profits
Losses from trading in financial instruments caused banks to lead declines in the financial industries. Banking and other depository credit intermediaries earned $3.8 billion, down 35.5% from the third quarter.
Annual corporate profits in 2008
Despite the declines in the fourth quarter, corporations earned $283.6 billion in 2008, up 5.4% from 2007. Much of the growth came from oil and gas extraction (up 43.2% to $37.8 billion) and petroleum and coal manufacturers (up 17.9% to $13.7 billion), as oil and gas prices were high in the first half of the year.
Meanwhile, banking and depository credit intermediaries dragged down financials as amounts set aside for future losses on investments, loans and other assets more than doubled in 2008. Banks registered profits of $22.4 billion, down 20.2% from 2007.
Balance sheet: Leverage and liquidity in 2008
The amount of leverage on corporate balance sheets, as measured by debt-to-equity, continued its long-term downward trend in 2008 for all industries.
At the same time, liquidity in the non-financial industries, as measured by the quick ratio, continued to increase and now sits at its highest level in nearly 10 years as wholesale, mining and transportation and warehousing all ended the year with higher quick ratios.
