Pain spreads from rout in oil prices

• The oil price rout and related Canadian dollar slide that is ravaging the country’s economy is starting to take its toll on corporate profits, from rail and retail to seemingly unrelated sectors like telecoms.

“The direct impact from the energy sector alone is going to be significant,” said Macquarie analyst David Doyle. “But the indirect impact will be large as well, and in many ways cascade across almost all sectors.”

Thomson Reuters Smart-Estimates data project that earnings per share for constituents of the Toronto Stock Exchange’s S& P/ TSX composite index are likely to decline on average by 28.3 per cent in 2016 from a year ago, mainly due to the drag from energy.

“It’s a huge negative impact on earnings,” said John Stephenson, head of Stephenson & Co. Capital Management, who predicts the fallout will be felt across the board, from banks to real estate firms.

As 2016’s first round of quarterly earnings begin to trickle in, some of the impact is already visible. Cable TV and Internet firm Shaw Communications Inc. said this month the shutdown of work camps in Fort McMurray — the oil boomtown in northern Alberta — had led to the loss of a large number of Internet subscribers.

Companies in other industries are also feeling the pain.

“We have seen in the last three quarters of 2015 economic headwinds across all business segments except for a couple of bright spots in forest products and Canadian grain,” said Keith Creel, the president of Canadian Pacific Railway Ltd. on a conference call on Thursday.

The railroad plans to trim seven per cent of its workforce this year. Although it benefited from a 35-per cent decline in fuel costs in the fourth quarter, its revenue fell four per cent as crude shipment volumes dropped sharply, along with those of coal, potash and other minerals caught up in the commodity price rout.

Even as manufacturing, mining and energy companies in Canada see relative production costs slide due to a weaker Canadian dollar, the costs of imports from food products to finished goods have soared, squeezing margins for retailers and restaurant chains.

Clothing retailer Reitmans Canada Ltd. said on Jan. 14 it was cutting 10 per cent of its head office employees to tackle a challenging retail environment and to offset pressure from the weak Canadian dollar.