Canadian industrials stocks were flying high going into earnings season, and some strong results from the country’s largest railway after the closing bell suggest the sector will see further gains in Wednesday’s trading.
Canadian National Railway Co. handily beat second-quarter profit forecasts, improved its earnings guidance for the rest of the year, and boosted its capital spending program.
On Tuesday, CN also made Jean-Jacques Ruest its chief executive, after realizing operational improvements over the last five months as head of the company on an interim basis.
CN posted adjusted earnings for the quarter of $1.51 per share, well above the consensus estimate of $1.38. Should gains in after-market trading Tuesday hold until the opening bell - they were up more than 1 per more in extended trade - CN shares could set a record high on Wednesday. Through Tuesday’s close, the stock was up by 8 per cent so far this year.
CN joins its smaller rival, Canadian Pacific Railway Ltd., in satisfying shareholders with earnings beats. Last week, CP posted second-quarter profits that were slightly higher than analysts were expecting, putting a positive closing note on a quarter beset by labour friction and service disruptions.
The pair of railways have led the charge in industrials stocks of late, as the sector within the S&P/TSX Composite Index has risen by 14.4 per cent since early February, when Canadian stocks bottomed out.
That ranks industrials as one of the top sectors fueling the resurgence in domestic equities, as the main Canadian benchmark has gained 9 per cent since the last major trough.
Behind CP and CN, the next most influential name in Canadian industrials over the last several months has been Waste Connections Inc., which also delivered an earnings beat on Tuesday.
The Toronto-area solid-waste-services company posted adjusted second-quarter profits of $0.65 per share, while analysts were expecting $0.62 per share, extending a streak of quarterly earnings beats dating back several years.
Waste Connections has grown steadily through a campaign of acquisitions, while a recent debt-reduction effort has strengthened the balance sheet.
However, the company merely maintained its dividend, which could disappoint some investors who may have been expecting a hike. Waste Connections stock dipped slightly in after-hours trading.
But with the industrials sector so far pulling its weight, Canadian earnings season is off to a strong start.
While only a little more than a dozen companies within the S&P/TSX Composite Index have reported financial performance, second-quarter earnings are tracking toward a year-over-year increase of 10.9 per cent, according to Thomson Reuters data.
Canadian stock performance and earnings results have been supported by proximity to the bustling U.S. economy and a swing in commodity prices through the spring, although oil prices have declined over the last month as OPEC has increased production.
Beyond the industrials sector, another company in the spotlight on Wednesday will be Loblaw Companies Ltd., which is due to release quarterly results before the opening bell. Loblaw’s stock has had a rocky year, as the company has faced increasing competitive pressures and operational challenges.
Analysts are expecting adjusted earnings of $1.09 per share, according to Bloomberg data.
Also reporting before the bell Wednesday is Calfrac Well Services, Boeing, Coca-Cola, and United Parcel Service. After the bell Wednesday, look for Agnico Eagle, Barrick Gold, Cameco, Detour Gold, Facebook, Ford Motor, Goldcorp, Visa, and - very late in the evening - Suncor Energy.
Tim Shufelt