A CIBC World Markets report is forecasting that operating profits of TSX-listed companies should rise for the first time since the third quarter of 2008, marking the end to the recession of public company earnings.
The report forecast TSX operating profits should be up 43% after four consecutive quarters of decline. It suggested a 5% to 6% increase in fourth-quarter earnings compared to third-quarter results should be enough to meet public expectations.
However, the bulk of the increase will be driven primarily by the insurance and mining sectors, both of which are expected to show significant year-over-year improvement. The report said insurers lost over $1 billion in the fourth quarter of 2008, because of adjustments on segregated funds and adjustments on their balance sheets. The sector is expected to see a more than $3 billion positive swing in profitability.
The diversified mining group is expected to see a $1.5 billion improvement aided by a strong metals-led rally in commodity prices. Estimates suggest both sectors will account for about 75% of the total year-over-year rise in earnings.
Other sectors expected to see increases include health care, info tech and utilities.
Despite the 43% increase in fourth quarter earnings, earnings in the overall market will still be 26% below last year's level.
The majority of Canadian corporate executives are also optimistic that an economic recovery will take hold in the second half of 2010, according to a survey sponsored by Ernst and Young.
Executives expect revenues and profit growth this year, with a continued focus on cost control, revenue growth, and market and product expansion. Only 13% anticipate downsizing their operations this year, whereas 30% said they may increase staff this year.