TORONTO, April 17 (Reuters) - Canadian companies are expected to post solid profit gains when they begin unveiling first-quarter results next week, with robust earnings at energy companies seen overcoming weakness at miners and the materials sector.
Energy companies will benefit from a ramp-up in production, improved prices for Canadian crude relative to global benchmarks, and a rally in natural gas prices.
But materials companies, which include gold and base metal miners, face a rough comparison to last year, when the prices of commodities they produce were at elevated levels. Gold in particular has fallen from more than $1,500 an ounce in early 2013 to briefly below $1,200 at the start of this year.
"We're not expecting miraculous numbers," said Elvis Picardo, strategist and vice president of research at Global Securities in Vancouver.
"The market would be happy if there is some semblance of earnings growth in the first quarter, given the widespread acknowledgment that we've had our share of challenges."
Analysts expect earnings from companies on Canada's benchmark S&P/TSX composite index to climb 6.1 percent in the first quarter from a year earlier, according to Thomson Reuters StarMine SmartEstimates.
Canadian blue chips such as Rogers Communications Inc , Teck Resources Ltd and Canadian Pacific Railway Ltd will issue reports next week.
The Canadian earnings season, which typically starts later than its U.S. counterpart, kicks off at a volatile time. Many investors are focused on geopolitical tensions in Ukraine, the U.S. Federal Reserve's monetary policy outlook and fears that stock market valuations are getting too high.
An unusually harsh and long winter is also expected to have an impact on first-quarter results at many companies.
But a drop in the Canadian dollar, which has shed about 3.4 percent since the start of the year, could help support export-focused companies. The loonie has weakened after the country's central bank abandoned a hawkish stance late in 2013.
Sectors such as healthcare and consumer discretionary are expected to show strong growth, but the highlight of the first quarter will be results from heavyweight energy companies, which account for more than a quarter of the composite index.
The group will benefit from "higher natural gas prices, tighter crude spreads and a greater interest by international investors in oil and gas assets," said Peter Buchanan, senior economist at CIBC in Toronto.
A pickup in mergers and acquisitions has also supported investor sentiment towards energy stocks.
Canadian Natural Resources Ltd agreed in February to acquire some liquids-rich natural gas assets from Devon Energy Corp for about $2.8 billion. In the same month, Baytex Energy Corp agreed to buy Aurora Oil & Gas Ltd for C$2.6 billion ($2.4 billion) including debt.
Shares in the energy sector are up about 14 percent this year, and the group's earnings are expected to rise about 22 percent in the first quarter, according to StarMine data.
Earnings from the materials group, by contrast, are seen slipping 37 percent in the quarter.
While investors who were heavily invested in materials stocks are still nursing their wounds after getting pounded last year, a run-up in some of those beaten-down sectors this year suggests that the mood may be improving.
Gold-mining shares have gained about 17 percent this year, reflecting a recovery in bullion from the lows of January as geopolitical worries increased the appetite for safe-haven assets.
INVESTORS EYE 2014 OUTLOOK
While earnings will be closely watched, investors will also look beyond the quarter, dissecting the forward-looking commentary from executives to gauge their level of confidence in the outlook for the rest of 2014.
"Business spending on both capital equipment and on hiring appears poised to improve," said Paul Taylor, chief investment officer at BMO Asset Management in Toronto. "That could be a game changer as we finally get some broadening of the basis for the economic recovery in 2014."
Analysts say the rest of the year looks more promising than the past quarter as the global economic recovery picks up steam and markets benefit from the easy monetary policies of central banks.
The TSX has been reflecting this optimism, with the index up about 6 percent this year - one of the best performers among major global indices.
"There's an expectation that you're going to see an improvement in the remaining three quarters of the year, certainly reflecting increasing momentum in the North American recovery," CIBC's Buchanan said.
(Additional reporting by Alastair Sharp; Editing by Jeffrey Hodgson and Chris Reese)