As COVID-19 wanes and recession lurks, corporate profits boom – The Globe and Mail

Inflation, spiking interest rates, the threat of recession? No matter. The biggest companies in the country have increased their sales and profits by leaps and bounds over the course of the pandemic.

A Globe and Mail study of the financial statements of more than 200 publicly traded companies shows that, in the first nine months of 2022, revenue was up 37 per cent and net income was up 40 per cent over the first nine months of 2019, the last “normal,” prepandemic year of business.

The growth in corporate earnings – which can be seen across multiple measures of profitability – is outpacing workers’ wages and the Canadian economy as a whole. And it represents healthy three-year gains over a normal period of economic growth, as opposed to the period of widespread shutdowns and lack of economic activity at the peak of the pandemic.

The numbers, however, show that not all Canadian companies have been able to stick their customers with all the effects of inflation and higher wages. Gross profit margins, which measure the difference between revenue and the costs of selling a company’s goods, are down in more than half of Canadian industries. Key exceptions: the mining industry, the energy sector and consumer staples, which includes grocery-store chains.


Broad-based gains in corporate profits

Nearly every sector in Canada is booking more sales, gross

profits and EBITDA than in pre-pandemic times. A majority of

industries are recording higher net income as well. The excep-

tion is health care, weighed down by the poor performance

of cannabis companies.

Gross profit

Net income

Comm. services

Cons. discretionary

Consumer staples

Financials

Health care

Industrials

Information tech.

Real estate

the globe and mail, Source: Globe analysis of

data from S&P Global Market Intelligence

Broad-based gains in corporate profits

Nearly every sector in Canada is booking more sales, gross

profits and EBITDA than in pre-pandemic times. A majority of

industries are recording higher net income as well. The excep-

tion is health care, weighed down by the poor performance

of cannabis companies.

Gross profit

Net income

Comm. services

Cons. discretionary

Consumer staples

Financials

Health care

Industrials

Information tech.

Real estate

the globe and mail, Source: Globe analysis of

data from S&P Global Market Intelligence

Broad-based gains in corporate profits

Nearly every sector in Canada is booking more sales, gross profits and EBITDA than in pre-pandemic times.

A majority of industries are recording higher net income as well. The exception is health care, weighed down

by the poor performance of cannabis companies.

Gross profit

Net income

Communication services

Consumer discretionary

Consumer staples

Financials

Health care

Industrials

Information technology

Real estate

the globe and mail, Source: Globe analysis of data from S&P Global Market Intelligence

The numbers are great news for stockholders: Despite losses in the past year, their investments have recovered from the depths of the pandemic in 2020. And companies have passed much of their profit along, as total dividends paid rose 24 per cent from 2019 to $68.9-billion in the first three quarters of 2022.

At the same time, the results buttress the concerns of those who believe Canada’s pandemic recovery has been deeply uneven. Despite the claims of soaring wages, many Canadians look at the prices they’re paying for everything from gasoline to groceries and suspect that corporate profits are rising far faster than their paycheques.

To examine the numbers, The Globe used the S&P Global Market Intelligence database to pull financial results for the first three calendar quarters of 2022 for members of the S&P/TSX Composite Index, the primary measure of the performance of the Canadian stock market.

After excluding companies that did not report quarterly results in 2019, the study covered 230 corporations across 11 major industries. The list includes major retailers, banks, insurers, telecoms, energy and mining companies and utilities.

The study looked at multiple measures of profits and profit margins, from the bottom-line net income that accountants require to earnings before interest, taxes, depreciation and amortization (EBITDA), a metric preferred by companies because it removes certain expenses and often makes profits look bigger.


Gross margins: Some rise, some fall

Not all Canadian companies have been able to stick their

customers with all the effects of inflation and higher wages.

Gross profit margins, which measure the difference between

revenue and the costs of selling a company’s goods,

are down from 2019 in more than half of Canadian industries.

Gross profit per dollar, 2022

Chg. from 2019

Health care

Real estate

Financials

Communication

services

Info. technology

Consumer

discretionary

Industrials

Consumer staples

the globe and mail, Source: Globe analysis of data from

S&P Global Market Intelligence

Gross margins: Some rise, some fall

Not all Canadian companies have been able to stick their

customers with all the effects of inflation and higher wages.

Gross profit margins, which measure the difference between

revenue and the costs of selling a company’s goods,

are down from 2019 in more than half of Canadian industries.

Gross profit per dollar, 2022

Chg. from 2019

Health care

Real estate

Financials

Communication

services

Info. technology

Consumer

discretionary

Industrials

Consumer staples

the globe and mail, Source: Globe analysis of data from

S&P Global Market Intelligence

Gross margins: Some rise, some fall

Not all Canadian companies have been able to stick their customers with all the effects of inflation

and higher wages. Gross profit margins, which measure the difference between revenue and the costs

of selling a company’s goods, are down from 2019 in more than half of Canadian industries.

Gross profit per dollar, 2022

Chg. from 2019

Health care

Real estate

Financials

Communication

services

Info. technology

Consumer

discretionary

Industrials

Consumer staples

the globe and mail, Source: Globe analysis of data from S&P Global Market Intelligence

With the exception of health care, weighed down by the poor performance of cannabis companies, every sector in Canada is booking more sales and EBITDA than in prepandemic times. A majority of industries are recording higher net income as well, with the overall 40 per cent gain in net income bringing the total for the 230 companies to a little less than $175-billion in the first nine months of 2022.

In dollar terms, not adjusted for inflation, gross domestic product for the first three quarters of 2022 was 21 per cent higher than the same period in 2019. Total wages and salaries paid to employees grew by less than 19 per cent.

Grocers’ expanding profit margins, coinciding with rapidly increasing food prices, have occupied the lion’s share of the public’s attention. The Competition Bureau said in October that it would study competition in the grocery industry, but acknowledged that it lacked the power to compel company executives to provide evidence or testify.

At the three major grocers – Loblaw Cos. Ltd., Empire Co. Ltd. and Metro Inc. – gross profit margins increased by 0.4 percentage points to 2.7 percentage points in the first nine months of 2022, versus 2019. That may not sound like much, but with billions of dollars in sales, small increases in margins can yield big increases in profits.

Net income increased 69 per cent at Loblaw, 36 per cent at Sobey’s owner Empire and 26 per cent at Metro over the three years. The three collectively reported net income of $2.58-billion in the first nine months of 2022, up 48 per cent over the same period in 2019.

The grocers have repeatedly insisted the higher profits and expanding margins came not from piling price hikes on top of normal inflation but from selling a greater amount of higher-profit products such as drugs and makeup. Michael Medline, the chief executive officer of Empire, said in September that public criticisms of grocer profits were “reckless and incendiary attacks.”

The financial sector has received the most attention from the federal government, which has targeted what it believes to be excess profits by increasing the corporate tax rate and introducing a special fee – a “Canada recovery dividend” – on all larger banks and insurance companies.

The sector – which includes 28 banks, insurers, brokers, wealth managers and lenders – reported $67.9-billion in net income in the first nine months of 2022, up 19 per cent from 2019. Twenty-four of the 28 saw higher net income, all by 10 per cent or more.

Canada’s big banks all reported gains in net income in the first three quarters of 2022, compared with 2019, with Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal all posting net-income gains of at least 21 per cent. (The banks’ fourth fiscal quarters, ended Oct. 31, are considered calendar third quarters by S&P Global Market Intelligence.)

The profit gains came despite the fact the banks began to prep in 2022 for a downturn in 2023; they recorded extra provisions for potential future loan losses – an expense – which lowered net income.

Indeed, while much of the profit-boom focus has been on grocers and bankers, The Globe’s numbers show the profit boom is widespread across corporate Canada:

  • Almost nine in 10 companies reported increased sales in 2022 over 2019.
  • About eight in 10 reported more gross profit and EBITDA.
  • About six of every 10 reported more net income in 2022 than in 2019, and 65 companies reported net income that was at least double what it was three years ago.

Two of the biggest winners were what are called, broadly, resource industries: the materials and energy sectors.

Materials, largely comprising miners of precious metals such as gold, silver and copper, saw a 62-per-cent increase in sales in 2022 compared with 2019. Gross profit margins expanded more than in any other industry, to 41.0 per cent from 30.7 per cent. Net income increased 227 per cent, to a combined $23.7-billion for the 50 companies.

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Rapid increases in precious-metal prices help explain the gains: Gold traded at US$1,250 to US$1,600 an ounce in 2019 but US$1,800 to US$2,100 an ounce for most of the first half of 2022. Copper and silver’s trading ranges were up 50 per cent or more from 2019 to the first half of 2022.

Energy, which includes the companies that extract oil and gas from the ground (but not utilities, which are a separate category), saw revenue increase 77 per cent in 2022 from 2019, while net income increased 113 per cent, to $53.2-billion, for the 37 companies.

WTI crude oil, priced at US$45 to US$60 per barrel for most of 2019, traded between US$80 and US$120 for much of the first half of 2022.

In a study scheduled for release Wednesday, David Macdonald of the Canadian Centre for Policy Alternatives found that, thanks to inflation, Canada’s corporate sector collected $72-billion more in revenue due to higher prices in the third quarter of 2022 than the third quarter of 2020.

Using data sets from Statistics Canada and measures of inflation and GDP, he estimates workers got just $24-billion in the form of higher wages. Of the rest, $18-billion went to other corporate costs, and $30-billion went to profits.

Of the $72-billion, $18-billion ended up in mining and oil and gas extraction. Only $656-million ended up in higher worker compensation, Mr. Macdonald said, which means 25 cents out of every extra dollar spent on inflation is going straight to higher oil, gas and mining profits.

“It’s pretty clear that margins have gone up in the food and beverage industry,” he said. “But that, broadly speaking, is a much smaller part of a bigger story, and the bigger story is about energy. Inflation has been a story about energy, and the beneficiaries of inflation have been energy-related, whether it’s extraction or whether it’s refining.”

With reports from Matt Lundy and Niall McGee

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