Earnings reporting season is finally off and running for Canadian Edge Portfolio companies. Below I highlight the results for the first seven holdings to release numbers and discuss what they mean for readers.

For some companies, like ARC Resources Ltd (TSX: ARX, OTC: AETUF), Cineplex Inc (TSX: CGX, OTC: CPXGF) and Keyera Corp (TSX: KEY, OTC: KEYUF), the immediate market reaction has been very positive. For others, notably Just Energy Group (TSX: JE, OTC: JSTEF) and Yellow Media (TSX: YLO, OTC: YLWPF), the reaction was just the opposite, with stocks selling off in the wake of the news.

None of the numbers released thus far has triggered the extreme reaction that Bird Construction’s (TSX: BDT, OTC: BIRDF) third-quarter headline earnings per share (EPS) did back in early November 2010. Then, a mildly disappointing headline earnings number wound up triggering a waterfall decline, as likely execution of poorly placed stops drove the stop down from the previous day’s close of USD38 to an intraday low of under USD29.

Of course, by the end of the Nov. 9 trading day the stock was back just under USD34. Today, it’s back over USD38 as we await the company’s fourth quarter and full-year numbers, which are expected to be out on or around March 11. Mainly, after the initial shock of the earnings number, investors have come back to the stock, recognizing the underlying quality of the business.

The Bird case is especially instructive as we hear from the remaining companies left to report, including 16 CE Conservative Holdings and 12 Aggressive Holdings. The natural reaction will be to feel good about the companies that rally in the wake of numbers, and worry about those that drop. The only important thing, however, is whether or not the results indicate the underlying business is still healthy and growing.

That’s where we need to keep our focus. There could well be fourth-quarter numbers that do indicate real weakness, and reasons for us to get out. Conversely, some fourth-quarter numbers may show the business is gaining strength faster than expected and is worth paying more for. In that case, I’ll look to raise the buy targets.

On the other hand, if the remaining numbers turn out like they have for these seven companies, the wise course will be to just sit with them. That is, neither sell nor buy more, but just stay with what you have and collect what are–despite recent corporate conversions–some of the highest and most reliable dividends in the world.

Here’s the roundup of what we learned from these seven companies’ numbers and the subsequent statements of their managers. As always, I focus on several key overall numbers concerning debt and dividend safety, as well as the health of the divisions that are essentially the drivers of current and future profitability.

A list of the remaining 28 companies to report–along with announced or expected release dates–follows.

Conservative Holdings

Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF) didn’t convert to a corporation on Jan.  and so remains the only power producer income trust in How They Rate. CEO Richard Legault stated in the fourth-quarter conference call that while “the corporate model remains the most suitable” future model for the company, “there is no urgency to undergo the process of conversion at this time, given conversion rules remain available through 2012 and the Fund is not taxable until 2015.” That suggests management will be deliberate about anything it does, particularly as in Legault’s words “there are no restrictions preventing the Fund from pursuing its business objectives in its current form.”

Fourth-quarter results validate the company’s strategy of adding new wind and water power assets and  illustrate the benefits of asset drop-downs from parent and 34 percent owner Brookfield Asset Management (TSX: BAM/A, NYSE: BAM). Income before non-cash items rose 38.9 percent, pushing down the payout ratio to 62.3 percent. Full-year payout coverage came in at about 1-to-1. Revenue was 28.6 percent higher than a year earlier, thanks in large part to the startup of the Gosfield Wind Farm and a CAD10 million claim of hydro insurance–which preserves revenue during periods of low water flows and hence lower output from its power plants.

Income before non-cash items–the primary account from which dividends are paid–rose 38.9 percent in the quarter, though it was still slightly below last year’s level. Low watershed conditions in Quebec and Ontario have since continued to recover, pointing to better output in 2011 with Legault stating “reservoirs are back to normal.” Wind power contracts are generally based on capacity, and so cash flows are less volatile.

Looking ahead, Brookfield Renewable’s business value is still on track for strong growth as it completes a series of wind and water power projects. The company has long-term contracts in place for all of its existing capacity, as well as what’s under construction currently, so the key is basically just getting projects like the Comber Wind Farm up and running on time and on budget. That’s been a major strength of Brookfield organization-wide and remains key as it completes several major projects the next couple years.

The immediate market reaction to Brookfield’s numbers appears slightly negative, which probably more a function of the share price, which is still well above my buy target of USD20. These are positive numbers. But until more plants come on line and the dividend is increased, I’m keeping my buy target for Brookfield Renewable Power Fund in place at USD20.

Cineplex Inc (TSX: CGX, OTC: CPXGF), as expected, suffered a drop in overall attendance at its growing pool of theaters, largely due to a weak quarter for Hollywood fare despite the latest Harry Potter blockbuster. Box office dropped 7.9 percent for the quarter, taking the yearly rate down 0.9 percent.

The attendance tally demonstrated the company’s dependence on the industry’s ability to produce hit movies. Other numbers, however, showed how management has positioned Cineplex to profit even when the marquee isn’t up to snuff. Full-year revenue and net income, for example, rose 4.8 and 17.8 percent, respectively. Fourth-quarter sales, meanwhile, were off just 2.6 percent, while net income actually rose 14.8 percent. Cash flow margins were steady at 15.4 percent for the quarter and actually rose slightly for the full year to 16.7 percent.

The key was Cineplex’ growing ability to profit from 3D films–its theaters are now 27 percent equipped for 3D–for which ticket prices are higher, as well as concessions and other ancillary items. IMAX and 3D showings were 28 percent of viewership in the fourth quarter, up from 19.8 percent the year before. It also expanded its “SCENE” loyalty rewards program to more than 2.7 million members. That ability to improve margins from existing customers is critical to being able to wait out the inevitable cyclicality of the film industry. That, in turn, is vital to being able to pay a consistent dividend.

Distributable cash flow coverage of the distribution came in at 1.45-to-1 for the fourth quarter (payout ratio 68.8 percent) and 1.76-to-1 for the year. Both are very manageable levels and in fact support a future dividend increase, particularly as the company’s asset base and marketing options continue to grow. Until that happens, though, my buy target remains USD23 for those who don’t already own Cineplex Inc.

Just Energy Group’s (TSX: JE, OTC: JSTEF) share price took about a point and a half hit in the three days following its earnings release on Feb. 10. It has since recovered about half of that ground and now sits about a point below my buy target of USD16. The numbers triggered one downgrade from a research house, Scotia Capital, to “sector perform,” which very likely sparked some selling. The stock is now flat for the year, with one analyst rating buy and four holds, though all but one have 12-month “target prices” 10 percent or so above the current price. So much for the sideshow of market reaction; but does it mean anything real to income investors?

Just Energy’s fiscal third-quarter sales were up 10 percent. Its seasonally adjusted gross margin–a key metric of profitability repeatedly cited by management–rose 5 percent, while cash flow adjusted for one-time items surged 25 percent. Those are all per-unit totals, indicating the gas and electricity marketer’s recent expansion is certainly accretive to shareholder wealth. That was substantial, as the company added 80,000 net customers, or 515 percent more than in the year-ago quarter. Gross margin for fiscal 2011 is expected to be at the high end of the 5 to 10 percent growth guidance range management laid out at the beginning of the year.

On the other hand, distributable cash flow after all marketing expenses–essentially Just Energy’s capital costs–was off 17 percent per unit during the quarter. Distributable cash flow after gross margin replacement–essentially maintenance capital costs–is off 11 percent per unit for the first nine months. That’s a long way off management’s target range of 5 to 10 percent growth, and in fact it has now confirmed that number “will be below” that level.

This downward guidance revision was likely a reason for Scotia’s downgrade to what amounts to a “hold” recommendation and the market reaction to Just Energy’s numbers in general. It has, however, no immediate impact on the safety of the monthly distribution, which was covered handily in the third quarter by a 1.48-to-1 margin before marketing expenses and 1.23-to-1 after. Nine-month coverage was still solid at 1.2-to-1 and the full-year payout ratio is still anticipated to be below 100 percent, consistent with guidance and despite a quarter of paying corporate taxes (starting Jan. 1).

Just Energy was one of the roughly one-third of income trusts that converted to corporations while maintaining current dividend levels, and the payout still looks secure after these numbers. One reason for lower distributable cash flow was due to contract renegotiations in the US, which accounted for all of the company’s growth during the quarter. That’s expected to reverse in subsequent quarters, however, particularly as the popular Just Green product continues to surge on both sides of the border. Expansion costs also took their toll, mainly expenses to prepare entry to the Pennsylvania residential market and Saskatchewan commercial market. These too should start paying off in the fiscal fourth quarter and into calendar 2011.

Mild weather early in the winter has now been replaced by more normal conditions, which should help the natural gas end of the market. In short, the bump in the road to distributable cash flow–still the key metric for dividends–shouldn’t be permanent, and the company should return to growth in the near future. In short, Just Energy’s drop looks like the stuff of missed expectations, an ephemeral setback, not a sign of weakness for a company whose various strengths are often misunderstood. That’s good reason to buy into its 8 percent-plus yield up to USD16, if you haven’t yet.

Keyera Corp (TSX: KEY, OTC: KEYUF), in contrast, has picked up ground since releasing its last numbers as an income trust. The now-converted corporation has tacked on roughly two points since the announcement, which included an increase in its monthly distribution from 15 to 16 cents Canadian per share. The 6.7 percent boost was backed by CAD3.05 in annual distributable cash flow, for a full-year payout ratio of just 59 percent based on the old rate. That’s a bold move indeed for the company as it begins paying corporate taxes in the current quarter. Fourth-quarter distributable cash flow per share surged 43.9 percent for a 47 percent payout ratio.

All operations showed solid growth, as Keyera continued to add high-quality energy midstream infrastructure assets throughout the year. Gathering and processing throughput rose 22.5 percent, as the company continued its record of locating in the fastest growing areas of the energy patch. Net processing throughput was up 8.2 percent. Natural gas liquids (NGL) infrastructure activity was mostly flat with year earlier levels. But marketing inventory rose 60.4 percent and sales volumes moved higher. For the full fiscal year, gathering and processing income was flat, owing to maintenance costs that won’t appear in coming quarters. NGL profits meanwhile were higher than year-earlier levels.

Keyera made several significant acquisitions in 2010, all of which should be strongly accretive to 2011 earnings. The company bought ownership interests in three gas plants, adding 625 million cubic feet per day of processing capacity. Coupled with the addition of complementary pipelines, it continued to extend its reach into rapidly developing areas of liquids-rich gas reserves. The company also expanded capacity of several existing NGL processing facilities and related assets, with a major pipeline slated for completion in the second quarter of 2011 that will dramatically boost its access to raw materials and markets in the Edmonton area.

All of these assets are immensely profitable despite still-depressed conditions in much of Canada’s natural gas patch. That’s a testament to management’s ability to run a profitable energy infrastructure business in all environments. Despite all this good news, I’m still not willing to recommend Keyera at its current price of well over USD36, but I am boosting my buy target to USD33, at which point it would yield around 6 percent.

Aggressive Holdings

ARC Resources (TSX: ARX, OTC: AETUF) came with a fourth-quarter payout ratio of just 45.5 percent of distributable cash flow. The full-year payout, meanwhile, came in at just 47.1 percent. That’s firm financial footing as the company operates in its first quarter as a corporation rather than an income trust. And it’s particularly astounding considering ARC’s current production mix of 61.3 percent dry natural gas in the fourth quarter, which dropped 16.4 percent to a realized selling price of just CD3.83 for the quarter.

In the November 2010 Canadian Edge Feature Article Energy: Focus on Output, I noted that the ability to raise production would be critical for Canadian natural gas producers converting to corporations in January 2011. ARC has certainly come through on that score, boosting natural gas output 64.8 percent largely from its rich reserves in the Montney Shale area. It’s also tapped into the rising potential of its lands for natural gas liquids, with a 48.9 percent year-over-year boost in output.

Realized selling prices for ARC’s NGLs rose 19.5 percent from fourth quarter 2009, besting the 4.8 percent jump in its selling price for oil. Rising output also pushed down ARC’s production costs to CAD9.01 per barrel of oil equivalent, a 9.1 percent reduction from last year’s level. Cash flow per share rose 10 percent in the fourth quarter of 2010.

Looking ahead, there’s plenty of room to ratchet up production further when management deems the time is right. Proven reserves were increased by 25 percent in 2010 at an all-in finding and development cost of just CAD6.47 per barrel of oil equivalent for proved plus probable reserves. The company replaced 502 percent of all reserves at a cost of just CAD8.60 per barrel of oil equivalent. That pushed its reserve life out to 10.4 years based on probable reserves alone. Natural gas liquids reserves were boosted 67 percent.

Net asset value is CAD20.89 based on the most conservative assumptions, putting ARC’s current price at 1.28 times NAV. Next year’s plan calls for the company to lift output to a range of 84,000 to 87,000 barrels of oil equivalent, up from an average of 73,954 in 2010. Projected operating costs are CAD9.40 to CAD9.70.

Gas prices are the obvious wildcard and one good reason not to overpay for this or any other gas-heavy producer. But ARC Resources Ltd is still a solid low-risk buy on any dip to USD26.

Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE) is up roughly 15 percent since converting to a corporation on Jan. 1, including a solid gain since announcing fourth-quarter earnings last week. That’s despite the fact that its first dividend paid as a corporation won’t be until Apr. 15, when the quarterly rate will be 27 cents Canadian per share. Nonetheless, the company has been attracting a whole new group of more growth-focused investors, even as it’s enjoyed strengthening oil prices and the fruits of developing one of the most valuable reserve bases in Canada.

Fourth-quarter funds from operations were up 14 percent sequentially from the third quarter of 2010. The company also slashed its debt by a further CAD536 million to CAD3.1 billion, as it utilized cash realized from a pair of partnerships to develop hitherto dormant properties in shale gas and the oil sands. Production was higher by 1.3 percent, but that figure masks a major shift to highly profitable light oil and away from lower performing natural gas.

Penn West also added 72 million barrels of oil equivalent of reserves in 2010, approximately 68 percent of which were oil. That left total reserves at 70 percent oil and natural gas liquids and 30 percent dry natural gas. Output and reserves are on track to be even more liquids-centric going forward, with 90 percent of the 2011 capital budget devoted to such opportunities particularly in the Cardium and Colorado Viking of Alberta and Saskatchewan.

Light oil output rose 14 percent in the fourth quarter from year earlier levels, even as natural gas and heavy oil production fell. Funds from operations per unit in the fourth quarter was off 23 percent from year-earlier level but still produced a payout ratio of just 40 percent. Comfortable coverage should continue in 2011 and beyond, even as the company devotes the lion’s share of capital to developing the immense reserve base it acquired as a trust in recent years.

The company boosted drilling in the fourth quarter on four “major tight oil plays,” which according to management’s official statements are performing “as anticipated.” The capital budget for 2011 is a projected to be CAD1.1 billion to CD1.2 billion, a slightly higher range than previously stated. That’s likely as much a result of solid drilling results as strength in oil prices that will directly benefit the bottom line.

Those seeking a dividend increase will probably want to look elsewhere. But those seeking value in the energy patch will find more to like than ever at Penn West Petroleum, a buy up to USD30.

Yellow Media (TSX: YLO, OTC: YLWPF) dropped a little more than 7 percent in two days following its Feb. 10 announcement of fourth-quarter and full-year 2010 results. The stock has since stabilized, but not before it inspired questions from some readers if the dip doesn’t signal new weakness in the underlying business–and perhaps is a signal to sell.

The headline earnings number for the company–which converted to a corporation in November 2010–was a fourth-quarter loss of CAD2.3 million, or a penny a share versus reported earnings per unit of 25 cents Canadian a year earlier. Income from operations was also well below last year’s level, falling 51.9 percent to just CAD79.1 million.

As I’ve pointed out time and again, however, earnings per share is a meaningless and often misleading measurement of profits for any company that pays dividends from cash flow. That’s what Yellow did for years as an income trust and is now doing as a corporation. And in that department, the numbers are considerably more encouraging. For the fiscal year 2010 revenue rose 2.4 percent, while cash flow excluding one-time items was up about 1 percent. Fourth-quarter activity was slightly more brisk, with revenue moving up 4.2 percent and cash flow 3 percent, excluding one-time items.

More than anything else, Yellow’s results reflect the results of its multi-year transition from primarily a print directory business to one focused on web-based offerings. The key question has always been whether sustainable cash flow from the web offerings could grow fast enough to offset the relentless erosion of the print business. That’s a test its US counterparts failed miserably. And each quarter bloggers and Bay Street analysts put Yellow’s results under the microscope to spot signs of a similar demise ahead.

Starting with online growth, combined revenue for directories and “Vertical Media”–which includes more directed advertising–came in at 16 percent for the year, excluding acquisitions. That’s a pretty good sign marketing budgets for the company’s advertisers are starting to see the Internet as a place to maintain a consistent spending presence. And Yellow is doing everything it can to expand its product and service line to meet their needs. Directory revenue alone dipped slightly, indicating at least some of those needs are different than they were in print. Margin, however, was flat at 59 percent, a sure sign management is maintaining profitability as its offerings change.

Vertical Media, led by Dealer.com, saw a 27 percent jump in revenue. That’s in large part due to better conditions in the automobile sales industry. But it’s also because the company is selling customers on this type of product as opposed to more traditional media, again a very big plus for its transition. And revenue at Vertical Media grew 36.3 percent in the fourth quarter, indicating the favorable trends are if anything accelerating.

Overall revenue from online operations is now at 29 percent, continuing the rising trend of past quarters and far besting management’s end-2010 target of 20 percent set three years ago. It’s likely to get quite a bit higher as smartphones–already the source of 20 percent of the company’s digital searches–continue to proliferate. The company recorded 2 million downloads of its wireless applications for smart phones last year.

One factor that should work to Yellow’s favor in 2011 is in Executive Vice President Christian Paupe’s words “little or no activity on the mergers and acquisitions front.” That’s the result of enough successful activity in 2010, including the purchase of Canpages to boost Yellow’s web dominance. The Canpages buy, in particular, pushed up costs last year, but will lift margins and cash flow even more this year.

Importantly, client renewal rates have stabilized at about 88 percent, in large part to what CEO Marc Tellier referred to in the fourth-quarter conference call as “print stabilization.” Management’s stated goal for 2011, as illuminated when Yellow converted in November, is free cash flow generation and debt reduction. That’s very good news for the company’s distribution, which was again covered comfortably in the fourth quarter with a 69 percent payout ratio, despite two months of paying corporate taxes.

So is management’s continuing investment in the sales force, which speaks of a company anticipating growth not decline as its many critics maintain. Cash earnings per share are still expected at CAD0.95 to CAD1 for 2011, the same guidance as given last year. That’s still a payout ratio of between 65 and 68 percent, based on cash earnings (which add back in non-cash items).

It’s telling that not one Bay Street analyst downgraded Yellow in the wake of these results. That’s not to say there isn’t wide disagreement about the company’s ultimate value, just that these numbers didn’t change the mind of anyone whose livelihood depends on accurately forecasting that value.

I moved Yellow to the Aggressive Holdings to reflect the fact that online advertising is at this point less predictable than its traditional, all-weather print directory business. That remains my view. But for those who can tolerate a bit of risk, there aren’t many stocks yielding well north of 11 that have an excellent chance of holding dividends steady. My buy target for Yellow Media remains USD8 for those yet to take a position.

Here’s the list of remaining companies to report fourth-quarter and full-year 2010 earnings. Barring some truly drastic event, look for the next batch of analysis with the March 2011 issue of Canadian Edge–companies reporting Mar. 4 or earlier–available at www.CanadianEdge.com and e-mailed to you a week from Friday.

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–Feb. 24 (confirmed)
• Artis REIT (TSX: AX-U, OTC: ARESF)–Mar. 2 (confirmed)
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–Mar. 29
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Mar. 11
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Feb. 22 (confirmed)
• CML Healthcare Inc (TSX: CLC, OTC: CMHIF)–Mar. 4 (confirmed)
• Colabor Group (TSX: GCL, OTC: COLFF)–Feb. 24
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–Mar. 8 (confirmed)
• IBI Group Inc (TSX: IBG, OTC: IBIBF)–Mar. 17
• Innergex Renewable Energy (TSX: INE, OTC: INGXF)–Mar. 23 (confirmed)
• Macquarie Power & Infrastructure Corp (TSX: MPT-U, OTC: MCQPF)–Mar. 10 (confirmed)
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Mar. 9 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–Mar. 3
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–Feb. 28 (confirmed)
• TransForce (TSX: TFI, OTC: TFIFF)–Mar. 2 (confirmed)

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–Mar. 14 (confirmed)
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Feb. 23 (confirmed)
• Daylight Energy Ltd (TSX: DAY, OTC: DAYYF)–Mar. 2
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Feb. 23 (confirmed)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Feb. 25 (confirmed)
• Newalta Corp (TSX: NAL, OTC: NWLTF)–Mar. 2
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–Mar. 2
• Perpetual Energy (TSX: PMT, OTC: PMGYF)–Mar. 8 (confirmed)
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Mar. 9 (confirmed)
• PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–Mar. 3
• Provident Energy Ltd (TSX: PVE, NYSE: PVX)–Mar. 9 (confirmed)
• Vermillion Energy Inc (TSX: VET, OTC: VEMTF)–Feb. 28 (confirmed)