Although Canada posted dismal retail numbers for June, there are some signs that consumers could be spending again, despite a near-record level of household debt.

According to Statistics Canada, June retail sales declined 0.6 percent month over month, to CAD40.1 billion, which was two-tenths of a percentage point worse than economists’ consensus forecast. Even so, retail sales still posted a gain of 1.8 percent year over year for the first six months of 2013.  

Still, the June figure was a sharp drop from May’s number, which was a 1.8 percent gain from the prior month and the highest sequential rise since November 2010. In volume terms, meanwhile, retail sales fell 1.2 percent, after three consecutive months of gains.

Economists had been projecting an overall decline in retail sales as a result of historic flooding in Alberta that month as well as a province-wide strike in Quebec, where retail sales fell 0.6 percent and 1.3 percent, respectively.

While Quebec and Alberta accounted for 21.8 percent and 15.1 percent of overall retail sales, respectively, Ontario contributed the largest share of any one province, at 34.6 percent of total retail sales. And Ontario actually had a slightly worse decline of 1.4 percent, despite the fact that it wasn’t buffeted by the same headwinds as these other two provinces. This was consistent with Ontario’s similarly weak results in wholesale trade and factory sales. In dollar terms, Ontario was responsible for 81.3 percent of Canada’s CAD241 million month-over-month drop in retail sales.

On an industry basis, food and beverage stores contributed the most to the decline, with retail sales in this category falling 1.2 percent, to CAD8.9 billion. Of this category’s four sub-groups, supermarkets and grocery stores and beer, wine and liquor stores were responsible for the majority of the slide. In dollar terms, the food and beverage sector accounted for 44.8 percent of Canada’s overall decline in retail sales. Even on a year-over-year basis, this category still fell 0.8 percent.

After two consecutive monthly gains, sales at general merchandise stores also fell 0.8 percent in June, to CAD4.98 billion, with sales at department stores, in particular, contributing the most to this decline. In dollar terms, the broad category accounted for 16.2 percent of the overall decline in Canada’s retail sales. On a year-over-year basis, however, sales at general merchandise stores climbed 2.4 percent.

Despite such seemingly lackluster data, on a year-over-year basis, the data appear somewhat rosier, with retail sales up 3.1 percent from June 2012. At the same time, sales volume during the second quarter as a whole showed a sharp improvement, up 5.8 percent annualized. That’s the strongest showing since the fourth quarter of 2011, when sales volume jumped 6.9 percent annualized. As noted earlier, the surge in retail sales during May was the main contributor to the quarter’s overall rise in volume.

Auto sales continue to be a bright spot, beating consensus estimates for June by rising 0.2 percent that month, while sales were up 9.9 percent year over year. During the second quarter, in fact, auto sales increased at an annualized rate of 23 percent.

And retail spending is expected to rebound in July, as consumers spend money to fix homes and other property damaged from the floods in Alberta, though there’s some debate over the extent of the damage. The main question is what Ontario’s troubling performance in June could portend for the economy as a whole.

For now, economists expect a slightly lower result for growth in second-quarter gross domestic product (GDP), though most still anticipate a better result than the Bank of Canada’s ultra-conservative forecast of 1 percent. CIBC World Markets, for instance, forecasts June GDP to decline by 0.6 percent, with second-quarter GDP coming in at 1.5 percent.

The Roundup

After a record 2012, leading general contractor Bird Construction Inc (TSX: BDT, OTC: BIRDF) continues to suffer a lackluster 2013. The company reported dismal results for the second quarter, including profits of just CAD0.3 million, down almost 97 percent from a year ago. The hit to revenue wasn’t nearly as bad: Sales came in at CAD312.3 million, a decline of 9 percent versus the year-ago period.

On an earnings-per-share basis, Bird’s performance fell short of analyst expectations by a whopping 85.1 percent, though its revenue did manage to beat the consensus by 5.4 percent. The current mix of analyst sentiment stands at one “buy,” seven “holds,” and no “sells.” The consensus 12-month target price is CAD12.64, which suggests a return potential of 11 percent from the current share price.

Interestingly, Raymond James analyst Frederic Bastien, who upgraded the stock to “outperform” last quarter, near what was then a 52-week low, has since cut his rating to “market perform,” which is equivalent to a “hold.” He also lowered his target price to CAD12 from CAD14. Meanwhile, Scotia Capital raised its rating to “sector perform,” which is equivalent to a “hold,” from “sector underperform,” though its target price remained at CAD12.

The good news is that a majority of the company’s woes are attributable to one fixed-price construction project, which management estimates is now 85 percent finished and will be complete by the end of the fourth quarter. Although management was mum on which of its three main categories the project falls under (i.e., industrial, commercial, or institutional), it did note that aside from execution issues, the project was also negatively impacted by work stoppages that occurred during labor contract negotiations. These strikes were a setback for the project’s schedule and increased the cost of the project overall.

However, management believes the second-quarter CAD8.4 million charge (CAD6.4 million on an after-tax basis) relating to the project and other execution issues now accounts for its full expected loss through year-end. So although management is assuming the project will not generate any profits during the third and fourth quarter, it shouldn’t dampen future earnings to the same extent it’s done during the first half of the year.

But even absent this charge, the company is still experiencing a decline in revenues, due in part to a falloff in mining activity in Eastern Canada and a drop in construction from industrial clients operating in the energy-rich province of Alberta. Because of the latter, construction revenue fell 9 percent, to CAD312.3 million, though this was partially offset by higher revenue from its commercial operations.

Furthermore, the company’s general and administrative expenses continued to rise, up 6.1 percent sequentially and 6.8 percent year over year, to CAD15.6 million, as a result of the company’s CAD12.4 million cash acquisition of Nason Contracting Group Ltd in mid-January.

Fortunately, Bird’s performance should improve. At the end of the quarter, the company had a total project backlog of CAD1.06 billion, up 2.9 percent sequentially, with CAD644 million expected to be executed by year-end. That leaves a balance of CAD421 million to carry forward into 2014. And subsequent to quarter-end, Bird secured another CAD100 million in contracts for civil and building construction projects for industrial clients in Northern Alberta, with revenue expected to be recognized by mid-2015.

Though declines in commodities prices have caused clients in the resources sector to hold off on certain projects, management remains sanguine about opportunities to win contracts for small- and medium-sized projects. Furthermore, the company expects activity in the oil sands will spur business for its industrial segment, while the commercial market is picking up in various parts of Canada. At the same time, the mining sector is expected to remain weak, while government clients in the institutional space will likely pare spending to rein in budget deficits.

Nevertheless, analysts forecast revenue will rise 7.7 percent in 2014, to CAD1.4 billion, while earnings per share are expected to jump 87.2 percent, to CAD0.994.

Since hitting a high of CAD15.08 in late January, Bird’s shares have been on an extended decline, which was initially precipitated by news of the loss of a major contract in Canada’s oil sands, then later by two consecutive quarters of disappointing earnings. The stock is down 24.6 percent from its 52-week high and presently trades near its low for the year.

Bird’s shares currently have a forward yield of 6.7 percent. The company boosted its payout by 5.5 percent in March, for a monthly dividend of CAD0.0633, or CAD0.7596 for the full year.

Although Bird’s drawn down its cash hoard over the past two quarters, the CAD483.8 million company still has a total of CAD115.5 million in cash and short-term investments, which more than comfortably cover its roughly CAD32.3 million in annual dividend payouts, should it have an extraordinarily bad year. And management expects its cash position to rebound during the second half of the year, similar in trend, though not in magnitude, to what occurred during the last two quarters of 2012.

Additionally, at quarter’s end, Bird had just CAD42.8 million in long-term debt on its balance sheet, down CAD5.3 million from year-end due to principal repayments, with another CAD13.6 million coming due over the next year.

Bird Construction remains a buy below USD14.50 in the Conservative Holdings Portfolio.

Here’s where to find our analyses for Portfolio Holdings that have reported earnings for the second quarter of 2013:

Conservative Holdings

• AltaGas Ltd (TSX: ALA, OTC: ATGFF)–August Portfolio Update
• Artis REIT (TSX: AX-U, OTC: ARESF)–Aug. 13 Maple Leaf Memo
• Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Aug. 27 Maple Leaf Memo
• Brookfield Real Estate Services Inc (TSX: BRE, OTC: BREUF)–August Portfolio Update
• Brookfield Renewable Energy Partners LP (TSX: BEP-U, NYSE: BEP)–Aug. 8 (confirmed)
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–Aug. 7 (confirmed)
• Cineplex Inc (TSX: CGX, OTC: CPXGF)–Aug. 8 (confirmed)
• Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–August Portfolio Update
• Dundee REIT (TSX: D-U, OTC: DRETF)–Aug. 21 Maple Leaf Memo
• EnerCare Inc (TSX: ECI, OTC: CSUWF)–Aug. 13 (confirmed)
• Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Aug. 8 (confirmed)
• Keyera Corp (TSX: KEY, OTC: KEYUF)–August Portfolio Update
• Northern Property REIT (TSX: NPR, OTC: NPRUF)–Aug. 13 (confirmed)
• Pembina Pipeline Corp (TSX: PPL, NYSE: PBA)–Aug. 9 (confirmed)
• RioCan REIT (TSX: REI, OTC: RIOCF)–August Portfolio Update
• Shaw Communications Inc (TSX: SJR/A, NYSE: SJR)–July Portfolio Update
• Student Transportation Inc (TSX: STB, NSDQ: STB)–Sept. 25 (estimate)
• TransForce Inc (TSX: TFI, OTC: TFIFF)–August Portfolio Update

Aggressive Holdings

• Acadian Timber Corp (TSX: ADN OTC: ACAZF)–August Portfolio Update
• Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Aug. 14 (confirmed)
• ARC Resources Ltd (TSX: ARX, OTC: AETUF)–August “In Focus”
• Atlantic Power Corp (TSX: ATP, NYSE: AT)–August Portfolio Update
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–Aug. 8 (confirmed)
• Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–Aug. 8 (confirmed)
• Enerplus Corp (TSX: ERF, NYSE: ERF)–Aug. 9 (confirmed)
• Extendicare Inc (TSX: EXE, OTC: EXETF)–Aug. 8 (confirmed)
• Lightstream Resources Ltd (TSX: LTS, OTC: LSTMF)–August “In Focus”
• Newalta Corp (TSX: NAL, OTC: NWLTF)–August Portfolio Update
• Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–August Portfolio Update
• Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–August Portfolio Update
• Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–Aug. 13 (confirmed)
• Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–August “In Focus”
• Wajax Corp (TSX: WJX, OTC: WJXFF)–Aug. 9 (confirmed)