By Robert Melnbardis
MONTREAL, Oct 26 (Reuters) - Canadian companies have been
reporting sturdy third-quarter profits, but the country's
red-hot dollar is a trial by fire for those firms whose
operating costs are in Canadian dollars.
The currency reached parity with the U.S. dollar in late
September and notched a fresh 33-year high against it on
Friday. It closed at US$1.0393, making a U.S. dollar worth
96.22 Canadian cents.
For companies such as forest products maker Tembec Inc
<TBC.TO> or Air Canada <ACa.TO>, which have debt issued in U.S.
dollars, the Canadian dollar surge can translate into a fat
currency translation gains.
For others, especially those with considerable Canadian
dollar costs but U.S. dollar revenues, the high-flying
currency, colloquially known as the loonie, looks like a
harbinger of tough times to come.
In its profit report, Maple Leaf Foods Inc <MFI.TO>, one of
Canada's biggest food processors, said the strong Canadian
dollar was hurting its meat and bakery businesses.
"We're just scrubbing every corner of our business, looking
for opportunities to readjust and realign our business, to
compete in the North American market at (dollar) parity," Chief
Executive Michael McCain said during a conference call.
Tundra Semiconductor Corp <TUN.TO> cut its second-quarter
revenue and profit forecasts, in part because its revenues are
generated in U.S. dollars but reported in Canadian dollars.
Canadian National Railway <CNR.TO> said a portion of its 2
percent drop in third-quarter net income stemmed from a
stronger Canadian dollar and was affecting its outlook.
Agnico-Eagle Mines Ltd <AEM.TO> said its third-quarter
profit fell as a stronger Canadian dollar pushed up the gold
miner's costs.
MANUFACTURERS SEE LOWER OUTPUT
The mood at Canada's manufacturers, which are concentrated
in Central Canada, is growing blacker as the currency shines.
A Statistics Canada survey of 3,000 companies released on
Friday showed that a greater proportion of manufacturers expect
their production levels to fall in the fourth quarter from the
third quarter, in part because of the strong Canadian dollar.
The survey was taken in the first two weeks of October,
just after the Canadian dollar reached parity with its U.S.
counterpart.
"If you thought the pressures on exporters and Central
Canada were bad this summer, wait for the data on the fourth
quarter and early '08," wrote Andrew Pyle, Investment Executive
at ScotiaMcLeod.
At Montreal-based Bombardier Inc, <BBDb.TO>, pillar of
Canada's aeronautical industry, the soaring dollar has workers
fretting that Canadian production could be shifted outside the
country to cut costs. Bombardier will not tip its hand, saying
only that its profit strategy goes beyond management of
currency changes.
"For some time, measures have been in place aimed at
improving productivity on a continuous basis and not just
strictly on the basis of a fluctuating Canadian dollar," said
spokesman Jean-Philippe Cote.
With the bulk of Canada's third-quarter financial reports
yet to come, analysts are assessing the Canadian dollar's
impact on corporate profits.
At UBS Investment Research, analyst Fadi Chamoun expects
the Canadian dollar to take a 2 Canadian cent bite out of
third-quarter earnings per share at Canadian Pacific Railway
Ltd <CP.TO>, which he estimated would come in at C$1.19 a
share, up 12 percent from a year earlier.
UBS analysts also see the loonie affecting Inmet Mining
Corp's <IMN.TO> profits because it reports in Canadian dollars,
and continuing to drag on Torstar Corp <TSb.TO> earnings.
((Reporting by Robert Melnbardis; editing by Peter Galloway;
e-mail [email protected]; Reuters Messaging
:[email protected]; 514-985-2434))
Keywords: COLUMN CANADA MARKETS