Judging from the results of a cross-section of 30 publicly traded Canadian non-financial services businesses, corporate sales and earnings have picked up as of midyear. This is important, because it enhances the prospects for a business recovery \u2014 although third-quarter results will be needed to confirm the trend.
The one doubtful point in the survey is the weakness of free cash flow \u2014 operating cash flow after capital spending and dividend payments \u2014 in the quarter ended June 30.
However, data from Statistics Canada and national accounts for this year\u2019s first quarter paint a darker picture of the economy\u2019s tumble. The contrast suggests that small businesses \u2014 the kind of operations too small for the stock market \u2014 have also been hit hard.
This would confirm the precept that in bad times large-cap companies have less risk than small businesses.
Here are some highlights (and low points) from various sources:
> Statistics Canada says that revenue of non-financial enterprises in Q1 2009 dropped by 3.5% from a year prior. During 2008, revenue increased; it peaked at 9.4% in the third quarter.
> An Investment Executive survey<\/i> of 30 publicly listed companies shows that Q1 sales per share were 0.9% higher than in the same period a year prior. In Q2, sales per share gained 1.2% vs Q2 2008. (Sales per share are used to take into account capitalization changes in individual companies, as well as to avoid the results being overwhelmed by numbers from large-cap companies.)
> Net profit margin in StatsCan\u2019s Q1 report on non-financial enterprises dropped to 3.5% from a recent high of 7.9% in Q3 2008.
> IE<\/i>\u2019s survey of the 30 companies showed that the average net profit margin (earnings margin) softened to 4.6% in Q1, but picked up to 6% in Q2. The recent high in net profit margin \u2014 15.4% \u2014 was in Q3 2008.
> The profit picture in the national accounts is even darker. In Q1, pre-tax profits dropped by 34% below the Q1 2008 level. In the fourth quarter of 2008, the pre-tax profit drop was 12% vs Q4 2007.
> Operating margins (operating profit margin) follow the same pattern as net profit margins. In the StatsCan report, operating profits as a percentage of revenue dropped to 5.8% in Q1 from a recent high of 7.9% in Q3 2008. In the IE<\/i> corporate survey, the average operating margin dropped to 9% from 23.3%, respectively. That said, operating margins rose to 11.3% in Q2, which is encouraging.
> StatsCan\u2019s survey shows a 28% year-to-year drop in Q1 profits before extraordinary items. This was less than the 35% drop experienced in Q4 2008.
> IE<\/i>\u2019s corporate survey indicates that earnings per share rose by an average of 2% in Q2, with earnings up by 1% year-over-year in both Q4 2008 and Q1 2009.
> In IE<\/i>\u2019s corporate survey, free cash flow per share increased to 1.9% year-to-year in Q4 2008; it gained 1% in Q1 2009, but dropped to 0.7% in Q2. This is a more basic indication of corporate financial strength than earnings, and suggests the recovery seen in Q2 may lack a good foundation.\tIE<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"
Data suggest the economic recovery seen in Q2 may lack a good foundation<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3013,3029],"tags":[2446,2550],"yst_prominent_words":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/320593"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=320593"}],"version-history":[{"count":1,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/320593\/revisions"}],"predecessor-version":[{"id":361506,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/320593\/revisions\/361506"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=320593"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=320593"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=320593"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=320593"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}