A look at North American equities heading in both directions
On the rise
Shares of pipeline operator Enbridge Inc. (ENB-T) rose 2.4 per cent on Friday after it posted a quarterly loss from a year-ago profit as it took a non-cash $2.5-billion hit from higher cost of capital related to its natural gas transmission business.
U.S. refinery outages, a global glut of high sulphur fuel oil and the U.S. Strategic Petroleum Reserve releases of heavy sour barrels weakened demand for Western Canada Select crude in the fourth quarter.
Enbridge, a leading transporter of crude oil and natural gas, delivered 3.1 million barrels of oil per day (bpd) on its Mainline system, slightly higher than the 3 million bpd delivered a year ago.
The Calgary-based company lost $1.07-billion, or 53 cents, in the fourth quarter, compared with a profit of $1.84-billion, or 91 cents per share, in the year-ago quarter.
Gas transmission projects account for just over half of Enbridge’s $18-billion, multi-year capital program. Chief Executive Greg Ebel told analysts that Enbridge is in good position to manage inflation because the timing of its projects is staggered.
On an adjusted basis, Enbridge earned 63 cents per share, missing analysts’ average expectation of 73 cents, according to Refinitiv data. The company cited rising interest rates in its lower adjusted earnings.
Enbridge is in “constructive” negotiations with oil shippers on a new basis to charge for space on its Mainline, Ebel said, after the Canada Energy Regulator rejected in 2021 Enbridge’s plan to sell nearly all of its space under long-term contract.
Enbridge currently rations Mainline space monthly and faces new competition when the Trans Mountain pipeline expansion wraps up late this year.
Fortis Inc. (FTS-T) was up 3.3 per cent in the wake of reporting a fourth-quarter profit of $370-million, up from $328-million a year earlier.
The gas and power utility says the profit for the quarter amounted to 77 cents per diluted share for the quarter ended Dec. 31, up from 69 cents per diluted share in the last three months of 2021.
Revenue for the quarter totalled $3.17-billion, up from $2.58-billion.
On an adjusted basis, Fortis says it earned 72 cents per share in its latest quarter compared with an adjusted profit of 63 cents per share a year earlier.
Analysts on average had expected a profit of 71 cents per share, according to estimates compiled by financial markets data firm Refinitiv.
In its outlook, Fortis announced a five-year capital plan to spend $22.3-billion. It says the growth will help support its dividend growth guidance for between four and six per cent annually through 2027.
Saputo Inc. (SAP-T) increased over 5 per cent after reporting it more than doubled its profit in its latest quarter amid higher prices, improved productivity and strong sales, company executives said Friday.
“Consumer demand for our products in the third quarter was strong despite increasing prices,” Saputo CEO Lino A. Saputo said during a call with analysts.
Shoppers are increasingly value conscious as food inflation remains high and Saputo is “meeting their needs with tailored product offerings, pack sizes and promotions,” he said.
Saputo’s net earnings for its third quarter ended Dec. 31 hit $179-million, more than double the $86-million posted a year earlier.
The company said earnings per diluted share were 43 cents, up from 21 cents in the same quarter last year.
The Montreal-based dairy processor, behind popular products like Armstrong cheese, Scotsburn ice cream and Baxter, Neilson and Dairyland milk brands, said revenue was $4.6-billion, up 17.6 per cent from $3.8-billion a year earlier.
Saputo said the uptick in revenues reflects “pricing initiatives” across all its sectors, higher prices in the U.S. sector, and higher international dairy prices.
The company has taken steps to mitigate inflation but has also implemented “necessary pricing actions across our portfolio as needed” to keep up with rising costs, chief operating officer for Saputo’s North American division Carl Colizza said.
“If you roll back 18-plus months, there was lots of catching up to do as the inflationary pressures were coming in fast and furious,” he told analysts. “I would say that we’re effectively caught up at this point.”
In Canada, the company is benefitting from operational efficiencies, including from consolidation projects and automation introduced in previous years, Mr. Colizza said.
“Some of that has finally come to fruition and we’re seeing that in our results today,” he said.
Saputo has also recorded a “channel shift” from retail to food service in Canada that has been favourable for the company’s margins, Mr. Colizza said.
The dairy processor’s Canadian operations have also fared better than other markets with labour attraction and retention, with fewer vacancies than in the U.S., he said.
Saputo recently announced major changes to its U.S. operations, including permanently closing three facilities, building a new packaging facility and expanding its string cheese operations.
The dairy company’s third-quarter results beat expectations and suggest Saputo is finding its “whey back,” RBC Dominion Securities Inc. analyst Irene Nattel said in a client note.
The results indicate that the company’s strategic plan has put the company on a path to sustained earnings and growth, she said.
In 2021, Saputo announced a four-year global strategic plan to drive growth and improve efficiency across the organization.
PayPal Holdings Inc. (PYPL-Q) rose 3.1 per cent as it forecast full-year profit above Wall Street estimates on Thursday but warned of pressure on discretionary spending, and said Chief Executive Dan Schulman will retire at the end of 2023.
Macroeconomic pressures have begun to hurt American consumers, particularly those in the lower income bracket, but PayPal’s customers continue to spend largely undeterred by decades-high inflation.
Even so, the company’s upbeat forecast comes alongside its previously announced commitment of lowering expenses in the backdrop of its key e-commerce segment feeling the pinch of a slowdown.
“The rate of e-commerce growth in our core markets has decelerated. Inflationary pressures have affected discretionary consumer spending and post-COVID spending patterns are still evolving,” acting finance chief Gabrielle Rabinovitch said in a call with analysts.
In a divergence from prior quarters, PayPal said it will not provide a forecast for full-year revenue growth.
“They don’t want to call out a revenue number at this point because of the macro uncertainty, they don’t want to put themselves in a box,” D.A. Davidson analyst Chris Brendler told Reuters.
Mr. Schulman joined PayPal in 2014 to lead the company, after its separation from eBay the following year.
“Dan’s had notable success in growing PayPal materially over the years, however the change may remove an overhang for some investors given recent/post-pandemic volatility,” Wolfe Research analyst Darrin Peller said in a note.
Shares in PayPal have lost about 66 per cent of their value since 2021, through the stock’s last close.
Last week, PayPal said it will lay off 7 per cent of its workforce, or about 2,000 employees.
PayPal said it expects full-year adjusted profit of roughly US$4.87 on a per share basis. Analysts on average had expected US$4.75 per share, according to Refinitiv IBES data.
PayPal earned a profit of US$1.24 per share on an adjusted basis in the fourth quarter ended Dec. 31, beating analyst estimates of US$1.20 per share.
Its revenue rose 9 per cent on an FX-neutral basis to US$7.4-billion.
On the decline
Magna International Inc. (MG-T) dropped 17 per cent after it reported a fall in quarterly profit and warned of more pressure on its margins from volatile production schedules at automakers and elevated costs.
Chip shortages, lost production and rising raw material costs have weighed on auto suppliers and auto executives say some of the pressures are expected to persist this year amid a looming recession.
“We expect continued input cost pressures in 2023,” Patrick McCann, Magna’s finance chief, said on a call with analysts.
The company said it expects its EBIT (earnings before income tax) margin for full-year 2023 to be between 4.1 per cent and 5.1 per cent, below analysts’ expectations of 5.6%, according to Refinitiv.
“We think margins are going to remain an issue for MGA for some time,” CFRA analyst Garrett Nelson said.
The company, which counts Ford Motor Co and Volkswagen as its customers, added it expects global light vehicle to be up about 2 per cent in 2023, with volumes in North America and Europe - its two largest markets - to remain well below 2019 levels.
For the quarter through Dec. 31, Magna reported adjusted net income of 91 US cents per share, missing analysts’ expectations of US$1.06, in part due to due to engineering costs.
Companies such as Magna are jostling to supply parts to automakers, which are investing billions of dollars in developing electric vehicles. Magna in December agreed to buy Veoneer Active Safety for $1.53-billion to bolster its portfolio of self-driving technology.
Magna said it does not expect share buybacks in 2023 in part due to the deal.
Revenue increased 5 per cent to US$9.57-billion for the quarter, compared with analysts’ expectations of US$9.51-billion.
Aurora Cannabis Inc. (ACB-T) closed down 2.4 per cent after it announced late Thursday that it has completed a transformation plan delivering $340-million in annualized savings since February 2020, but said it still incurred a $67.2-million net loss in its most recent quarter.
On Friday, the company’s chief executive said it would be open to undertake more merger and acquisition deals in the future to expand its medical cannabis business,
The upbeat comments followed the cannabis producer’s surprise second-quarter core profit, helped by cost saving measures it had been taking since early 2020.
“The net cash position gives us the opportunity to do M&A,” CEO Miguel Martin told Reuters in an interview.
The company will likely focus on acquiring medical assets or medical infrastructure – “something that’s additive to medical would be more interesting to us than maybe others,” he added.
In its earnings release late on Thursday, Aurora said it has about $310-million of cash, including $65-million of restricted cash as of Feb. 8.
In August last year, the company acquired a controlling interest in agricultural company Bevo Agtech for $45-million.
“I think the type of M&A we would do would be consistent with what you saw with Bevo, predictable profitable… steady business,” Martin said.
The company which draws majority of its sales from its medical cannabis business, which posted an adjusted core profit of $1.4-million compared with analysts’ expectations of core loss of $3.9-million.
Lyft Inc. (LYFT-Q) shares plummeted 36.5 per cent on Friday after a bleak forecast fueled worries that the company will have to cut prices and sacrifice profit to avoid being a distant second to rival Uber (UBER-N) in the North American ride-sharing market.
Both the companies have been locked in a battle for market share coming off the pandemic lows, with the latest earnings showing Uber’s larger scale and pricing power was allowing it to capitalize on the resurgence at its rival’s expense.
“Rideshare is now approaching full recovery in the United States, but Lyft is not,” said J.P. Morgan analysts, who were among the 13 who slashed their price targets on the stock.
Lyft shares were set for their worst day on record, if premarket losses hold. The company was set to lose $2 billion in market value and nearly all of its stock price gains this year.
Lyft provided a first-quarter profit and revenue forecast on Thursday that was below market expectations, a stark contrast to Uber’s strong profit forecast and better-than-expected earnings.
“This outlook continues the recent trend of Lyft growing slower than the broader rideshare market ... placing a greater spotlight on Lyft’s scale and platform breadth relative to Uber,” Canaccord Genuity analysts said.
Driver supply at Lyft rebounded in the fourth quarter to levels seen in 2019 before the pandemic, while driver supply at Uber was at a record high.
The improving driver supply will, however, mean that Lyft will see lesser surge pricing in the first quarter, company executives said.
The company also had to lower prices in January after Uber dropped its fuel surcharge earlier that month, while analysts said Lyft’s larger presence on the West Coast also weighed as many technology companies there have not returned to office.
“Lyft is making the difficult trade off to lower price in order to help conversion and prevent further share loss to Uber,” Needham analysts said.
“Despite the constructive commentary on demand, we do not assume volume will be able to offset lower prices.”
Ford Motor Co. (F-N) has cut its stake in struggling EV maker Rivian Automotive Inc. (RIVN-Q) to 1.15 per cent, a week after the Detroit automaker reported a fall in profit and predicted a tough year ahead.
Shares of Rivian were down 3 per cent in Friday trading.
Ford, which wrote down the value of its Rivian investment by US$7.4-billion in 2022, has been paring down its stake amid production struggles at the Irvine, California-based company.
The U.S. car maker, which is set to pour billions into its electrification strategy, held a 11.4-per-cent stake in Rivian at the end of 2021.
The new stake, disclosed in a Wednesday filing, comes a week after Reuters reported Rivian’s plans to lay off 6 per cent of its staff to cut costs amid falling cash reserves on the back of mounting economic worries.
Rivian shares also had a bleak 2022, losing about 82 per cent of their value.
The company, which has been losing money on every vehicle it builds, narrowly missed its full-year production target of 25,000 units last year as it dealt with supply-chain disruptions.
Shares of Enlight Renewable Energy (ENLT-Q) slipped in their U.S. market debut on Friday, giving the Israel-based renewable energy developer a market capitalization of US$2.07-billion.
The stock opened at US$17.90, slightly below its initial public offering price of US$18 per share.
It raised US$252-million by offering 14 million shares on Thursday, lower than its original plan of raising up to US$293-million.
The company has a US$1.95-billion market cap on the Tel Aviv Stock Exchange.
The U.S. IPO market has shown some signs of a revival this year as investors’ bet on the Federal Reserve easing its policy tightening has sent Wall Street’s main indexes higher.
“The IPO market is trying to make a comeback. Market conditions have been a lot better than many were expecting and the water seems ok for now,” said Edward Moya, senior market analyst at Oanda in New York.
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With files from staff and wires
David Leeder