More than half of Canadian companies reporting third quarter earnings have missed analyst expectations, reports National Bank Financial, and it sees further downward revisions ahead.
In a research note, NBF reports that, overall, Canadian corporate earnings have surprised on the upside so far for the third quarter. With more than 90% of S&P/TSX composite companies having reported, earnings are coming in up 37.9%, which is about 7.9% higher than expectations.
The earnings surprises are particularly strong in financials, health care and energy, it notes. Yet, at the same time, more than half of companies have failed to beat expectations, it says.
NBF says it’s the same story from a sales perspective, where sales growth has been robust at 18.4%, almost 11% above expectations, but only 48% of companies are reporting better than expected sales. And, only the financial sector has seen a majority of its companies beating sales expectations.
“This lack of positive breadth suggests expectations were generally too optimistic,” it says. And, it notes that this conclusion is supported by relatively large revisions to year end earnings forecasts that have occurred since the first week of October. NBF reports that earnings estimates for calendar 2011 and 2012 have decreased by 5.8% and 5.4%, respectively.
It says this implies an annual earnings growth of 25.2% for 2011 and 15.4% for 2012. “2011 estimates are now in line with our own, while 2012 estimates seem relatively high to us,” it says, adding that it expects further downward revisions of six to seven percentage points for 2012. “This reflects a topping out in profit margins and softer sales growth next year,” it says.