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Money David Olive: Latest results show Canada Post can deliver

19:31  07 may  2018
19:31  07 may  2018 Source:   thestar.com

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Canada Post beats the U.S. Postal Service

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If Canada Post was a publicly traded company, rather than a crown corporation, its latest earnings report would be described by Bay Street analysts as “blowing the doors off.”

The Canada Post Group of Cos., as it’s formally known, last week reported that its 2017 profits jumped 78 per cent, to $114 million. And its revenues, in this era of sharply reduced lettermail, increased 4.4 per cent, to $8.2 billion. By sharp contrast, the U.S. Postal Service (USPS) lost a staggering $2.7 billion (U.S.) in fiscal 2017 — the 11th consecutive year in which USPS has suffered a multibillion-dollar loss.

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Two main factors explain the difference.

Canada Post long ago made deep cuts in its bloated workforce and has since kept labour costs down, and Ottawa helped the corporation cut costs further by approving community mailboxes. (It’s notable, though, that Canada Post’s most recent impressive numbers come after the Trudeau government told the corporation to hit the brakes on that practice.)

And Canada Post was early among its global peers in seizing on the potential of e-commerce, a then-nascent trend that it has since ridden to consistent profit as Internet shopping has gained momentum.

USPS remains saddled with an over-sized workforce and unprofitable outposts in under-populated locations. There are 435 members of the U.S. Congress standing guard over every post office at a dusty crossroads that USPS tries to close.

It may be that the inquiry into USPS’s finances recently called by U.S. President Donald Trump is politically motivated, specifically at Amazon.com Inc. CEO Jeff Bezos. But that might be the necessary first step in reducing USPS’s burden on U.S. taxpayers.

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Canada Post was early among its global peers in seizing on the potential of e-commerce, a then-nascent trend that it has since ridden to consistent profit as Internet shopping has gained momentum.© Steve Russell Canada Post was early among its global peers in seizing on the potential of e-commerce, a then-nascent trend that it has since ridden to consistent profit as Internet shopping has gained momentum.

A good-news trade deficit

Just in time for the homestretch in negotiations on a new North American Free Trade Agreement, Canada ended the first quarter of 2018 with a record trade deficit of $9.1 billion.

The principal reason U.S. President Donald Trump reopened NAFTA – indeed, has repeatedly threatened to scrap it – is its supposed role in creating U.S. trade deficits. That’s been an obsession for the Orange Man since long before he took office.

Well, Team Trump can hardly complain now about unfair Canadian treatment of the U.S. on trade when Canada continues to suffer deficits with the U.S. in many sectors, and is running an overall deficit. Which, by the way, is not bad news in other respects.

The 6 per cent monthly jump in imports that Statscan reported last week, to $51.7 billion in March, was due mostly to auto and consumer-goods purchases – a convincing sign of continued strong consumer spending despite record Canadian household indebtedness.

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Business investment, another leading economic indicator, has been strong also, with a 3.2 per cent March increase in imports of industrial machinery and equipment. March also saw a 4.2 per cent increase in electronic-related imports, another measure of business investment.

And the trade deficit overshadows good news on the export side, which increased 3.7 per cent in March, to $47.6 billion. Export strength was especially notable in aerospace and agriculture, the latter no longer plagued by February’s rail disruptions.

Finally, it’s worth noting that Canada’s robust importing has been financed with a discounted loonie. A stronger loonie by year end, if the Bank of Canada follows through on its current expected interest-rate increases, would ease the impact of those imports on household income and corporate treasuries.

Elon Musk is stretched thin

CEOs of companies with sky-high market caps aren’t allowed to have hissy fits.

Stock in electric-car maker Tesla Inc. dived as much as 8.6 per cent in intra-day trading after company founder and CEO Elon Musk, on an earnings call last week, responded to one analysts’ query by describing it as a “boring bonehead question.”

“Is he unhinged?,” an analyst said after the call.

Musk, 46, is plenty grounded. But he is over-taxed. Tesla will likely need to raise an additional $2 billion (U.S.) or so by year’s end to pay for its first factory in China, and finance its planned Model Y crossover and a semi truck.

And Musk will be hard-pressed to meet his goal of doubling the weekly production of Tesla’s bet-the-company Model 3, the firm’s first mass-production vehicle, over the next two months.

Musk is also CEO of SpaceX, the rocket firm that supplies the International Space Station.

But if money runs short, Tesla can postpone its China factory and new-product development. And investors should be comforted by Tesla’s status as takeover bait. Some half a dozen global automakers would love to use Tesla, with its unsurpassed prowess in engineering and production of electric vehicles (EVs), to get a jump on rivals in EVs, expected to account for about a third of vehicles on the road by 2030. T

hat’s not to say Tesla would fetch its current $48 billion market cap in a takeover. But Telsa investors should find reassurance, despite the stock’s notorious volatility, in knowing that the industry-leading Tesla is of immense value.

They’d be further comforted if Musk would recruit a strong-willed second-in-command with the smarts to succeed him when the time comes.

And to handle earnings calls whenever Musk can’t disguise fatigue and frustration.

Five things to watch for in Canadian business .
TORONTO - Five things to watch for in the Canadian business world in the coming week: What's next for NAFTA?Negotiators for Canada, Mexico and the U.S. are under the gun to make headway on a new NAFTA deal after passing the unofficial deadline of May 17, put in place to give Congress enough time to vote on it by the end of the year. Canadian officials say a deal is "close" but issues such as auto-sector content rules and a U.S.-proposed five-year sunset clause remain sticking points.Wholesale tradeStatistics Canada releases the wholesale trade figures for March on Tuesday. The agency said wholesale sales fell 0.8 per cent to $62.

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