Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF), unlike most companies, had a difficult year-over-year comparable: Its screens–and sales–during the third quarter of 2008 were lit up by The Dark Knight, the Batman Begins sequel and the second-highest grossing North American release ever (behind Titanic).

But Cineplex is still enjoying its epic ride on Hollywood’s franchise wave. Harry Potter and the Half-Blood Prince, the sixth and penultimate film in the iconic series, accounted for 12.3 percent of ticket sales as Canada’s leading cinema operator recorded a record CAD155.9 million in box office sales and profit growth of 11 percent.

Total revenue was CAD257.5 million, up from CAD239.1 million in the third quarter of 2008 and the highest quarterly total reported by the fund since its inception. Concession revenues were up 9.1 percent, boosted by higher attendance and bigger appetites: Tickets sold increased 4.4 percent, while average concession revenue per movie-goer rose 4.5 percent to a record CAD4.15.

A November 2008 price increase, reflected in the 3 percent increase in average total revenue per customer, had no impact, even as budgets have generally tightened during the recession. This is further evidence that movie-going is as recession-resistant an activity as there is. It’s still a cheap summertime family outing compared to going to a Major League Baseball game, for example.

Distributable cash year-to-date was CAD95.9 million, up 20 percent from 2008 levels for the first nine months of the year. Cineplex reported a year-to-date payout ratio of 56 percent, down from 65.9 percent in 2008.

The fund’s existing credit facility doesn’t mature until 2012, meaning it won’t have to deal with current refinancing risks brought on by the credit crisis. This CAD130 revolving facility is available to finance acquisitions, new construction and working capital; Cineplex reported a leverage ratio of 1.71 times, well below the covenant-dictated limit of 3.0 times.

Between the excess cash it generated and the amount available under its credit facility Cineplex is in solid financial position. Management has not yet indicated what it plans to do about impending 2011 taxation.

As much as Cineplex’ numbers suggest that the company is resistant to economic downturns, there’s no escaping the conclusion that it’s captive to the quality of the productions coming out of Hollywood. Simply put, the record numbers recorded in the third quarter were the result of a great film lineup.  

The third quarter of 2008 was strong at the top–Heath Ledger’s final performance lived up to the buzz and attracted even more movie-goers than the 2005 film that re-booted Warner Bros. key franchise–as The Dark Knight accounted for 22 percent of ticket sales. Even more encouraging than record-setting third quarter 2009 numbers is the depth of films: No. 2 on Cineplex’ ticket-sales list was Ice Age: Dawn of the Dinosaurs, also a sequel but one presented in glorious, premium-priced 3D.

Three of the top five films (in terms of share of Cineplex tickets sold) were geared toward family audiences. Thus the 9 percent concession revenue gain is largely a function of product mix: As management noted in its discussion of quarterly results, family audiences tend to spend more at the concession stand.

Confirming the obvious trend toward film franchises, The Twilight Saga: New Moon inspired record advance ticket sales for Cineplex, as teen girls of all ages secured their spots in the theater ahead of time at a record pace. This bodes well for fourth-quarter numbers, even before the holiday movie-going rush gets underway.

Filmmakers and studios seem to have perfected the franchise model: Harry Potter, The Lord of the Rings, Ironman, Batman, Spiderman, X-Men and the various other superhero films have provided reliable fodder for exhibitioners for a decade. The improvement in 3D projection, along with the expansion of IMAX offerings, promises to sustain the flow of movie-goers even if or when the current franchise formula wears off.

The positive impact of new-wave 3D and IMAX offerings, including the recent Harry Potter film, suggests as well that the actual experience of going to the movies is still a significant draw. This growing number of experiential films has clearly helped put people into the cinema and gotten them to pay more.

The entire film exhibition industry is converting to digital projection technology, which includes the installation of 3D-capable systems. As of the end of the third quarter Cineplex had installed 169 digital projectors in 79 theatres, including 129 screens with RealD 3D technology. The fund has a commitment to install RealD 3D systems on 175 screens.

The 3D releases Up!, Monsters vs. Aliens and Ice Age: Dawn of the Dinosaurs all placed in the top 10 best-performing films for during the first nine months of 2009; with its 129 3D screens Cineplex is well-positioned to take advantage of future 3D releases, including Avatar, director James Cameron’s first release since Titanic, which will hit screens during the fourth quarter.

Canadian Edge subscribers can find out what to do about Cineplex Galaxy and catch up on third quarter earnings reports from select How They Rate-covered trusts and high-yielding corporations in The Roundup, below.

Update: Harper’s Majority

After picking up two more seats in Parliament in recent by-elections, Prime Minister Stephen Harper is closer than ever to his coveted majority.

His Conservative Party won back a seat it had long held in Nova Scotia. The Tory win in Montmagny-L’Islet-Kamouraska-Riviere du Loup in Quebec’s lower St. Lawrence region was a stunning upset; the party had written the seat off a few months ago.

This result–the Conservatives now hold 11 seats in Quebec–suggests Harper’s party, not Michael Ignatieff’s Liberal Party, is now the federal alternative to the separatist Bloc Quebecois. The two wins boost the Conservatives to 145 seats in the House of Commons, while the Liberals remain at 77. The Bloc is at 48, the New Democratic Party holds 37 seats, and there’s one Independent.

The next election to the House of Commons is tentatively scheduled for Oct. 15, 2012. Sitting prime ministers can dissolve Parliament and call an early election at their discretion. In order to trigger an election, all three opposition parties in the House of Commons–the Liberals, the NDP and the Bloc–would have to defeat the government in a no-confidence motion.

Cold Reception

Canada holds the rotating presidency of the Group of Seven (G7) industrialized economies in 2010. As such it gets to choose where the increasingly irrelevant group meets.

In a move designed to showcase its northern territories and to further assert its dominion over the North Pole and its considerable resource potential, finance ministers and central bankers from Canada, the US, the UK, France, Germany, Italy and Japan will meet in Iqaluit, the remote capital of Nunavut, where the ground never thaws and winter blizzards can last for days, from February 5 to February 7.

Though it will be dark most of the day, attendees will be able to enjoy the Northern Lights. And there will be little problem accomplishing what Canadian Finance Minister Jim Flaherty described: a gathering in the fashion of a fire-side chat. No doubt there will be demand for fire: The average temperature in Iqaluit in February is 29 degrees Celsius below zero; wind chills could bring that down to as cold as minus 50 degrees Celsius, which means exposed skin would freeze within five to 10 minutes.

The Roundup

Third quarter earnings season is in the rear-view mirror. We’ve discussed Portfolio results in this space and in Flash Alerts. The November CE included an overview for those trusts and high-yielding corporations that had reported by press time; we’ll cover the rest in the December issue, which will be available at www.CanadianEdge.com and via e-mail on Friday, December 4.

Last week we took a look at earnings for non-Portfolio Oil and Gas Trusts. This week, we’re highlighting third quarter numbers for select members from other segments of the How They Rate coverage universe.

As was the gas with the Oil and Gas segment, there were plenty of positives to take away from the quarter. We look forward to seeing confirmation of these trends when fourth quarter numbers start to come out after the New Year.

In the meantime, best wishes from the Canadian Edge staff for a peaceful and filling Thanksgiving.

Electric Power

Algonquin Power & Utilities (TSX: AQN, OTC: AQUNF) reported third-quarter revenue was CAD45.1 million, down from CAD55.1 million a year ago and CAD46.5 in the second quarter of 2009. The decrease was due to reduced average energy rates and production at the Sanger and Windsor Locks facilities in the Thermal Energy division and lower weighted average energy rates and hydrology in the Renewable Energy division, partially offset by an increase in revenue in the Utility Services division.

Net earnings were CAD13.1 million, a nice turnaround from a CAD4.4 million loss a year ago.

The most significant move Algonquin’s made in recent months is its conversion to a corporate structure, accomplished following the conclusion of the third quarter in late October. Management noted its intention to plow cash saved by trimming its trust distribution into growing the business, a mission it progressed on with the mid-November announcement of the acquisition from privately held Integrys Energy Services of 36.8 megawatts of generating capacity in New Brunswick and Maine.

The deal, the amount of which was undisclosed, includes three hydroelectric and five thermal stations and related transmission lines. Management forecast 10 percent growth in revenue based on the acquired assets. Each plant is operating under firm-sale contracts that run through February 2011. Algonquin Power & Utilities is a buy up to USD5.

Boralex Power Income Fund’s (TSX: BPT-U, OTC: BLXJF) third-quarter results are discussed in the November 2009 feature article, Takeover Fever. The short story: buy it up to USD5.

Gas/Propane

Arctic Glacier Income Fund (TSX: AG-U, OTC: AGUNF) suffered through a cold, wet summer, but the packaged ice distributor is finally out from under the US Dept of Justice’s thumb. Revenue for what is usually the peak season was off 8 percent from year-ago levels, but the company managed to turn a profit. Attention is now focused on USD60 million in notes due Jan. 4, 2010, part of a total of USD161.3 million in debt.

Management “suspended” the distribution a year ago to conserve cash; in addition to paying hefty legal bills to defend the antitrust investigation, it reduced debt by an every-little-bit-counts 8.7 percent. If and under what terms Arctic Glacier is able to restructure the imminently maturing notes will say a lot about its ability to reinstate a dividend.

Although the antitrust investigation is resolved, Arctic Glacier still faces a civil suit by the US government for overcharging as well as matters in other jurisdictions. If you rode it all the way down, the recent bounce off the US DoJ news is a good opportunity to get out of Arctic Glacier Income Fund.

Parkland Income Fund (TSX: PKI-U, OTC: PKIUF) rode a string of acquisitions to record fuel sales volumes in the third quarter, 712 million liters; year-to-date volumes are up 19 percent. Lower fuel prices clipped revenue by 26 percent, but Parkland’s cost of sales declined more than sales, so comparable profit margins were higher on a per-liter basis.

The retail and wholesale fuels and convenience store maven reported distributable cash flow declined 9 percent from year-ago totals, while it managed a payout ratio of 86 percent; the nine-month payout ratio was 71 percent, down from 91 percent in the comparable 2008 period. Parkland Income Fund is a buy up to USD12.

Superior Plus Corp (TSX: SPB, OTC: SUUIF) announced another acquisition along with its third quarter results, this on a USD76 million purchase of retail heating oil, propane and motor fuels distributor Griffith Energy Services. Superior has raised a total of CAD297 million through a new share issue, a new convertible issue and an 8.25 percent unsecured debenture offering and has spent CAD309.8 million to expand its footprint at the expense of weaker rivals.

As for operations, adjusted operating cash flow declined 42 percent on weakness across all three of Superior’s business lines–fuel distribution, specialty chemicals and construction products. Although retail propane revenue was off 37.6 percent Superior’s gross profit was off only 10 percent; like Parkland, the decline in cost of sales was steeper than declines for retail prices. Construction products revenue slid 10 percent, while specialty chemicals revenue was off 8 percent.

All three of Superior’s operating units have been impacted by the recession, and the company is also adjusting to higher than anticipated borrowing costs. Management expects the economy to improve over the balance of 2009 and enjoy a “modest” recovery in 2010. Until results on the ground rise with a return to normal activity, Superior has the balance sheet flexibility to continue to grow.

Now a widely discussed candidate for listing on the New York Stock Exchange and the broader exposure that brings, Superior Plus Corp is a buy up to USD12.

Business Trusts

Cineplex Galaxy Income Fund (TSX: CGX-U, OTC: CPXGF), as noted above, reported excellent third-quarter numbers and seems well on its way to repeating the trick in the fourth quarter. Canada’s largest cinema operator, Cineplex Galaxy Income Fund is a buy up to USD18.

IBI Income Fund (TSX: IBG-U, OTC: IBIBF) generated CAD8.6 million of distributable cash, a 17.1 percent decrease from CAD10.4 million for the three months ended Sept. 30, 2008. Year-to-date, however, distributable cash is up 4.8 percent. IBI recorded a payout ratio of 82.1 percent for the third quarter, up from 59.1 percent a year ago.

Revenue for the period was up 2.3 percent, while earnings before interest, taxation, depreciation and amortization (EBITDA) declined 8.2 percent.

IBI’s backlog of contracted, committed fee volume over the next 12 months is equal to nine months of work, up from eight months at the end of the second quarter. The recession continues to impact private work, but public sector projects keep the pipeline growing. IBI’s backlog is building in health care, education, transportation terminals, transportation networks and systems technology.

IBI continued to grow during the third quarter, adding a small Northern California-based architectural planning firm that specializes in school and community college facilities. The company’s presence also continues to grow abroad, as it’s contracted to conduct a major transportation corridor study in Saudi Arabia and to undertake new urban work and planning for cities in Middle East and Asia. IBI Income Fund is a buy up to USD15.

IESI-BFC (TSX: BIN, NYSE: BIN) reported an 85.5 percent increase in third-quarter free cash flow, and net income rose 17 percent to USD19.1 million from USD16.3 million a year ago.

IESI-BFC also struck a deal in mid-November to acquire fellow Canadian trash hauler Waste Services Inc (NSDQ: WSII) in an all-stock deal worth USD370 million that will create North America’s third-largest solid-waste management company. IESI-BFC will exchange 0.5833 common shares of IESI-BFC for each Waste Services common share held.

The combination is expected to generate annual revenue of USD1.5 billion; the new company, to be headquartered in Toronto, will have 6,000 employees serving commercial, industrial and residential customers in 11 US states and the District of Columbia and in six Canadian provinces. Geographically diversified IESI-BFC, with a solid track record of growing revenue and improving operating margins, has demonstrated its resistance to economic downturns. Well positioned to grow, IESI-BFC is a buy up to USD14.

Liquor Stores Income Fund (TSX: LIQ-U, OTC: LQSIF) increased the number of stores in its portfolio from a year ago, driving a 14.5 percent increase in distributable cash per unit. The fund maintained a payout ratio of 87 percent for the third quarter.

Sales for the existing 225 stores totaled CAD138.9 million, up 12.1 percent from CAD123.9 million generated by the 208 stores operated a year earlier. Same store sales were down 3.4 percent during the quarter because of a still-difficult economic environment in key parts of Liquor Stores’ operating footprint. Operating margin was down 0.8 percent after the Alberta government rescinded a liquor mark-up increase that went into effect in April 2009. Immediately following the announcement, the fund reduced retail sales prices to reflect the decrease in liquor mark-up. This impacted operating margins in the third quarter as inventory holding gains realized in the second quarter reversed.

The fund closed the acquisition of eight Liquor Barn stores in Kentucky, which should double 2010 US-based revenue. Liquor Stores Income Fund is a buy up to USD15.

Natural Resources

Acadian Timber Income Fund (TSX: AND-U, OTC: ATBUF) generated net sales of CAD14.4 million on volume of 330.6 thousand cubic meters of timber during the third quarter, down from sales of CAD17.2 million on 319.5 thousand cubic meters a year ago. EBITDA margin fell from 25 percent to 9 percent on a year-over-year basis, primarily because of weak demand and lower harvesting activity on Acadian’s licensed timberlands.

Because it foresees similarly difficult circumstances in 2010, management also reduced distribution to CAD0.20 per year, or CAD0.017 per month, effective with the November payment due December 15. Acadian will also scale back its harvests for those products that are experiencing weak markets right now in order to preserve the long-term value of its timberlands.

Days after its earnings announcement Acadian announced its conversion to a corporation on a one-for-one, tax-neutral basis. The new Acadian “anticipates” paying the monthly distribution.

The conversion transaction should close before January 1. Acadian Timber Income Fund is a buy up to USD9.

Cameco (TSX: CCO, NYSE: CCJ) reported a third quarter profit, excluding one-time items of CAD104 million (CAD0.26 per share). Costs of product and services sold continued to rise because of Cameco’s increasing presence in the spot market. CEO Jerry Grandey has stepped up purchases of uranium for trading purposes this year.

Sales fell 4.8 percent to CAD694 million. Uranium sales fell 15 percent from 9.8 million pounds to 8.3 million. Cameco sold uranium at an average price of CAD34.24 a pound in the third quarter, down from CAD37.88 a year earlier. Cameco is a buy up to USD30.

Canfor Pulp Income Fund’s (TSX: CFX-U, OTC: CFPUF) third quarter numbers were driven by demand for pulp from China.

Chemical pulp shipments to China rose 79 percent during the first nine months of the year compared to a drop of 14 percent in shipments to both Western Europe and North America. Prices for long-fiber northern bleached softwood kraft pulp rose from USD630 in April to USD660 June to USD770 in September. Announced prices for October of USD800 and for November of USD830 suggest Canfor will enjoy a strong fourth quarter as well.

Canfor reported net income of CAD8.5 million (CAD0.24 per unit), up from CAD5.2 million (CAD0.15 per unit) a year ago. Canfor Pulp LP, of which the fund owns 49.8 percent, reported distributable cash of CAD42.9 million, up from CAD23.8 million a year ago. Sales were CAD202 million in the quarter compared to CAD215.4 million for the same period last year.

The fund plans to convert to a trust when new taxation rules take effect in about 14 months, neither a moment before nor after. “At this time our view has not changed, and absent of any developments, we would expect to convert to a corporation on January 1, 2011, the date that the tax changes come into effect,” said CEO Paul Richards. Canfor Pulp Income Fund is a hold.

Teck Resources (TSX: TCK-B, NYSE: TCK) reported third quarter revenue of CAD2.1 billion. Net earnings were CAD609 million, up from CAD424 million a year ago.

Teck paid down USD5.1 billion on a bridge loan and reduced USD4 billion of term debt to USD2.7 billion, getting out from under much of the burden of its USD14 billion acquisition of Fording Canadian Coal Trust. The company won’t make any more asset sales to cope with the debt, and may in fact be looking to make acquisitions. Teck Resources is a buy up to USD32.

TimberWest Forest Corp (TSX: TWF, OTC: TMWEF) reported a distributable cash loss of CAD3.8 million for the third quarter, an improvement over the CAD5.4 million loss recorded in the third quarter of 2008.

Management noted that, despite a slight improvement in US housing starts during the period, Asian markets drove the improvement. Log exports to China and Korea were up 160 percent year-over-year.

TimberWest’s real estate unit reported revenue of CAD7.9 million, more than half the year-to-date total of CAD14.8 million. That revenue is accelerating for Couverdon Real Estate is a significant positive for a company that basically completely remade itself in response to North American housing implosion.

The company has also reached an agreement with its lenders to waive covenants in its loan agreements through 2010 and 2011. This will help the company as it attempts to streamline operations and manage cash flow to position it for an economic recovery. TimberWest Forest Corp is a sell.

Energy Services

Mullen Group (TSX: MTL, OTC: MLLGF) reported a 35 percent year-over-year revenue decline, to CAD229.7 million from CAD352.2 million a year ago. On a sequential basis, however, revenue increased from CAD202.7 million.

Operating income for the quarter was off by 38 percent to CAD45.9 million. Mullen generated funds from operations of CAD36.5 million down from CAD67.4 million a year ago.

The trucking/logistics segment suffered because of the slowing economy, while Mullen’s oilfield services operations weakened along with the collapse in oil and gas drilling activity in Western Canada. Top-line growth of 10 percent on a sequential basis is one reason to buy Mullen Group up to USD15.

Precision Drilling (TSX: PD-U, NYSE: PDS) reported net income of CAD71.7 million (CAD0.25 per unit), down from CAD82.3 million (CAD0.61 per unit) in the third quarter of 2008. Revenue fell 11 percent to CAD253.3 million. Overall drilling activity fell by more than half.

The Grey Wolf acquisition helped offset continued weakness in Canada, and the US diversification should pay off even further as work in Pennsylvania’s Marcellus Shale formation expands to include 12 working rigs, up from two in mid-2009.

Although the worst may be over, CEO Kevin Neveu cautioned that fourth quarter drilling activity is likely to be consistent with that of the third. He also suggested that customers may leave 2010 budgets unchanged from 2009 levels.

“In Canada we have just completed the slowest summer after the weakest spring following the poorest winter in the last two decades. I’m going to run out of adjectives for the word ‘poor’ if this cycle continues much longer,” said Neveu in a conference call to discuss the quarter. As ever, the level of activity is directly related to the price of natural gas.

Well-positioned to rebound amid emerging signs of strengthening fundamentals, Precision Drilling is a buy up to USD6.

Energy Infrastructure

Enbridge Income Fund (TSX: ENF-U, OTC: EBGUF) reported third quarter distributable cash of CAD22 million, essentially flat with the CAD22.2 million generated a year ago. Revenue increased from CAD72.2 million to CAD79.4 million on throughput increases across most of the fund’s pipeline systems and rising output from its Green Power unit.

A CAD120 million expansion of its Saskatchewan system is forecast to add 125,000 barrels per day of capacity and to add significant cash flow. The company is focusing on other organic growth opportunities right now to support continued distribution growth.

Enbridge will announce conversion plans during its annual meeting in May 2010. Enbridge Income Fund is a buy up to USD12.

Information Technology

FP Newspapers Income Fund (TSX: FP-U, OTC: FPNUF), which owns 49 percent of  FP Canadian Newspapers LP, owner of the Winnipeg Free Press and Brandon Sun daily newspapers among other news outlets, was hit hard, again, by the economic downturn in the third quarter, as advertising revenue declined another 17.2 percent. Display advertising, the largest segment and sensitive to the auto and employment markets, was off 19.2 percent.

Circulation revenue increased 1.3 percent because of rate increases implemented in March 2009 at the Winnipeg Free Press; this positive was partially offset by subscription reductions. Although operating expenses declined nearly 13 percent, much of these “savings” were realized because FP wasn’t printing as many pages because advertising and circulation shrank. Newsprint expense, for example, fell by 36 percent on lower consumption.

Distributable cash attributable to the fund for the three months ended September 30 was CAD1.8 million, down from CAD2.2 million a year ago. For the trailing 12 months ended September 30 FP LP has generated distributable cash attributable to the fund of CAD0.949 per unit, and the fund has declared distributions of CAD1.140 per unit, resulting in a payout ratio of 120.1 percent. FP Newspapers Income Fund is a hold.

Rogers Communications (TSX: RCI-B, NYSE: RCI) has enjoyed its dominance of the Canadian smart phone market; for a time it sold both Research in Motion’s (TSX: RIM, NSDQ: RIMM) and Apple’s (NSDQ: AAPL) iPhone with no competition. That cushy scenario will soon change; BCE and Telus (TSX: T, NYSE: TU) are completing joint upgrades to their networks that will allow them to begin selling the iPhone. This will certainly impact Rogers’ subscriber growth.

Total revenue for the third quarter rose to CAD3 billion from C$2.9 billion, though net income fell to CAD485 million from CAD495 million a year ago earlier. New customer additions declined from a year ago, but the three months ended Sept. 30, 2008, marked the first quarter of iPhone sales for Rogers.

Rogers activated more than 370,000 smart phones in the quarter, and about 45 percent of those activations were new subscribers. The company added 167,000 new postpaid subscribers, the best kind for wireless service providers. That was down from 191,000 a year earlier, when Rogers launched the iPhone.

Subscribers with smart phones now represent about 28 percent of the overall postpaid subscriber base, up from 15 percent a year earlier. Average monthly revenue per postpaid wireless user fell to CAD76.79 from CAD78.60, a direct reflection of consumer thrift during a weak economy.

Data revenue jumped 46 percent in the quarter. Cable revenue, which includes Internet and home phone service, rose to CAD773 million from CAD724 million a year earlier. Rogers Communications is a hold.

Shaw Communications (TSX: SJR-B, NYSE: SJR), Canada’s second largest cable television provider, reported results for the three months and fiscal year ended Aug. 31, 2009.

Revenue for the quarter was up 8 percent year-over-year to CAD873 million, while net income was down from CAD124 million from CAD13 2 million. For the year, Shaw posted revenue of CAD3.39 billion, up 9.2 percent, and a profit of CAD535 million, down from CAD672 million in 2008.

Shaw also announced that its CAD300 million purchase of Ontario-based cable provider Mountain Cablevision has received regulatory approval. Mountain brings 41,000 cable customers, 29,000 internet subscribers and 30,000 digital phone lines to the Shaw roster.

The company lost about 5,000 Internet customers, 4,500 direct-to-home satellite customers, and almost 9,000 phone customers. The digital cable subscriber base grew by 110,501 during the quarter, up from 23,020 in the same period last year. The number of new digital subscribers has more than doubled in 2009 to 388,517 from 143,180. Shaw Communications is a buy up to USD20.

Financial Services

Bank of Montreal (TSX: BMO, NYSE: BMO) kicked off reporting season for Canada’s Big Five banks this morning with the good news that profit grew 16 percent year-over-year for the quarter ended October 31.

Net income was CAD647 million, up from CAD560 million a year ago. Revenue grew 6.3 percent to CAD2.99 billion. Bank of Montreal set aside CAD386 million for bad loans, 17 percent below year-ago levels and the second straight quarter of declining provisions. Non-interest expenses dropped 2.1 percent to CAD1.78 billion.

Analysts expect the Big Five to post their first profit growth in two years, since the fourth quarter of 2007, and this is clearly an auspicious beginning to the reporting cycle–not to mention the positive implications declining provisions hold for 2010 results.

Canadian consumer banking profit rose 22 percent to CAD394 million on a 16 percent increase in commercial banking revenue. US consumer banking earnings more than doubled on lower costs.

BMO Capital Markets, the investment-banking unit, earned CAD289 million, flat with year-ago levels. Trading revenue fell 47 percent to CAD262 million from a year earlier. Profit from the private-client group, which includes brokerage, insurance, investing services and mutual funds, rose 31 percent to CAD110 million on the rebound off the March stock market lows.

Toronto-Dominion Bank (TSX: TD, NYSE: TD) and Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM) report December 3. Royal Bank of Canada (TSX: RY, NYSE: RY) announces December 4, and Bank of Nova Scotia (TSX: BNS, NYSE: BNS) rounds out the season on December 8.

Analysts expect the banks to record higher loan-loss provisions, which will eat into substantial trading revenue. The Canadian banks are adequately capitalized, however, and seem to be in better position than ever to expand meaningfully into the US. We’ll have updates as the remaining banks report. Bank of Montreal, meanwhile, is a buy up to USD50.

Food and Hospitality

A&W Revenue Royalties Income Fund (TSX: AW-U, OTC: AWRRF) reported solid third quarter numbers, highlighted by a 2.1 percent increase in distributable cash. Distributable cash is up 3.2 percent year-to-date.

Same-store sales increased 0.3 in the third quarter from year-ago levels and are up 2.5 in 2009. A&W has reported rising same-store sales for 26 consecutive quarters. The fund’s trustees approved a CAD0.10 per unit special distribution payable November 30. A&W Revenue Royalties Income Fund is a buy up to USD14.

Priszm Income Fund (TSX: QSR-U, OTC: PSZMF) reported third-quarter same-store sales declined 0.5 percent from the same period of 2008. Restaurant sales from continuing operations were up 0.1 percent to CAD113.7 million. Restaurant costs and expenses, cost of restaurant sales and restaurant operating expenses were all essentially flat with the third quarter of 2008. Income from restaurant operations decreased 1.6 percent to CAD12.4 million. General and administrative expenses were down 4 percent. Distributable cash declined 2.5 percent, and the payout ratio was 111 percent, up from 30 a year ago.

Priszm also announced it will buy back 10 percent of its 6.5 percent convertible unsecured subordinated debenture dated June 30, 2012. This follows a September move to buy back 10 percent of its outstanding units and indicates the fund is in a solid cash position. Priszm Income Fund is a hold.

Transports

Canadian National Railway (TSX: CNR, NYSE: CNI) reported third quarter net income of CAD461 million (CAD0.97 per share), down from CAD552 million (CAD1.16 per share) a year ago. Revenue declined 18 percent to CAD1.8 billion, total carloads declined 15 percent, and revenue ton-miles declined 11 percent. Operating expenses declined 18 percent to CAD1.2 billion on lower fuel costs and cost-cutting.

Operating income declined 18 percent, while the operating ratio was essentially flat at 62.7 percent. Nine-month 2009 free cash flow increased to CAD657 million from CAD483 million during the comparable 2008 period.