A survey of North American equities heading in both directions
On the rise
Walmart Inc. (WMT-N) jumped as much as 8.4 per cent to a record high after it raised its sales and profit forecasts on Thursday for a second time this year, as Americans kept flocking to its stores for inexpensive essentials.
The world’s largest retailer by sales is among the first major U.S. chains to report quarterly results that provide insight into how consumers are feeling, particularly after the government reported an unexpected deterioration in the labor market, raising fears of a recession.
Walmart’s results suggest that despite several years of above-average inflation, consumer spending remains resilient. Inflation is now moderating, with U.S. consumer prices down in July, according to the U.S. Labor Department.
Walmart said its second-quarter sales were bolstered by strong demand for fresh food, particularly produce and high-quality meats. Customers also increased spending on personal care and beauty products, and when it came to health and wellness, they favored branded drugs over generics.
The company noted that higher-income customers, especially those earning over US$100,000 annually, significantly contributed to sales of home furniture, appliances, clothing, and toys, leading to broad market-share gains in these categories.
These affluent shoppers have been drawn to Walmart’s US$98-per-year Walmart Plus subscription, which offers benefits such as unlimited free deliveries, curbside pickup, a Paramount+ streaming subscription, and a discount of 10 US cents per gallon at its fuel stations.
The retailer reported a 16-per-cent increase in membership and other income during the quarter, which contributed to a 22-per-cent rise in U.S. online sales. Online sales were driven largely by a 50-per-cent rise in store-fulfilled deliveries, Walmart said.
“The U.S. consumer seems to be in a stable position relative to the start of this year, which is encouraging given concerns of a looming slowdown,” CFRA Research analyst Arun Sundaram said.
Walmart’s heft in grocery has largely shielded it from some broader economic pressures. The company has also strategically invested in store and merchandise upgrades, as well as services such as curbside pickup and delivery, allowing it to capture market share from competitors including Target (TGT-N).
“Walmart’s significant investments in pricing, store quality, technology, and supply chain have enabled the company to continue gaining market share, likely offsetting what we perceive as a slower-spending environment,” said Scot Ciccarelli, an analyst at Truist Securities.
Walmart forecast annual adjusted profit per share to be between US$2.35 and US$2.43, compared with its prior expectations to potentially better or be at the high end of a range of US$2.23 to US$2.37 per share.
Fiscal 2025 consolidated net sales is now forecast to grow in the range of 3.75 per cent to 4.75 per cent from a prior range of 3-per-cent to 4-per-cent growth.
The company posted second-quarter earnings of 67 US cents per share, beating analysts’ expectations for 65 US cents, according to LSEG. Its overall revenue rose 4.8 per cent to US$169.3-billion, beating Wall Street forecasts of US$168.53-billion.
Shares of Brookfield Corp. (BN-T) closed 0.5 per cent higher on Thursday after Billionaire investor William Ackman’s Pershing Square revealed a new stake in the company in a regulatory filing.
The filing shows Pershing owned roughly 6.8 million shares of Brookfield on June 30, amounting to a roughly 0.34-per-cent stake.
It also bought 3 million shares of sportswear company Nike (NKE-N), which is approximately a 0.19-per-cent ownership.
Nike’s stock has tumbled 26 per cent since January. Speculation had mounted hours before that an activist investor had taken a stake in the company and would begin pushing it to make improvements, some fund managers told Reuters.
For Mr. Ackman, who cemented his fortune by pushing companies for changes, this marks a return to a company he invested in in late 2017 and made a US$100-million profit on.
At that time, the investment was a rare passive one for Mr. Ackman, a passionate tennis player often photographed wearing the company’s shoes, shirts and wristbands. This time, Mr. Ackman has not said what his plans are for the investment.
A spokesman for Mr. Ackman declined to comment to Reuters on what Pershing Square’s intentions were at Nike and Brookfield.
The filing, a so-called 13F filing that shows what fund managers owned at the end of the previous quarter, also shows that Pershing Square cut its stake in long-time investment Chipotle Mexican Grill (CMG-N) by 23 per cent during the second quarter. On June 30, Pershing owned 28.8 million Chipotle shares.
U.S. cosmetics store chain Ulta Beauty Inc. (ULTA-Q) and aircraft parts maker Heico Corp. (HEI-N) jumped after Warren Buffett’s Berkshire Hathaway (BRK.A-N, BRK.B-N) acquired stakes in both during the second quarter, when it also significantly cut its huge stake in Apple Inc. (AAPL-Q)
Berkshire owned about 690,000 Ulta Beauty shares worth US$266.3-million and 1.04 million Heico shares worth US$185.4-million as of June 30, according to a Wednesday regulatory filing containing its U.S.-listed holdings as of that date.
Wednesday’s filing did not say whether Mr. Buffett did the buying, though his portfolio managers Todd Combs and Ted Weschler normally oversee Berkshire’s smaller stock investments.
While better known for owning Geico car insurance, the BNSF railroad and large stock holdings such as Apple, Mr. Buffett’s conglomerate has stakes in many consumer and retail businesses.
Its business portfolio includes brands such as Benjamin Moore, Dairy Queen, Duracell and Fruit of the Loom, and about US$2.5-billion of stock in grocery chain Kroger.
Ulta Beauty and Heico were among Berkshire’s few purchases in a quarter marked by a hasty retreat from stocks.
Berkshire sold US$77.2-billion of stocks during the period, including about 390 million shares of Apple, close to half its stake.
It also exited a nearly US$1-billion investment in cloud computing company Snowflake (SNOW-N) and its remaining stake in media company Paramount Global (PARA-Q).
Stock purchases totaled just US$1.6-billion.
Deere & Co. (DE-N) beat analysts’ expectations for third-quarter profit on Thursday, as stronger pricing and cost control measures protected its margins from sluggish demand for its farm equipment, sending shares of the company up.
U.S. machinery makers have succeeded in maintaining the price increases they implemented two years ago, a move that was prompted by supply chain complications and a surge in demand for industrial and agricultural equipment.
The higher prices have helped farm equipment makers to shield their profits from a slowdown in demand for new machines amid a decline in crop prices and high borrowing costs, which have also forced dealers to limit inventory restocking.
Deere maintained its 2024 net income at about US$7-billion, even as U.S. farm incomes are forecast to plunge in 2024 due to a sharp decline in commodity crop prices, heightened production costs and shrinking government support.
Third-quarter sales in the company’s production and precision agriculture segment, which includes larger farm equipment, fell 25 per cent to US$5.1-billion due to lower shipment volumes, but were partially offset by price realization.
“In response to weak market conditions, we have taken steps to reduce costs and strategically align our production with customer needs,” CEO John C. May said.
Deere said in June it would cut an unspecified number of production jobs and reduce salaried employees to keep a tight lid on costs. The company has also taken steps to manage its inventory levels.
For the third-quarter, Deere reported a net income of US$6.29 per share, compared with analysts’ average estimate of US$5.63, according to LSEG data.
Its net sales and revenue decreased 17 per cent to US$13.15-billion.
Cisco Systems (CSCO-Q) gained 6.8 per cent after it said on Wednesday it was witnessing rebounding demand for its networking equipment and announced a 7-per-cent cut in its global headcount to focus on high-growth areas such as AI and cybersecurity.
“Inventory digestion is complete and we’re now returning to a more normalized demand environment,” CEO Chuck Robbins said on an analyst call.
Cisco has been working to reduce its reliance on its massive networking equipment business, which has struggled due to supply-chain disruptions and a slowdown in post-pandemic demand. In February, it said it would cut 5 per cent of its global workforce or more than 4,000 jobs.
It announced the second round of layoffs on Wednesday, confirming a Reuters report from last week.
The San Jose, California-based company estimates it will recognize pre-tax charges of up to US$1-billion in connection with the restructuring plan, with US$700-million to US$800-million of these being recognized in the first quarter.
The layoffs allow Cisco to “maintain focus on growth areas such as software, services, AI and cybersecurity, while balancing its financial obligations and reducing the percentage of hardware in its product mix,” according to Michael Ashley Schulman, chief investment officer at Running Point Capital.
Canada’s Valeura Energy (VLE-T) jumped 6.8 per cent after it said on Thursday it has started producing oil at the Nong Yao C development in the Gulf of Thailand and plans to ramp up output in the coming weeks.
Production began on Aug. 15 from three of the seven planned development wells, it said in a statement.
The company expects to ramp up output to approximately 11,000 barrels per day (bpd) in the coming weeks and to maintain this production rate for the rest of the year. The Nong Yao development holds nearly 10 million barrels in proved crude oil reserves, according to estimates on Valeura’s website.
“Our drilling programme has successfully appraised several upside targets, which we expect will both contribute to reserves and resources when evaluated at year end, and may form the basis of future infill drilling to sustain volumes further into the future,” said Sean Guest, president and CEO of Valeura Energy.
Valeura Energy focuses on the exploration, development and production of petroleum and natural gas in Southeast Asia and Turkey.
Alibaba Group Holding (BABA-N) missed market expectations for first-quarter revenue on Thursday, as the company’s domestic e-commerce sales came under pressure from cautious spending by Chinese consumers in a faltering economy.
U.S.-listed shares of the company closed narrowly higher.
A halting economic recovery in China coupled with a persistently weak property market and high job insecurity levels have sapped consumer confidence and spending power in the world’s No. 2 economy, hitting global firms across the board.
Alibaba is also grappling with stiff competition from rivals including JD.com and discount-focused retail platforms such as PDD Holdings’ Pinduoduo and ByteDance-owned Douyin.
Alibaba reported revenue of 243.24 billion yuan (US$33.98-billion) for the quarter ended June 30, compared with analysts’ average estimate of 249.05 billion yuan, according to LSEG data.
Revenue at the firm’s domestic e-commerce arm fell 1 per cent even as the number of purchasers and their purchase frequency increased order growth by double digits.
Chinese e-commerce giants have had to resort to heavy discounting and promotions to attract shoppers, a move that is pressuring margins across the retail sector, from big players like Alibaba and JD.com to small businesses.
In June, sales at China’s blowout mid-year e-commerce sales festival fell for the first time ever according to third party estimates, despite major platforms’ efforts to dole out offers for an extended period to woo consumers.
Alibaba executives have maintained in recent quarters that increased purchasing and the introduction of new tools for merchants will increase advertising and customer management revenue to the platform in the future.
Alibaba in March 2023 announced the biggest shake-up in the company’s history, splitting into six units and sharpening its focus on its core businesses, including domestic e-commerce.
Helped by the company’s investments to expand its global presence and growing demand around the world for lower-priced goods from China, Alibaba’s international e-commerce unit saw a 32-per-cent rise in revenue to 29.3 billion yuan.
Revenue from Alibaba’s cloud segment grew 6% to 26.55 billion yuan, accelerating from the 3-per-cent growth seen in the prior quarter, thanks to an uptick in public cloud adoption and strong demand for AI-related products.
The company has moved to reduce low-margin project-based contracts and has said a scale-up in its cloud infrastructure has been helping it cut prices across its cloud products.
Net income attributable to ordinary shareholders in the quarter was 24.27 billion yuan, compared with 34.33 billion yuan a year earlier.
With files from staff and wires