A survey of North American equities heading in both directions
On the rise
Enerplus Corp. (ERF-T) rose 1.3 per cent after announcing it expects first-quarter liquids output to fall short of previous expectations due to power outages and production disruptions stemming from “extremely” cold temperatures in North Dakota.
The Calgary-based is estimating production will be be approximately 2,000 to 3,000 barrels per day lower than previously forecast.
“Despite this, Enerplus remains well positioned to efficiently execute its 2024 operational plan,” it said in a press release. “Inclusive of the impacts from the January weather event, the Company anticipates delivering 2024 liquids production of approximately 64,000 barrels per day with annual capital spending of approximately $550 million. Enerplus will provide 2024 guidance in connection with its fourth quarter and full-year 2023 results to be released on February 22nd, 2024.”
Enerplus said fourth-quarter 2023 production came in at 103,500 barrels of oil equivalent per day, exceeding the top end of its guidance (95,000-99,000). They attributed the beat to “continued strong productivity from both the Company’s 2023 well program and base production.”
“Overall, we view this event as positive given strong Q4/23 performance, as well as initial 2024 production guidance that exceeded our prior estimate, despite the January production loss; updating our model to account for this improves our 2024e CFPS by 3 per cent,” said ATB Capital Markets analyst Patrick O’Rourke.
American Express Co. (AXP-N) forecast a better-than-expected profit for 2024 on hopes that its affluent customers will be resilient with their spending amid elevated interest rates, sending the company’s shares up over 7 per cent on Friday.
The New York-based company also reported record revenue for 2023, a year which many analysts feared could bring in a recession and crimp customer spending.
AmEx, helped by its affluent customer base, has been able to navigate a tricky financial landscape more smoothly compared to some of its peers.
High-earning individuals are less sensitive to inflation and the surge in borrowing costs, which has worried customers in lower-income brackets.
“We have achieved what we set out to do, and we are ahead of where we thought we’d be on our journey,” American Express CEO Stephen Squeri said.
However, some caution prevailed, with the credit card giant raising its loan loss provisions in the fourth quarter to US$1.44-billion, compared with US$1.03-billion a year earlier.
Eleven rate hikes by the U.S. Federal Reserve have made borrowing expensive and increased risks of more defaults, especially as credit card debt is typically costlier than other loans.
AmEx posted a profit of US$2.62 per share for the three months ended Dec. 31, up from US$2.07 per share a year earlier. Analysts had expected a profit of US$2.64 per share, according to LSEG data.
The company’s total revenue for the fourth quarter rose 11 per cent to US$15.80-billion. For 2023, its revenue rose 15 per cent to US$60.52-billion.
It forecast 2024 earnings per share between US$12.65 and US$13.15, higher than analysts’ estimates of US$12.41.
Colgate-Palmolive (CL-N) was up 2 per cent even thought it forecast fiscal 2024 sales below estimates, as higher prices of its oral and personal care products continue to weigh on volumes.
The toothpaste maker expects annual sales growth to be between 1 per cent and 4 per cent, the midpoint of which is below analysts’ average estimates of a 3.55-per-cent growth. In 2023, Colgate logged sales growth of 8.5 per cent.
Other consumer product makers like Procter & Gamble (PG-N) and Kimberly-Clark (KMB-N) had also flagged softer volumes earlier this week as customers continued to digest higher product prices.
For Colgate, fourth-quarter organic volumes were flat, broadly similar to the previous quarter, although improving from a 4-per-cent dip last year.
The New York-based company said volumes, which have been under pressure in the past few quarters, are expected to recover somewhat through the year.
However, the company sneaked past Wall Street expectations for fourth-quarter sales and profit, driven by strong demand coming out of Latin America and Europe and recovering volumes in North America.
Net sales rose to US$4.95-billion, beating LSEG estimates of US$4.90-billion.
On an adjusted basis, the company posted a profit of 87 US cents per share, topping estimates of 85 US cents per share.
Sales at the company’s Hill’s Pet Nutrition business, which made up a quarter of the company’s sales in 2023, were up 5 per cent compared to a 20-per-cent rise in 2022.
RBC analyst Nik Modi said the performance of the pet category was " increasingly concerning” amid consumer pressure and competition from specialty pet retailers.
Levi Strauss & Co. (LEVI-N) increased 1.3 per cent following early losses after it forecast annual sales and profit below Wall Street expectations on Thursday, and said it would cut 10 per cent to 15 per cent of global corporate jobs as the denim maker seeks to rein in costs amid weakness in its wholesale business.
Levi attributed the weak forecast to plans to exit its Denizen brand and cut back on off-price sales, as well as weaker foreign currency exchange rates and the final liquidation of its Russia business. The company also missed fourth-quarter revenue estimates.
The fallout of an inventory glut last year and consumers feeling the pinch from inflation are a drag on the company’s wholesale channel and outweighing the gains in its direct-to-consumer (DTC) business.
Levi’s incoming CEO, Michelle Gass, said the company’s U.S. wholesale business improved over its last quarter and is expected to show growth in the second half of 2024. However, unpredictable consumer demand meant Levi’s would continue to be conservative in its outlook, she told investors in a post-earnings conference call.
“We’re encouraged, but as it relates to that channel, we’re not declaring victory yet,” MS. Gass said. “There’s been a lot of volatility this past year ... so we are taking a cautious approach as we look forward.”
Phasing out the Denizen brand, which is more inexpensive than other Levi products and sells at a lower margin, would allow the company to focus more on expanded product categories, including lighter-weight denim and athletic wear, according to Chief Financial and Growth Officer Harmit Singh.
“They want to make (Levi’s) more upscale,” said Rachel Wolff, an analyst at Insider Intelligence. “It’s a strategic decision as they try to move up-market and appeal to a more premium consumer.”
Sales in Levi’s total wholesale business, which accounted for about 62 per cent of its net revenue in 2022, dipped 3 per cent on a constant-currency basis in the quarter ended Nov. 26.
The layoffs are set to occur in the first half of 2024, and, coupled with more DTC-focused initiatives, would generate net cost savings of US$100-million in 2024.
“We’re in a soft demand environment and I think that’s reflected in the cost-cutting announcement,” said Mari Shor, a senior equity analyst at Columbia Threadneedle Investments. “It’s a signal they don’t feel great about the topline and are looking for other ways to cut expenses.”
Levi has about 20,000 workers globally, with roughly 5,000 corporate employees.
The company projected fiscal 2024 net revenue growth of 1 per cent to 3 per cent, compared with analysts’ estimate for a 4.7-per-cent increase to US$6.49-billion, according to LSEG data.
Levi’s expects adjusted per-share profit of US$1.15 to US$1.25, lower than estimates of US$1.33.
Salesforce Inc. (CRM-N) gained 0.3 per cent after the Wall Street Journal reported Friday it is laying off about 700 employees, or roughly 1 per cent of its global workforce in the latest round of job cuts to hit the tech industry.
However, the report added that Salesforce still has 1,000 jobs open across the company, implying that the move could be more of a routine adjusting of the company’s workforce, the report said, citing a source.
The job cuts follow a wave of U.S. tech layoffs after the industry hired heavily during the pandemic, including among behemoths such as Amazon (AMZN-Q) and Google (GOOGL-Q).
Salesforce did not respond to a Reuters request for comment on the report.
Earlier this week, eBay Inc. (EBAY-Q) announced it would cut about 1,000 roles, or an estimated 9 per cent of its current workforce, while Microsoft Corp. (MSFT-Q) said it would let go of 1,900 employees at Activision Blizzard and Xbox.
Salesforce has already trimmed its workforce last year, when it cut jobs by 10 per cent and closed some offices, after rapid pandemic hiring left it with a bloated workforce.
The workforce trimming helped the company’s earnings leading it to report a rise in second and third quarter revenue and raising its annual profit forecast.
On the decline
Intel Corp. (INTC-Q) slumped 11.9 per cent on Friday reeling from a bleak first-quarter revenue outlook as the chipmaker struggles to navigate uncertain demand in traditional computing markets and attempts to play catch up in the AI race.
Intel was set to shed about US$26-billion in market value. Its shares soared 90 per cent in 2023.
Analysts say that while plenty of businesses in the chip sector have been bullish lately, Intel becomes the exception on concerns that the company is late to the competition in data center AI.
Sales have been slowing in the PC and laptop processing chip market, which is Intel’s bread and butter, said Russ Mould, investment director at AJ Bell.
“There is a danger Intel is being left behind as chips from the likes of Nvidia and Advanced Micro Devices play an increasingly important role in the data-hungry AI industry,” Mr. Mould added.
The forecast was worse than feared, that current-quarter revenue could miss market estimates by more than US$2-billion. Adjusted profit forecast of 13 US cents a share also fell short of expectations.
Intel is not yet competitive in the market for AI-specific chips, but the company’s central processing units (CPUs) are often used in conjunction with Nvidia’s (NVDA-Q) AI chips, with a third of Intel’s server CPUs now sold as part of AI systems.
“Although Intel beat (Q4 revenue) estimates, investors’ disappointment in Intel’s Data Center GPU story’s growth can be primarily attributed to the slower-than-expected product delivery and ramp-up,” said Lucas Keh, semiconductors analyst at Third Bridge.
The gloomy forecast from one of the largest suppliers of PC chips by market share dampened hopes of the PC market recovering, sending shares of other chipmakers lower premarket.
Nvidia, Advanced Micro Devices (AMD-Q), Qualcomm (QCOM-Q) and Micron Technology (MU-Q) were also trading down.
The company’s stock trades at about 28 times its 12-month forward earnings estimates, compared with 45.08 for AMD and nearly 30 for Nvidia, Intel’s peers in the sector, according to LSEG data.
Visa Inc.’s (V-N) tepid forecast for current-quarter revenue growth on Thursday eclipsed a market-beating earnings report that was powered by customers swiping their cards for big purchases during the holiday shopping period and robust travel.
Even so, executives at Visa struck an optimistic tone over the outlook for spending across the year.
Severe winter storms that hit the U.S. have weighed on volumes at the start of the year, CFO Chris Suh said in an interview with Reuters, but added that the company is not worried about any broader impact and expects it to get smoothed out over the quarter.
“As it turns out, no one goes out in negative 10 degree weather ... Conversely, in cities where the weather has been good, there’s been no change in volume,” Mr. Suh said.
Shares of Visa, the world’s largest payments processor, were down 1.7 per cent after the company forecast an increase of “upper mid- to high single-digit” in second-quarter net revenue. The outlook compares with an 11-per-cent growth in the corresponding period in 2023.
The outlook for payments firms has been marred by worries that a slowing economy and high-interest rates will continue to pressure the wallets of consumers, particularly those in the lower-income bracket.
Edward Jones analyst Logan Purk said the results show that consumer spending remains robust, but also reveal that it is starting to slow down.
“We believe the mixed guidance and slowing transactions will likely weigh on the stock,” Mr. Purk added.
In a bright spot, U.S. consumers shrugged off macroeconomic worries to ring in a solid holiday season. Adjusted profit of US$2.41 per share sailed past analysts’ expectations of US$2.34.
Mr. Suh added that travel in key markets continued to improve, including China, where it is yet to return to pre-pandemic levels, but is seeing steady sequential recovery.
Payments volume increased 8 per cent in the first quarter on a constant-dollar basis while cross-border volume excluding intra-Europe, a gauge of international travel demand, surged 16 per cent.
Cruise operator Carnival Corp. (CCL-N) was down 3.9 per cent after it joined the growing list of companies flagging a potential hit to their operations following attacks on ships in the Red Sea by the Iran-backed Houthis.
“We believe that the instability in the Red Sea region currently impacting shipping could have an impact on our results of operations,” Carnival said in a regulatory filing.
The attacks, which the Houthis say are in support of Palestinians in Gaza, have raised the cost of shipping and insurance by disrupting a key trade route between Asia and Europe.
Military strikes by U.S. and British forces on Houthi targets in Yemen this month have failed to stop attacks on shipping by the group, which controls a large chunk of Yemen including the capital Sanaa and much of the country’s Red Sea coast by the Bab al-Mandab strait.
Carnival’s peer Royal Caribbean Group (RCL-N) said earlier in January it had canceled two voyages to avoid the Red Sea.
Swiss Italian operator MSC Cruises said last week it canceled three trips due in April from South Africa and the United Arab Emirates to Europe.
With files from staff and wires
David Leeder