On a year-over-year basis, third quarter operating profits were up 19.7%, a slowdown from the 26.0% gain in the second quarter but the ninth consecutive year-over-year advance.

The non-financial industries lost some ground in the third quarter, as profits slipped 0.6% from the previous quarter to $38.6 billion. One-time charges to operating profits in both the telecommunications and motor vehicle and parts manufacturing industries trimmed third quarter results. Excluding these two industries, the non-financial profits rose by 2.7%.

In the financial sector, profits climbed 2.1% in the third quarter, mainly due to gains by insurance carriers. Chartered bank profits were little changed from the previous quarter.

Chart 1
Profits at record high but growth stalls

Metal profits glitter

Strong global demand, particularly for nickel, copper and zinc, boosted profits of metal mining companies to $1.2 billion in the third quarter, 63.1% ahead of second quarter levels. Mining profits have risen for five consecutive quarters since the $0.2 billion earned in the second quarter of 2003. Non-ferrous metal prices in September were up 30.2% year-over-year.

Oil and gas producers thrived in the quarter, as fuel prices continued to escalate. Average crude oil prices jumped 37.5% from the previous year, while natural gas price gains were more modest. Operating profits in the oil patch reached $5.6 billion, 0.5% above the second quarter but 21.1% ahead of profits earned a year ago in the third quarter of 2003.

Manufacturing sector remains stalwart

Manufacturers earned $12.5 billion in third quarter operating profits, down slightly from the second quarter but a 45.0% improvement from the third quarter last year. Quarter-to-quarter operating revenue advanced a solid 3.2% for a second straight quarter. While overall exports of Canadian manufactured goods edged up in the third quarter, monthly export declines throughout the quarter may dampen fourth quarter production levels. Nonetheless, the October release of the Business Conditions Survey reported that manufacturers remained optimistic about their fourth quarter production and employment outlook.

Petroleum and coal manufacturers reaped record high profits of $2.7 billion in the third quarter. Profits jumped 18.9% from the second quarter and have more than doubled since the final quarter of 2003. Several companies reported best-ever results, spearheaded by soaring commodity prices.

Chart 2
Profits unchanged following four quarters of growth

Red hot steel prices sparked a 26.7% quarter-to-quarter surge in profits of primary metal producers. Profits of $0.8 billion were more than three times those earned in the third quarter of 2003. Strong demand from China, coupled with thriving demand from the North American automotive and oil industries, have lifted prices to all-time highs. Steel consumption in the construction industry has been steady, but there are signs that construction activity may be losing momentum.

Wood and paper producers suffered their first quarterly profit decline in five quarters. Third quarter profits of $1.5 billion were 11.8% below second quarter levels, but remained well ahead of the $0.6 billion earned in the third quarter of 2003. Several companies reported that the stronger Canadian dollar adversely affected recent profit results. Commodity prices established in US dollars translate into lower returns for Canadian producers as the loonie appreciates.

Retail grows but wholesale little changed

Profits in the retail sector were up 5.2% in the third quarter, the fifth straight quarter of growth. Operating revenue rose 0.5%, as confident consumers continued to spend. Clothing and department stores (+9.5%) and other retailers (+12.5%) posted the largest quarter-to-quarter profit gains.

Wholesalers reported little change in both revenue and profits in the third quarter.

Other non-financial industries

The information and cultural industry saw operating profits slide by one-third to $1.3 billion. The decline was centred in the telecommunications industry, where significant restructuring charges trimmed third quarter profits.

Higher fuel costs contributed to a 6.7% profit slide in the transportation and warehousing industry.

Insurance carriers lift the financial sector

Insurance carriers earned $2.9 billion in operating profits in the quarter, an 8.0% rise from the second quarter. The increase was evenly split between life and property and casualty insurers.

Depository credit intermediaries, mainly chartered banks, earned $5.2 billion in third quarter profits, little changed from the second quarter but an improvement from the quarterly average profits of $4.5 billion earned in 2003.

Profitability ratios

The return on shareholders' equity improved to 11.5% in the third quarter from 11.1% in the second quarter and 10.0% in the first quarter of 2004. After-tax profits, the numerator in the return on equity calculation, increased 6.0% from the previous quarter, mainly due to currency and capital gains.

The operating profit margin slipped to 7.9% in the third quarter from 8.1% in the second quarter, but remained well above the margins of 7.0% earned in the third quarter of 2003.

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Financial statistics for enterprises