A sector by sector look at pandemic’s financial effects in Canada
First quarter earnings reveal depth of impact on business.
The majority of Canadian companies have reported earnings for the first three months of 2020, giving a picture of the impact of the COVID-19 pandemic on business so far and in the months to come. Here’s a sector-by-sector look at some of the themes that have emerged:
Retail: Canadian retailers scrapped their financial outlooks, announced permanent store closures and saw sales slip amid the COVID-19 pandemic that forced many to close their doors across the country. Many announced temporary and permanent lay offs, as well as pay cuts in an effort to manage costs; but some saw a glimmer of hope in online sales, with e-commerce revenue on the rise.
On the grocery side, companies experienced a sales surge in mid-March as the COVID-19 pandemic started to unfold in Canada and consumers rushed to stock up their pantries, but that spike started to settle as consumers eased into their “new normal.” Despite the sales bump, grocers experienced higher operating costs as they offered employees higher pay and increased cleaning and other safety precautions. These costs are expected to continue into the near future.
Transportation: airlines are bleeding cash amid prolonged travel restrictions and a drop-off in passenger flight demand. Air Canada lost more than $1 billion in the first quarter, slashing its flight capacity by over 90 per cent ahead of even fewer expected passengers between April and June. WestJet has cancelled tens of thousands of trips – including all U.S. and international routes – through July 4, while Porter, Transat and Sunwing have suspended flights entirely. Though traffic is expected to pick up somewhat before the end of the year, Air Canada CEO Calin Rovinescu said the recovery will be slow, with at least three years of subpar earnings.
Meanwhile, Bombardier Inc. reported a $200-million loss for the quarter after the global disruption impeded aircraft deliveries and shut down operations across dozens of plants. On the rail side, Canadian National Railway Co. and Canadian Pacific Railway Ltd. saw freight volumes drop amid blockades in February and production shutdowns in China. CN and CP withdrew and lowered their profit forecasts, respectively, as crude oil and auto shipments continue to fall, prompting some 3,300 layoffs so far.
Restaurants: Companies large and small faced steep sales drops as the pandemic prompted mass dining room closures across Canada. Chains had to shift to some combination of serving food through counter service, curbside pick-up, delivery and drive-thru. Restaurants are now creating plans to resume some services as phased reopening begins, including measures such as spacing out tables to maintain distance between customers and taking staff temperatures at the start of shifts.
Energy: Huge non-cash asset writedowns, capital spending reductions, cancelled or reduced dividends, executive salary cuts, workforce reductions and production curtailments were themes in first-quarter results from Canada’s energy sector. Global demand for energy products plunged as industries and individuals were forced to shut down to control the spread of the COVID-19 pandemic.
Oil prices, already weak due to inventory builds from a price war between Saudi Arabia and Russia, fell as refineries throttled back output. Oilsands producer and fuel marketer Suncor Energy Inc. slashed its quarterly dividend by 55 per cent after 18 years of consecutive annual increases. Analysts calculate more than 800,000 barrels of oil per day have been taken off the market.
Real Estate: The pandemic dealt a big blow to share prices and property valuations for some real estate companies, especially those focused on the retail sector, while others have seen only mild effects. Companies like Brookfield Property Partners, which has extensive mall holdings in the U.S., swung to a loss in the first quarter and its share price is trading at almost half of where it was before the crisis hit North America. The company reported only about 20 per cent of its retail tenants paid rent in April.
RioCan also saw its earnings down significantly and its share price dive by almost half as it reported that about two-thirds of expected rent came in for April and didn’t reveal May figures. Real estate investment trusts focused on office or residential have fared better, as have REITs with essential service anchor tenants like Smart Centres with Walmart, CT with Canadian Tire, and Choice Properties with Loblaw Inc.
Telecommunications: Canada’s large phone and cable companies have said they expect to lose some customers among small- to mid-sized businesses because of covid-related shut-downs. However, BCE, Rogers and Telus indicated in that they hadn’t seen much of that activity yet and are prepared to manage through the trend if it emerges. They expect to balance lost revenues from some areas with savings from others, such as money spent to sign up new smartphone customers. For the most part, demand for internet, wireless and other telecom services is expected to remain resilient as it was during the early stages of pandemic shutdowns.
Insurance: Insurance companies are starting to see the impacts of closed medical offices sales staff unable to connect with customers face-to-face. Manulife Financial Corp., Sun Life Financial Inc. and Great-West Lifeco all reported profit for the quarter ended Mar. 31 was down from the same period last year. Great-West Life’s net income dropped by nearly 50 per cent – the biggest tumble seen by the country’s top three insurers. The companies say they’re optimistic they can bounce back if COVID-19 manages to create an awareness around the importance of insurance, much like they saw after the SARS crisis.
Infrastructure: Engineering and construction firms haven’t escaped the ripple effects of the virus, but may be well-poised to benefit from public works projects launched by governments eager to mitigate its impact. WSP Global saw profits fall by 77 per cent last quarter amid “extreme market volatility,” but many projects deemed essential have proceeded.
SNC-Lavalin Group Inc. continued to lose cash through its resources division, losing $66 million in the first quarter as it pivots toward engineering services and away from higher-risk, fixed-price construction contracts. Public-sector projects account for more than half of WSP’s revenues and three-quarters of SNC’s, which should be relatively stable. Nonetheless, both companies have withdrawn their 2020 guidance, along with Aecon Group Inc. and Stantec Inc.
Newspapers: canada’s two largest publicly traded newspaper companies, postmedia network canada and torstar corp., reported this month that they’ve seen a devastating decline in advertising revenue related to the economic slowdown. They each announced layoffs and closed some smaller print editions to reduce some of their costs. But they’ve also said they’ll be eligible for millions of dollars of wage subsidies from a COVID-related emergency fund. They’ve also said they need to receive tax credits from a 2019 program to pay a portion of salaries paid to journalists working for qualified print organizations.