First quarter results will soon start to pour in for a three-month period that has been difficult for many companies, to say the least. We take a look at three sectors worth watching for their performances in the quarter, and a few stocks that may produce positive results.
First quarter results for energy producers will no doubt be dreadful, with the sector ravaged by sharply lower crude oil prices, which fell by half in the three-month period. West Texas Intermediate crude is currently averaging below $50 per barrel.
This will likely create double-digit declines in revenues, the possibility of dividend cuts, and a fresh round of budget cuts for many companies. “With commodity prices still low, and continuing to fall from when a lot of the budgets were done in late December and early January, we may see revised capital budgets,” said Jeremy McCrea, an analyst with AltaCorp Capital in an interview with The Globe & Mail.
Suncor Energy Inc. (TSX:SU)(NYSE:SU) and Cenovus Energy Inc. (TSX: CVE)(NYSE: CVE) kick off first-quarter reporting in the energy sector on April 29. Analysts say companies that are also in the refining business, such as Suncor and Cenovus, should do well in Q1 due to the price difference between West Texas Intermediate and Brent crude, the international benchmark.
Companies in the life and health insurance industry are expected to have strong sequential growth in the first quarter. “After some notable misses against expectations, we anticipate that recovering policyholder experiences should benefit the core earnings of both Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF) and Manulife Financial Corp. (TSX:MFC)(NYSE:MFC),” said Barclays analyst John Aiken.
Aiken does not expect meaningful expansion until the latter half of 2015, but he remains positive on the outlook for earnings “given the sector’s exposure to wealth management products globally, and earnings contributions outside of Canada with their related FX translation tailwinds.”
Sun Life remains the only life insurance company in Canada not to increase its dividend coming out of the financial crisis. Aiken expects that to change soon, predicting a $0.02 per share, or 6% increase, either in Q1 or Q2. Manulife and Great-West Lifeco Inc. (TSX:GWO) are “expected to sit this one out,” Aiken predicts.
With pipeline expansion still causing controversy, Canada’s rail industry has stepped up to fill the gap as crude oil transportation by rail increases exponentially. Both Canadian National Railway Company (TSX:CNR)(NYSE:CNI) and Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) have major transcontinental networks and the ability to deliver large amounts of oil in a timely manner. According to a Reuters analysis, CN moved 128,000 carloads of crude oil in 2014, about 2% of its freight volume, while CP moved 110,000 carloads, about 4% of its total volume.
Still, the railways have their challenges, with Canada’s Transportation Safety Board (TSB) recently reporting that track failures may have played a role in three recent train derailments. The TSB said oil unit trains, made up of tank cars, could make tracks more susceptible to failure. A spike in accidents in 2014 (57 compared with 33 in 2013) was driven mainly by track problems.
Despite such problems, CN Rail posted record income of $3.1 billion in 2014 and earnings per share (EPS) of $3.85. That upward momentum is expected to continue in Q1. CP Rail’s share price has risen sharply over the past three years, thanks in large part to the efforts of its extroverted president and CEO Hunter Harrison. Analysts expect CP Rail to report Q1 revenue of $1.6 billion, up from $1.5 billion in Q1 2014, with EPS rising to $2.20 from $1.44.
So, it won’t all be doom and gloom as companies roll out their first quarter earnings. Foolish investors willing to do some digging will find stocks worth considering.
Fool contributor Doug Watt has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.