Quarterly financial statistics for enterprises, third quarter 2022
Released: 2022-11-23
$136.8 billion
Third quarter 2022
Business economic outlook has worsened in the third quarter. The continued increases in the policy interest rates (175 basis points hike during the quarter) began to have a cooling effect on the economy. The ongoing labour shortage, downward trend for energy and metal commodity prices, and a depreciation of the Canadian dollar against the U.S. dollar by 2.3%, have increased uncertainty and concerns over an economic slowdown.
As prices peaked in the previous quarter and business investments contracted on higher borrowing costs, the profitability of the Canadian corporate sector was negatively impacted in the third quarter.
Canadian corporations reported a decrease of 8.1% (-$12.1 billion) in net income before taxes (NIBT) in the third quarter. This loss was driven by a decrease in both the financial sector (-11.6%) and the non-financial sector (-6.7%).
Consult the "Quarterly Survey of Financial Statistics: Visualization Tool" for a comprehensive overview of the quarterly changes in the financial performance of enterprises.
Growing concerns over contractions in the economy led to a decline in the price of commodities across many sectors
NIBT of oil and gas extraction was down 3.4% to $14.1 billion on lower prices in the third quarter.
The decline in prices of crude oil was primarily reflected on lower West Texas Intermediate (WTI) benchmark pricing and the widening of the Western Canadian Select (WCS) differential. Prices of crude energy products were down 10.6% in the third quarter, as shown by the Raw Materials Price Index (RMPI). The decline of crude oil exports to the United States in part caused a decrease in the profitability of the oil and gas sector, as the United States increased their supply by releasing more barrels of oil from its Strategic Petroleum Reserve.
In the third quarter, the natural gas price index declined 15.8%. Likewise, the Alberta Energy Company (AECO) benchmark pricing posted a decline attributable to higher production levels and lower output restrictions in the Western Canadian Sedimentary Basin. Meanwhile, the exports of natural gas were down 6.2%, due to the maintenance of gas pipelines in Western Canada that constrained the export pipeline capacity of natural gas.
NIBT of petroleum and coal product manufacturing posted a notable decline of 61.7% (-$5.0 billion) during the third quarter.
The sales of refined petroleum posted an 8.0% decrease, driven by lower prices in the third quarter. In the third quarter, the price of energy products declined in Canada as the United States slashed demand for Canadian crude, driving exports to increase marginally by 2.3% after a double-digit increase in the previous quarter. According to the Industrial Products Price Index (IPPI), prices of refined petroleum products were down 11.6% and marked the first decline since the second quarter of 2020. The decrease in net income before taxes was also driven by increased expenses related to asset revaluations during the third quarter of 2022.
NIBT of mining and quarrying and support activities declined 73.8% in the third quarter to reach $1.5 billion, compared with $5.6 billion in the previous quarter.
The prices for metal ores and concentrates were down 12.2% in the third quarter, as reported by the RMPI. Iron ores (-21.5%) and copper ores (-17.0%) are two metallic minerals that posted the largest decreases in prices in the quarter. The downward price movements for iron and copper were largely influenced by growing concerns of global economic slowdown.
The decrease in net income before taxes in the third quarter was also impacted by a non-cash impairment charge of $1.2 billion during the same period.
Furthermore, according to the IPPI, prices for primary non-ferrous metal products (-13.5%) and prices for primary ferrous metal producers (-7.2%) were down. Lower prices combined with a quarterly decrease in exports of primary metals (-6.0%)—the first decline since the second quarter of 2020—largely contributed to a 14.9% decline in NIBT of primary metal and fabricated metal product manufacturing in the third quarter of 2022.
Higher building costs decreased the profitability of the construction sector
The construction industry NIBT declined 11.1% in the third quarter, as pressures on costs negatively impacted the industry.
In the quarter, according to the Building Construction Price Index, residential building construction costs rose 2.5%, and non-residential building construction costs were up 2.1%. Increased construction costs are mostly attributable to upward pressure on wages that drove up the labour costs. Construction costs also remained elevated due to price growth in cement and concrete. According to the IPPI, price of cement rose 4.0% in the third quarter, marking the second biggest increase since the second quarter of 2020, during the initial stage of the pandemic.
Net income before taxes for the finance sector declines as economic uncertainty increased during the quarter
The Bank of Canada continued raising its policy interest rate in the third quarter, up by 175 basis points as the average inflation rate declined slightly to 7.2% during the quarter. The rise in the interest rate and growing economic uncertainty contributed to a 4.8% decline on the Toronto Stock Exchange (TSX).
NIBT of financial corporations decreased 11.6% to $39.0 billion in the third quarter.
The banking and other depository credit intermediation recorded a decline of $3.9 billion (-23.1%) in the third quarter. This decline was mainly attributable to an increase on the provision for credit losses (up to $1.0 billion; +151.0%) due to unfavourable changes in the economic outlook. The last time provision for credit losses was this high was in the first quarter of 2021 ($1.1 billion). Slightly offsetting the fall in the NIBT was the 4.8% rise in net interest income to $17.8 billion, partly due to increases in mortgage loans (+1.1%) and non-mortgage loans (+1.3%). Credit card loans to individuals were up 3.0% in the third quarter of 2022, following a 7.1% increase in the previous quarter. According to Equifax, credit card utilization in the third quarter rose for the sixth consecutive quarter, and the average credit card balance was sitting at a record-high $2,121 as of the end of September.
Insurance carriers' NIBT fell 12.6% to $5.5 billion in the third quarter. The property and casualty insurance industry led the decline, down $674 million (-21.7%). The industry's loss ratio, which is the percentage of claims cost incurred in relation to the premiums earned, increased 5.6% to 50.9% in the third quarter. This increase is partly attributable to a rise in claims expenses (+12.9%) of the automobile line of business of the property and casualty insurance industry. Life, health and medical insurers saw their NIBT fall 9.4% to $2.2 billion, partly due to the decline in their revenue premium (-$355.3 million).
Chart 1
Corporate net income before taxes (seasonally adjusted)
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A closer look: Profitability in the food supply chain
The effect of the pandemic and the conflict in Ukraine impacted supply chains around the world. Prices throughout the food supply chain have been particularly impacted by these factors, among others. In the third quarter of 2022, prices for crop (+3.3%) and animal (+7.6%) products rose on a year-over-year basis. According to the Industrial Product Price Index, which measures the prices that producers in Canada receive when goods leave the plant, the prices for the food manufacturing industry (+9.5%) saw year-over-year growth in the third quarter. Lastly, according to the Consumer Price Index (CPI), food prices at grocery stores rose 9.7% on a yearly basis in the third quarter.
Rising prices affect companies which operate in the food supply chain, as inflationary pressures affect both the firms' expenses (i.e., cost of goods sold and employee wages) and revenues (i.e., sales of goods and products), which ultimately impacts firms' profitability. The food and soft drink and ice manufacturing industry and the food and beverage stores industry are included in this analysis, while the agriculture industry is excluded for methodology reasons. Data from the Quarterly Survey of Financial Statements from the first quarter of 2017 to the third quarter of 2022 highlight how the food and soft drink and ice manufacturing and the food and beverage stores industries' profitability have been impacted by rising prices in the first three quarters of 2022. Enterprises in this analysis, though classified in the food and soft drink and ice manufacturing and food and beverage stores industries, may be involved in other activities, which can affect profitability of various business segments. For example, enterprises in the food and beverage stores industry could also generate revenues from the sale of non-food items.
Net income before taxes (NIBT) and pre-tax profit margin, which is the NIBT divided by revenues, are used to assess the industries' profitability. The average NIBT and pre-tax profit margin for the pre-pandemic period, which is defined as the first quarter of 2017 to the fourth quarter of 2019, are compared with the period comprising the first three quarters of 2022. This analysis helps shed light on the profitability of the food and soft drink and ice manufacturing industry and of the food and beverage stores industry in times of high inflationary pressures. The period ranging from the first quarter 2020 to the fourth quarter of 2021 is not included in the analysis, as pandemic measures and lockdowns affected consumer behaviours, favouring grocery store sales, as restaurants faced closures.
The average net income before taxes increases for the food and soft drink and ice manufacturing and the food and beverage stores industries during the period comprising the first three quarters of 2022
The average quarterly net income before tax for the pre-pandemic period for the food and soft drink and ice manufacturing industry was $1,707 million compared with $2,323 million for the period comprising the first three quarters of 2022. This represents an increase of $616 million in NIBT for the industry between the pre-pandemic period and the first three quarters of 2022. In comparison, the food and beverage stores industry recorded an average NIBT of $828 million for the pre-pandemic period, while the average for the period comprising the first three quarters of 2022 was $1,576 million, representing an increase of $748 million.
Food and beverage stores industry experiences a significant growth in their net profit margin
The pre-tax profit margin indicates the relative amount of NIBT the company produces from its revenue.
While the quarterly average net profit margin for the food and soft drink and ice manufacturing industry increased slightly in the period comprising the first three quarters of 2022, the average pre-tax profit margin for the food and beverage stores industry saw a significant increase.
The food and soft drink and ice manufacturing industry margin was 5.3% on average before 2020, while it reached an average of 5.4% for the first three quarters of 2022, representing an increase of 0.1% between the two periods. As for the food and beverage stores industry, their average pre-tax profit margin was 2.2% before 2020 and rose to 3.5% for the period comprising the first three quarters of 2022, representing an increase of 1.2% between the two periods (figures may not add up due to rounding).
Overall, the increase in the food and beverage stores NIBT can be mainly attributed to a higher volume of sales, and to a growth in their profit margin. Although the food and beverage stores industry pre-tax profit margin reached an average of 3.5% in the first three quarter of 2022, it remains an industry with low margins compared with the average pre-tax margin of non-financial industries (8.7%).
Chart 2
Net income before taxes, unadjusted
Chart 3
Pre-tax profit margin, unadjusted
Note to readers
For information on seasonal adjustment, see Seasonally adjusted data – Frequently asked questions.
New data available
Three variables (Total operating revenue, Total operating expenses and Operating profit or loss) are added to the actual tables in the third quarter of 2022. Since the first quarter of 2020, "total operating revenue," "total operating expenses" and "operating profit or loss" are now derived from other variables collected in the questionnaire. Before the first quarter of 2020, those three variables were reported directly in the questionnaire by the enterprises. Data users should be careful when making comparisons before and after the first quarter of 2020 as those three variables are now compiled differently.
Revisions, benchmarking and backcasting
The release of the Quarterly Survey of Financial Statements (QSFS) for the third quarter of 2022 included revised estimates for the first and second quarters of 2022.
Previously, the release of the QSFS for the fourth quarter of 2021 included backcasted estimates for the reference periods starting from the first quarter of 2010, up to the fourth quarter of 2019. The backcast includes non-seasonally adjusted estimates for a selected number of variables for these reference periods.
The following changes were introduced to the survey starting with the first quarter of 2020:
- New content was implemented in the first quarter of 2020 to align the survey with new accounting standards adopted by corporations starting in 2011.
- New industrial breakdowns were implemented, allowing for more granularity in the dissemination of data. As a result, some industry groupings were merged, others were split and some remained the same.
- The survey sample was modified to support the new industrial breakdowns. However, a maximum sample overlap with the previous sample was adopted.
- A more automated imputation strategy was implemented to streamline the process and reduce the need for manual intervention.
Backcasting
The backcasted estimates are derived from a process of reconciliation to ensure that the quarterly series are consistent with the levels of a set of information from surveyed and administrative sources, and by applying the quarter-to-quarter movement of historical QSFS estimates.
Changes in the data from previously released estimates may be because of a number of reasons, including survey population updates, industry reclassifications and revisions to the data.
While considerable effort is made to ensure high standards throughout the reconciliation process, the resulting estimates are inevitably subject to a certain degree of error. Users are therefore encouraged to use caution when making historical comparisons.
Benchmarking
For the QSFS, the estimates for reference years starting with 2020 have been reconciled with the Annual Financial and Taxation Statistics for Enterprises program since the first quarter of 2022 to ensure that the quarterly series is consistent with the levels of the annual Financial and Taxation Statistics for Enterprises program. Larger-than-usual revisions may be anticipated in the future, as quarterly revisions, annual benchmarking, backcasting and new survey data received from respondents will be incorporated to improve data quality.
Business performance and ownership statistics portal
The Business performance and ownership statistics portal, accessible from the Subjects module of the Statistics Canada website, provides users with a single point of access to a wide variety of information on business performance and ownership in Canada.
Next release
Financial statistics for enterprises for the fourth quarter will be released on February 24, 2023.
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Aggregate balance sheet and income statement data for Canadian corporations are now available.
Data from the Quarterly Survey of Financial Statements are also available.
Contact information
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