A survey of North American equities heading in both directions
On the rise
Canadian Imperial Bank of Commerce (CM-T) surged 5.5 per cent on Thursday after it reported a sharp jump in third-quarter profits from double-digit revenue growth and scaling back the money it’s setting aside for problem loans.
The bank also said it plans to buy back 20-million shares, or 2.1 per cent of the company, over the course of a year. At Wednesday’s closing price of $73.50, that’s nearly $1.5-billion worth of stock. CIBC’s previous buyback program, which ended in December 2022, saw the bank buy just $134-million worth of shares.
A breakdown of the big banks’ third-quarter earnings
The bank said it recorded profit of just under $1.8-billion in the quarter ended July 31, or $1.82 per share, up 25 per cent from the prior year’s quarter. Adjusted earnings, which remove certain items, were $1.93 per share, a strong beat of analysts’ consensus of $1.74, per LSEG data.
Total revenue of just over $6.6-billion was 12.9 per cent above 2023′s third quarter.
CIBC said provisions for credit losses, or money the bank sets aside to cover bad loans, were $483-million, down $253-million from the same quarter last year.
When a bank sets aside less money for future loan losses – an expense on the income statement – its earnings improve. Had CIBC provisioned the exact same amount in the third quarter as in the prior year, reported profits would still have increased by more than 8 per cent.
Banks make provisions both for loans where the borrower is making timely payments – called “performing” – and loans where the borrower has fallen behind, called “impaired.”
CIBC said it made an unfavourable change in its economic outlook in 2023′s third quarter which elevated that period’s provisions and made the year-over-year comparison more favourable.
In 2024′s third quarter, CIBC also made lower provisions in its U.S. commercial banking and wealth management divisions. That was partially offset by higher provisions in its Canadian personal and business banking, capital markets, and direct financial services divisions.
- David Milstead
Sweden’s Polestar (PSNY-Q) reported a smaller second-quarter operating loss than a year earlier on Thursday, a day after the electric vehicle (EV) maker replaced its CEO amid funding challenges and flagging sales.
The company’s U.S. shares rose as the quarterly operating loss narrowed to US$242.3-million from a revised US$273.6-million a year earlier, helped by cost actions.
The luxury carmaker has struggled like other EV startups to become profitable, hindered by delays to model launches, missed delivery goals, high costs, and weaker than expected demand.
Polestar said on Wednesday it would replace Thomas Ingenlath, who had been CEO since it was founded in 2017, with Michael Lohscheller, a former boss of Opel and EV startups.
Polestar - like rivals - needs cash as it ramps up business and aims to become profitable and breakeven on cashflow in 2025.
The company said on Thursday it had secured an extra US$300-million in funding via a one-year term loan facility from a bank in August. Cash and cash equivalents at the end of June were US$669-million, versus US$784-million at the end of March.
Polestar suffered a blow earlier in the year when one of its co-founders, Volvo Cars, said it would stop further funding. Its majority shareholder and also co-founder, China’s Geely, has said it intends to continue to support the group.
Quarterly revenue fell to US$574.9-million from a revised US$693.3-million a year earlier, but the company stuck to its forecast for a stronger second half of the year.
Cybersecurity firm CrowdStrike (CRWD-Q) rose despite cutting its revenue and profit forecasts on Wednesday in the aftermath of a July global outage due to its faulty software update, and said the environment would remain challenging for about a year.
The outage disrupted internet services, affecting 8.5 million Microsoft Windows devices and causing mass flight cancellations.
CEO George Kurtz said the incident delayed some of the company’s deals into subsequent quarters, but the majority remain “in the pipeline.”
Analysts expected the reputational hit could hurt CrowdStrike’s dominant position, but the cost of switching providers could stave off a larger effect.
CFO Burt Podbere said the company’s challenges would remain for about a year, with reacceleration in growth expected in the back half of next year.
He said annual revenue forecast would be impacted by the customer commitment package that will cost $60 million in the second half.
“The customer support package and Falcon Flex (has been around even before outage) are CrowdStrike’s moves to solidify trust and ramp up platform adoption after the July 19 outage,” said Shrenik Kothari, lead sector analyst at Baird.
CrowdStrike expects annual revenue to be between US$3.89-billion and US$3.90-billion, compared with its prior expectations of US$3.98-billion to US$4.01-billion. Analysts on average were expecting US$3.95-billion.
CrowdStrike expects annual adjusted profit per share to be between US$3.61 and US$3.65, compared with prior estimates of US$3.93 to US$4.03.
“The overall view is skies are not falling in light of the 7/19 outage,” said TD Cowen analyst Shaul Eyal, adding that the second-quarter results and guidance was “better than feared.”
Its second-quarter revenue rose about 32 per cent to US$963.9-million, beating estimates of US$958.6-million, and it reported adjusted profit per share of US$1.04, above expectations of 97 US cents.
Best Buy (BBY-N) raised its annual profit forecast after topping second-quarter earnings expectations on Thursday, as tighter controls on costs help the electronics retailer offset the impact from steeper discounts and promotions across categories.
Shares of the company were up 14.1 per cent.
Best Buy refreshed its membership program last year and trimmed jobs as part of a restructuring plan, in a bid to help margins in the midst of softer demand at its stores as shoppers deferred spending on pricier electronics.
“We see a consumer who is seeking value and sales events, and one who is also willing to spend on high-price-point products when they need to, or when there is new compelling technology,” Chief Executive Officer Corie Barry said.
The company expects adjusted earnings per share for fiscal year 2025 to be between US$6.10 and US$6.35, compared with the earlier per share forecast of US$5.75 to US$6.20.
Best Buy also reported a smaller-than-expected drop in second-quarter comparable sales, which fell 2.3 per cent compared with expectations of a drop of 3.2 per cent, according to LSEG data.
Consumers in the United States looked to upgrade their laptops and tablets during the summer after several quarters of keeping a tight lid on spending on expensive electronics.
Best Buy also benefited from demand for newer features such as Microsoft’s AI-powered Copilot+ PCs during the reported quarter.
Excluding items, it reported second-quarter earnings per share of US$1.34, beating an estimate of US$1.16.
On the decline
Chartwell Retirement Residences (CSH-UN-T) dipped 1.5 per cent following the premarket announcement of three newly built residences on Vancouver Island for $227-million.
The deal, which involves 384 suites, is expected to close in the fourth quarter and partially funded by non-core dispositions.
“In our view, these acquisitions fit squarely within the trust’s strategy of acquiring newly built assets in strong markets and recycling out of older, less productive assets,” said Desjardins Securities analyst Lorne Kalmar. “While the lease-up of the two newly built homes will impact near-term accretion from the deal, CSH has received income guarantees for both. Given the current market fundamentals and location of the assets, we do not anticipate any issues in getting the two newer properties stabilized.”
Shares of Parex Resources Inc. (PXT-T) were down nearly 24 per cent in early trading after the company cut its production guidance for the year and said its chief financial officer was leaving to pursue another opportunity.
The company, which has operations in Colombia, says the midpoint of its production guidance for its 2024 financial year is now 49,000 barrels of oil equivalent per day, down from earlier expectations for 57,000 boe/d.
The company says the lower production guidance was primarily driven by lower-than-expected results at its Arauca operations.
Parex also lowered the midpoint of its capital expenditure forecast to US$380 million from US$410 million.
The changes came as Parex said chief financial officer Sanjay Bishnoi was leaving the company, effective Sept. 20. Parex said it has appointed Cameron Grainger as interim CFO.
Nvidia (NVDA-Q) shares declined 6.4 per cent even as investors stayed confident about the chip giant’s growth prospects despite a forecast that fell short of lofty expectations.
The company’s shares were down after it forecast third-quarter gross margins that could miss market estimates and revenue that was largely in line, spurring a selloff across chip stocks including Broadcom, Advanced Micro Devices and Arm.
Nvidia has crushed Wall Street’s estimates for several quarters on surging demand for AI chips, leading investors to bank on the company’s penchant for routine blowout forecasts. The stock’s strength has been a pillar of the market’s rally through both this year and the past year - leading to what some say are ultimately insurmountable forecasts.
“They beat but this was just one of those situations where expectations were so high. I don’t know that they could have had a good enough number for people to be happy,” said JJ Kinahan, CEO of IG North America and president of online broker Tastytrade.
The forecast followed strong second-quarter earnings that topped Wall Street expectations, and the AI bellwether announced a new US$50-billion share buyback as well.
“Investors want more, more and more when it comes to Nvidia,” said Dan Coatsworth, investment analyst at AJ Bell.
“It looks like investors might not have taken the average of analyst forecasts to be the benchmark for Nvidia’s performance, instead they’ve taken the highest end of the estimate range to be the hurdle to clear.”
Analysts on average forecast second-quarter per-share profit of 64 US cents, with 71 US cents apiece being the highest estimate. Nvidia reported earnings of 68 US cents per share.
Shares of Salesforce (CRM-N) closed lower on Thursday despite investors cheering the customer relationship management software maker’s upbeat quarterly results and its artificial intelligence push to drive growth.
The company has been heavily investing to integrate its AI technologies into existing products, such as its messaging platform Slack, to enhance their capabilities and attract more customers.
“We continue to see Salesforce as an under-appreciated AI winner as its differentiated data and early success in creating/deploying GenAI agents,” Goldman Sachs analyst Kash Rangan said.
Wall Street was concerned that tempered cloud spending would affect Salesforce in a tough economy, but the software-as-a-service (SaaS) firm reported better-than-expected revenue, profit and margins in the second quarter.
Salesforce also raised its profit forecast for the year ending January 2025, as margins continue to expand, thanks to its restructuring efforts last year.
The stock is trading at 24.49 times that of Wall Street’s profit expectations, compared with 52.11 for SaaS peer ServiceNow and cloud contact center firm Five9′s 13.30.
“We think these results alone are not good enough to drive a sustainable rally from here. For that, we need more catalysts, which could come with the new AI solutions,” which are set to be showcased at its event Dreamforce and launched in October, Barclays analyst Raimo Lenschow said.
Some analysts believe that sustained growth in the coming quarters can come through customer support platform Agentforce, which is not yet commercially available.
U.S. discount retailer Dollar General (DG-N) slashed its annual sales and profit forecast on Thursday amid increased competition, with budget-conscious customers prioritizing essential purchases over higher-margin goods, sending its shares down.
The retailer, like its peer Dollar Tree (DLTR-Q), is battling stiff competition with rivals like Walmart, Target and China’s PDD Holdings’s e-commerce platform Temu offering low-priced merchandise, while facing weak demand for its home goods, seasonal items and apparel.
Both Target and Walmart raised their full-year profit forecast, benefiting from price cuts to attract increasingly price-sensitive consumers.
“Despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top-line results,” CEO Todd Vasos said, while attributing softer sales to its customer base feeling financially constrained.
The company said it was taking “decisive action” to provide more value to its customers, while also improving its in-store experience.
“It seems pretty clear that dollar store operators are losing market share to other discount retailers,” Arun Sundaram, an analyst with CFRA Research said, and added the retailer would need to cut prices and increase promotions.
Dollar General now expects fiscal 2024 same-store sales to be up 1 per cent to 1.6 per cent, compared with the prior forecast of 2-per-cent to 2.7-per-cent rise.
It also expects annual earnings per share in the range of US$5.50 to US$6.20, compared with the prior forecast of US$6.80 to US$7.55 per share.
Dollar General’s margins continued to be pressured by still-high labour costs, as well as increased markdowns, inventory damages and retail shrink, which includes losses from theft or damage.
The company posted net sales of US$10.21-billion for the quarter ended Aug. 2, compared with analysts’ average estimate of US$10.37-billion, according to LSEG data.
It also reported a profit of US$1.70 per share for the quarter, compared with analysts’ estimate of US$1.79 per share.
Birkenstock (BIRK-N) missed quarterly profit expectations on Thursday as the German sandal maker’s global expansion drive and production ramp-up compressed its margins, sending its shares down.
The company has been opening more stores in newer markets such as India and Japan amid robust demand globally and to increase sales from its own channels, where products are typically sold at full price.
Birkenstock is also building additional manufacturing capacity and ramping up existing facilities such as at Pasewalk, Germany, to ensure adequate supply of its trendy cork-based sandals and closed-toe shoes.
As a result, gross profit margin dropped 220 basis points to 59.5 per cent in the third quarter.
“They are investing for future growth and so they have introduced different factories and facilities to ramp up,” BMO Capital Markets analyst Simeon Siegel said.
He added the market dynamics suggest a play-off of a slight missed expectations due to the recent rally in shares and not the health of the brand.
The company’s shares have gained 24 per cent so far this year.
Birkenstock posted an adjusted profit of 0.49 euro per share in the third quarter, missing LSEG estimates of 0.52 euro.
The company’s revenue rose 15 per cent in the Americas, while it increased 19 per cent in Europe. Still, revenue growth eased from the second quarter, signaling some level of caution among consumers.
Birkenstock has increased its market share at retailers such as Nordstrom and Foot Locker, as the companies stock up their shelves with top-performing and favorite brands including Roger Federer-backed On and Deckers’ Hoka.
The company maintained its annual sales and core profit forecasts.
With files from staff and wires