The latest earnings season in Canada has largely wrapped up, and while I would term the results as broadly uninspiring, there were some clear winners and losers.
Over all, there was a slight improvement in the earnings results of stocks within the S&P/TSX composite index. During the period between Oct. 4 and Nov. 15, 46 per cent of companies reported sales that beat the Street's expectations and 53 per cent of companies reported better-than-expected earnings, according to Bloomberg data. In comparison, last quarter, during the period between July 4 and Aug. 15, 45 per cent of companies reported better-than-expected sales and 51 per cent of companies beat on the bottom line.
Let's drill down and look at the outperformers and laggards during this earnings season, as measured by the stock's price performance 24 hours after reporting.
Within the energy patch, among the top gainers were oil and gas equipment and service stocks Canadian Energy Services & Technology Corp., Secure Energy Services Inc. and Enerflex Ltd., which rallied 13 per cent, 9 per cent, and 8 per cent, respectively. All three companies reported earnings before interest, taxes, depreciation and amortization (EBITDA) that surpassed the Street's expectations.
Challenging industry conditions, cost controls and cautious optimistic outlooks were common themes. For instance, Enerflex reported a strong increase in booking and backlog during the quarter and looking out to 2017, management indicated in their earnings release that they are, "Cautiously optimistic that further stability in commodity prices will allow oil and gas producers to increase investment in their businesses, which will ultimately drive demand for Enerflex's products and services."
This positive sentiment was echoed by management at Secure, stating in its earnings release, "As it appears commodity prices have bottomed earlier this year, Secure expects an increase in oil and gas producers' capital budgets for 2017 over 2016, which will drive higher activity levels and benefit all three of the corporation's divisions."
Turning to industrial stocks, the biggest gainers were diversified and spread across various industries, from airlines to steel distributors. Air Canada, Bombardier Inc., Ritchie Bros. Auctioneers Inc., Stantec Inc. and Russel Metals all soared higher.
For Russel Metals, however, the Trump victory was the key tailwind as its financial results were in-line with expectations. On election night, Russel Metals announced third quarter earnings of 26 cents a share, a penny below the Street's forecast. Yet, the following day, the stock price soared 13 per cent, due principally to expectations of stronger steel prices with president-elect Donald Trump's massive infrastructure spending proposal.
Within consumer names, gambling and bedding stocks dominated. Great Canadian Gaming Corp., reported a solid quarter sending the share price soaring 12 per cent. Adjusted earnings per share came in at 45 cents, well above the consensus estimate of 36 cents. Furthermore, the stock has potential catalysts in 2017 as the company has submitted bids on several Ontario Lottery and Gaming Corporation Gaming Bundles.
Another consumer stock was anything but a sleeper. On Nov. 1, Sleep Country Canada Holding Inc. reported another quarter of strong results with same-store sales climbing 7.7 per cent compared to the same period last year, the 13th consecutive quarter of positive same-store sales growth. The share price rallied 4 per cent the next trading day.
Auto parts manufacturers failed to make the grade this reporting season. Shares of Linamar Corp., Martinrea International Inc. and Magna International Inc. all tumbled between 2 per cent and 6 per cent after reporting their financial results. Uninspiring results combined with concerns surrounding lower production volumes have reduced these stock's valuations to historically low levels.
Within autos, the place to be was in auto services. For instance, Boyd Group Income Fund, which operates collision repair shops across North America, reported same-store sales growth of 4.7 per cent, adjusted EBITDA increased 20 per cent year over year, sending the share price higher by 5 per cent. Boyd has a history of rallying the day it reports its quarterly results.
Technology stocks, for the most part, performed well led by stellar performance from Sierra Wireless Inc., whose stock price jumped 15 per cent the day after it reported its third-quarter results. Shares of Mitel Networks Corp. and CGI Group Inc. also rallied sharply, both more than 5 per cent.
In the materials sector, West Fraser Timber Co. Ltd. reported solid quarterly results that handily beat the Street's expectations. After the market closed on Oct. 24, the company reported adjusted EBITDA of $213-million, well above the consensus estimate of $175-million. The share price rallied 12 per cent the following trading day.
While earnings results were also released in the telecom, utility and real estate sectors, rising bond yields and sector rotation away from defensives and into cyclical sectors are overshadowing stock fundamentals.
The recent strong performance in financial stocks may have staying power, this is a sector positioned to benefit from a rising interest-rate environment. Insurance stocks have been notable winners in recent days, benefiting from better-than-expected quarterly results, and whose share prices have also been catapulted higher due to soaring bond yields. For instance, after the market closed on Nov. 9, Sun Life Financial Inc. reported underlying earnings per share of $1.04, handily beating the Street's forecast, which lifted the stock price 10 per cent the next day. During the four trading days after the election results were announced, Sun Life's share price rallied 15 per cent.
Bank results await
Let's conclude on a bright note. We are less than two weeks away from the fiscal fourth-quarter earnings season for the Canadian banks. The Bank of Nova Scotia kicks off the reporting season, reporting before the market opens on Nov. 29. The financials sector represents the largest weighting, representing over one-third of the S&P/TSX composite index. Positive outlooks for financial stocks could set the stage for a year-end stock market rally.