A look at North American equities heading in both directions
On the rise
Bombardier Inc. (BBD.B-T) rose 3.7 per cent on news it is teaming up with General Dynamics Corp. (GD-N), a fierce rival in the manufacturing and sales of private jets, in a bid to compel the Canadian government to launch an open bidding process for a multi-billion dollar contract to replace the military’s CP-140 Aurora aircraft.
Montreal-based Bombardier is partnering with General Dynamics, one of the world’s biggest defence contractors and the maker of Gulfstream private jets, on a surveillance aircraft with submarine hunting capability, the companies said in a joint statement Thursday. Bombardier is supplying the jet, a modified version of its Global 6500, while General Dynamics supplies the so-called “mission systems,” including sonar equipment, satellite communications, and torpedos and missiles fitted under the plane’s wing.
“This is a generational opportunity,” for Bombardier to deliver a made-in-Canada solution for the government’s needs, Jean-Christophe Gallagher, the executive leading Bombardier’s defence unit, said in a statement. “[It’s] an opportunity for Canada to foster innovation, bolster its capabilities and support talent across Canada’s aerospace industry from coast to coast to coast.”
Bombardier generates most of its money selling luxury jets to billionaires and charter operators. But it also has a small defence business, consisting of specialized aircraft used by governments for intelligence, reconnaissance and other applications. The company is aiming to grow the unit significantly in the years ahead as Armed Forces budgets climb in tandem with increasing geopolitical uncertainty.
Bombardier Chief Executive Officer Eric Martel has voiced concerns over the possibility the Canadian government would shun an open bidding process and buy Boeing Co.’s P-8A Poseidon reconnaissance jets directly from the U.S. plane maker to replace the Royal Canadian Air Force’s aging CP-140 Aurora planes. “We’re not asking for charity,” Mr. Martel has said. “If we win, we win. If we lose, we lose. But at least to have a shot at it.”
- Nicolas Van Praet
Shares of Canadian Solar Inc. (CSIQ-Q) was higher by 3.8 per cent after announcing revenue guidance that exceeded the Street’s expectations.
The Guelph, Ont.-based is now projecting second-quarter revenue in a range of US$2.4-billion to US$2.6-billion versus the consensus projection of US$2.31-billion, touting “significant revenue and profit growth in the second quarter driven by both higher volume in solar module shipments and project sale.” Full-year guidance of US$9-billion to US$9.5-billion was also higher than anticipated (US$9.22-billion).
The guidance raise came with the first-quarter results with net revenue rising 36 per cent year-over-year to US$1.7-billion, matching analysts’ expectation. Earnings per share of US$1.19 blew past the 61-US-cent estimate.
Citi analyst Vikram Bagri said: “CSIQ’s 1Q23 EPS sharply exceeded our meaningfully higher than consensus EPS estimate. FY23 revenue guidance was raised by 3 per cent at the mid-point on improved confidence in the outlook. Profitability has improved primarily as unit shipping costs have receded to below pre-pandemic levels this quarter, though further shipping expense reductions are unlikely. CSIQ has not yet seen changes to orders, either positively or negatively, following release of domestic content guidance, though the company has yet to fully discuss the impact with clients. We believe the company should announce U.S. module manufacturing plans soon. CSIQ is proactively looking to maximize domestic content of each module subcomponent. Management noted supply of certain materials could improve with new suppliers pivoting into solar on domestic content demand, which aligns with our view. China IPO remains on-track to close in 2Q, but the timing has slipped somewhat from prior expectations for early May.”
Cambridge, Ont-based ATS Corp. (ATS-T) increased 6.1 per cent with the release of better-than-anticipated fourth-quarter results that displayed organic growth in backlog and revenue as well as margin improvement.
Before the bell, the maker of industrial automation systems reported revenue totalled $730.8-million, up 21 per cent year-over-year from $603.2-million in the same quarter last year and well above the Street’s projection of $687.3-million.
The company’s order backlog stood at $2.15-billion, up from $1.44-billion a year ago.
On an adjusted basis, ATS says it earned 73 cents per share, up from an adjusted profit of 60 cents per share a year earlier and topping the consensus forecast of 55 cents.
Calling it “another strong print,” National Bank Financial analyst Maxim Sytchev said: “On the back of Rockwell Automation Inc. and ABB Ltd. positive prints, we saw little risk to ATS showing a different trajectory but one, of course, still needs to execute, and we believe the company has delivered on all fronts – organic growth, margin improvement, FCF generation and constructive outlook. We are also mindful that the opportunity set will lead the company to where (excess) growth resides at the moment – EV battery assembly packs; ATS has invested in this market early, reaping the benefits (we believe marginal working capital drag is more than compensated by strong funnel here, including new clients). We continue to see ATS exhibiting a secular growth dynamic even though Healthcare is not the fastest vertical now; we believe this is a temporary dynamic due to tougher comps; EVs are, of course, extremely strong now, Food is looking good again while Nuclear is stable (we view Consumer as more prone to cyclical swings, but we saw good growth here). With generational investments going into North American / European supply chain re-localizations, there are few vehicles to play this thematic in Canada. The scarcity factor should continue to attract investors towards this name, supporting the trading multiple in the process (on top of potential M&A in the U.S. down the line).”
Heroux-Devtek Inc. (HRX-T) was up 6.4 per cent after it reported a fourth-quarter profit of $6.3-million, down from $11.5-million a year earlier as its sales climbed higher.
The maker of aircraft landing gear says the profit amounted to 18 cents per diluted share for the quarter ended March 31, down from a profit of 33 cents per diluted share a year earlier.
Sales totalled $156.0-million, up from $147.5-million in the same quarter last year.
The company says civil sales were up 28.9 per cent, boosted by increased deliveries for the Boeing 777, Embraer Praetor and Falcon 6X programs, while defence sales were relatively stable.
On an adjusted basis, Heroux-Devtek says it earned 18 cents per share, down from an adjusted profit of 38 cents per share a year earlier.
The company’s funded backlog stood at $864-million, up from $682-million a year earlier.
In a research note, Desjardins Securities analyst Benoit Poirier said: “Overall, while we view these results as a positive recovery from last quarter, there are clearly still issues plaguing operations—HRX added disclosures on the production environment being impacted by supply challenges and inflation to its economic outlook in the MD&A.”
Solar Alliance Energy Inc. (SOLR-X) rose 14.3 per cent after announcing it has signed a Letter of Intent dated to acquire a “growing, profitable” Canadian solar company in a predominantly share-based transaction.
The Toronto-based company said the target is a” growing commercial and utility solar company based in Alberta with year-to-date unaudited 2023 fiscal year (July 31, 2023, year-end) revenue of $5,801,023.”
“This acquisition is financially transformative for Solar Alliance and will drive improved top- and bottom-line results,” said CEO Myke Clark. “The acquisition target is profitable, is experiencing strong growth and is well-respected in the Alberta solar industry. The transaction is expected to significantly increase the scale of Solar Alliance, be immediately accretive to Solar Alliance, provide access to the rapidly expanding Canadian solar market and create operational synergies while positioning the Company to be cash flow positive post-transaction.”
Walmart Inc. (WMT-N) raised its annual sales and profit targets on Thursday as shoppers sought bargains on essentials such as groceries.
Shares of the top U.S. retailer by sales increased 1.3 per cent after it also reported better-than-expected results for the first quarter.
Walmart has been keeping grocery prices low to fend off competition from Target Corp. (TGT-N) and Kroger (KR-N), as Americans continue to struggle with paying high prices for food. While prices for food eaten at home fell for the second-straight month in April, they remain elevated at 7.1% above a year ago, data from the Commerce department showed last week.
With Walmart accounting for US$1 of every US$4 spent on groceries in the United States, it’s in a sweet spot.
Sales at Walmart’s U.S. stores open at least a year rose 7.4 per cent, excluding fuel, in the first quarter ended April 30, handily beating expectations of a 5.25-per-cent increase.
“We see a continuation of trade-down, certainly as consumers focus on maybe lower-price proteins or lower pack sizes, but we also see private brand penetration continue to do really well for us in the quarter,” CFO John David Rainey told Reuters.
“As consumers have less purchasing power, less buying power, we’re seeing more of their income, their wallets being devoted towards food, and less towards general merchandise.”
U.S. comparable grocery sales grew in the low double-digits in the quarter, helped by strong demand for food and increased purchases from wealthier households, the company said.
The company also saw higher demand for health and wellness products.
People also shopped more online, helping Walmart’s U.S. Ecommerce sales grow 27 per cent in the quarter. By contrast Target’s digital comparable sales fell 3.4 per cent in its most recent quarter.
On a post-earnings conference call with analysts, CEO Doug McMillon said he remained “uncertain” about the back half of the year as inflation remained “stubborn” in dry groceries and items made for immediate consumption.
Still, Walmart’s strong results are in stark contrast to smaller rival Target and Home Depot’s (HD-N) bleak forecasts, which they blamed on weak consumer demand. Walmart forecast second-quarter results above expectations.
“Walmart’s solid quarter underlines the view that the big-box retailer ... is better suited for the current economic climate than some of its industry peers, such as Home Depot and Target,” said Jesse Cohen, senior analyst at Investing.com.
“Walmart has managed to weather the current operating climate better than most of its peers.”
Walmart now expects full-year earnings per share in the range of US$6.10 to US$6.20 compared to the prior outlook of US$5.90 to US$6.05. Analysts on average were estimating a profit of US$6.16 per share, according to Refinitiv data.
The company also forecast net sales to rise about 3.5 per cent, higher than its prior outlook of 2.5 per cent to 3 per cent.
Operating income rose 17.3 per cent in the first quarter, in part due to higher contributions from its advertising, delivery and fulfillment services businesses. Walmart’s adjusted earnings per share came in at a better-than-expected US$1.47 per share. Net revenue rose 7.6 per cent to US$152.30-billion in the first quarter, beating estimates of US$148.76-billion.
Netflix Inc. (NFLX-Q) increased 9.2 per cent after its executives said late Wednesday its recently launched ad-supported tier has reached nearly 5 million active users per month in a pitch that emphasized the breadth of its programming to potential advertisers.
The streaming video pioneer launched a US$7-per-month option with commercials last November in 12 markets, including the U.S., as an alternative to ad-free plans that start at US$10 a month. It was designed to attract more customers and add a new revenue stream as competition for online viewers intensified.
On Wednesday, Netflix made its first presentation to advertisers at the annual ritual known as the upfronts, where networks aim to lock in ad commitments for upcoming shows. Walt Disney Co, Comcast Corp and other companies also are vying for digital ad dollars.
Netflix executives stressed the company’s wide range of programming, from sci-fi hit Stranger Things to Korean drama Squid Game and upcoming action movie sequel Extraction 2.
“No other entertainment company aspires to create great movies and shows across so many genres in so many countries, and for such a broad, diverse audience,” said Bela Bajaria, chief content officer for Netflix.
Jeremi Gorman, Netflix’s president of worldwide advertising, said that global monthly active users had reached 5 million. Monthly active users count all adult profiles used on one account with ads. Children’s profiles do not run commercials.
Netflix reported 232.5 million paying subscribers around the world as of the end of March.
Executives said they wanted to work with advertisers to create new types of advertising that could only be done on a digital service. For instance, a 30-minute commercial could play out over several days, with a story unfolding each time a viewer watches a show on Netflix, co-Chief Executive Ted Sarandos said.
“You can’t do that in linear TV because people don’t live on one channel,” Mr. Sarandos said.
Netflix had planned to make the ad presentation live in New York but switched to a virtual event to avoid protests from striking members of the Writers Guild of America.
Take-Two Interactive Software Inc. (TTWO-Q) beat analyst estimates for quarterly adjusted sales on strong demand from legacy titles NBA 2K and Grand Theft Auto, sending the video game publisher’s shares up 11.7 per cent.
The company also said it expects to deliver 36 video game titles through 2025 and 2026, and forecast US$8-billion in 2025 net bookings and over US$1-billion in operating cash flow.
Wedbush analyst Michael Pachter said “that’s enough to send the stock higher.”
Take-Two, however, did not make any announcements about its highly anticipated title Grand Theft Auto VI.
Its results follow an upbeat performance from peer Electronic Arts (EA-Q) and Call of Duty maker Activision Blizzard Inc. (ATVI-Q), confirming signs of the video gaming industry rebounding from a sluggish 2022 due to decades-high inflation.
Take-Two has established itself as one of the dominant players in the U.S. with strong sales from its successful video game franchises and a solid pipeline including titles like Star Wars Hunters.
Its fourth-quarter adjusted sales grew 65 per cent to US$1.39-billion, compared with Wall Street’s estimate of US$1.34-billion, according to Refinitiv data. But the company missed profit estimates, on acquisition-related charges.
During an earnings call with analysts, Chief Executive Strauss Zelnick said Take-Two was assuming a continuation of the current challenging consumer backdrop within its forecast.
Its annual adjusted revenue forecast between IUS$5.45-billion and US$5.55-billion came below Street’s estimate of US$6.07-billion.
“Additionally, the development time lines of some of our titles lengthened especially as we strive to redefine the creative standards of excellence of our industry, which affect our release slate for the year,” Mr. Zelnick added.
Cisco Systems Inc. (CSCO-Q) rose 1.2 per cent after it said on Wednesday a large backlog of products due to supply chain constraints has hit demand for new orders from customers.
Cisco’s product orders fell 23 per cent in the third quarter, even as the maker of routers, security services and software products reported a quarterly profit that beat estimates, helped by its aggressive steps to resolve supply chain bottlenecks.
But the backlog, combined with “macroeconomic conditions”, hit demand for new products, company executives said on a post-earnings conference call.
“Increase in product shipments is often leading customers and partners to absorb these shipments prior to placing new orders,” Cisco CEO Chuck Robbins said.
The company forecast modest revenue growth in 2024 and expects to end the fiscal year with roughly double of its normal product backlog.
Cisco also forecast full-year revenue to rise between 10.0 per cent and 10.5 per cent and now expects annual adjusted earnings per share between US$3.80 and US$3.82.
The company’s third-quarter adjusted earnings per share of US$1 and revenue of US$14.57-billion were both above market estimates pooled by Refinitiv.
On the decline
Canada Goose Holdings Inc. (GOOS-T) gave back early gains and suffered a steep drop of over 10 per cent after it struck a cautious note on its business in the United States as luxury spending cooled in the market, overshadowing an upbeat annual sales forecast driven by a recovery in China.
A reversal in the strict COVID-19 policies in China - a top market for luxury goods - has encouraged wealthy shoppers there to snap up everything from Cartier jewelry and Birkin bags, boosting sales at several high-end labels.
However, shoppers in the United States are putting a pause to a post-pandemic splurge on high-end clothing and accessories, with companies including ultra-luxury fashion houses like LVMH and Gucci owner Kering seeing sagging demand.
British luxury label Burberry on Thursday also noted there was a “challenge (in the U.S.) at the moment,” with sales falling 7 per cent in the Americas.
“We’re not being super ambitious for this year in the U.S...the market is going to be a little bit more challenging in the U.S. because of the macro economics,” Canada Goose Chief Financial Officer Jonathan Sinclair said on an earnings call.
Canada Goose, popular for its bright-red parkas and pricey puffer jackets, saw U.S. revenues decline 4.5% in the reported quarter.
It also forecast annual per-share profit in the range of $1.20 to $1.48, the midpoint of which was lower than estimates of $1.46 per share, according to Refinitiv data.
Still, a 65.4-per-cent surge in Asia Pacific revenue, coupled with robust demand in Europe and Canada, helped the luxury winterwear maker beat expectations in its fourth-quarter results.
Toronto-based Canada Goose said it expects fiscal 2024 revenue between $1.40-billion and $1.50-billion, while analysts were expecting $1.33-billion.
WestJet owner Onex Corp. (ONEX-T) was down 1 per cent after the airline begun cancelling flights and parking planes ahead of a possible pilot strike or lockout early on Friday morning.
Calgary-based WestJet said in a statement it is taking the measures to avoid stranding crew and passengers amid a “stalemate” in contact talks with its 1,850 pilots.
“The decision to cancel flights comes as the WestJet Group remains in a stalemate with the union regarding unreasonable wage expectations that if realized would permanently damage the financial viability of the group’s future,” the company said.
WestJet will ground the majority of its Boeing 737 and 787 fleet. Its smaller WestJet Encore and Link flights will continue, because those pilots are under a different collective agreement.
WestJet has about 168 aircraft and operates flights across Canada and into the United States and overseas. Western Canada will be most affected by any work stoppage or wave of cancellations, given that is the hearts of its operations.
Customers whose flights are cancelled are entitled to a refund or rebooking on another airline, according to the Canadian Transportation Agency. If the itinerary includes an international leg, travellers might be due compensation in the form of money, food or accommodation.
The Air Line Pilots Association is seeking better pay and working conditions for its members, who the union says are underpaid by about 40 per cent compared with the North American average.
WestJet, in a statement, called the wage demands “unreasonable” and said they would “permanently damage” the airline’s future.
- Eric Atkins
Montreal’s Lightspeed Commerce Inc. (LSPD-T) dropped 12.5 per cent after it reported a loss of US$74.5-million in its fourth quarter compared with a loss of $114.5 million in the same quarter a year earlier as its revenue rose 26 per cent.
The e-commerce company says the loss amounted to 49 US cents per diluted share for the quarter ended March 31 compared with a loss of 77 US cents per diluted share a year earlier.
Revenue in the final quarter of the company’s 2023 financial year totalled US$184.2-million, up from US$146.6-milion last year.
The increase came as subscription revenue increased to US$76.2-million compared with US$70.5-million a year earlier, while transaction-based revenue totalled US$99.6-million, up from US$66.7-million.
On an adjusted basis, Lightspeed says its loss amounted to zero cents per diluted share in its latest quarter compared with an adjusted loss of 15 US cents per diluted share a year earlier.
Analysts on average had expected an adjusted loss of 3 US cents per share and US$184.2-million in revenue, based on estimates compiled by financial markets data firm Refinitiv.
China’s Alibaba Group Holding Ltd. (BABA-N) slid 5.4 per cent after it posted a 2-per-cent rise in quarterly revenue that missed expectations and said its board has approved a spinoff of its cloud-computing business.
The company logged revenue of 208.20 billion yuan (US$30.12-billion) for the three months ended in March, compared with a Refinitiv consensus estimate of 210.3 billion yuan drawn from 26 analysts.
Chinese consumer spending has gained some momentum since the country abandoned draconian zero-COVID policies late last year, but it still remains relatively muted amid a wobbly economic recovery.
Earlier this year, Alibaba announced plans to restructure into six units, a move that followed a two-year regulatory crackdown on China’s tech sector. It expects all of its units except for its China-facing e-commerce division to seek outside funding and go public.
Alibaba on Thursday approved a full spinoff of the Cloud Intelligence Group via a stock dividend distribution to shareholders. It aims to complete the spinoff in the next 12 months.
Finance chief Toby Xu also said Alibaba’s board has approved the process to start external financing for Alibaba International Digital Commerce Business Group and initial public offering (IPO) explorations for Cainiao Smart Logistics Group and the execution of the IPO for Freshippo.
Earlier this month, Reuters reported that the company’s logistics arm aims to raise US$2-billion via a listing in Hong Kong that will likely take place early next year.
Net income attributable to ordinary shareholders was 23.52 billion yuan, compared with a loss of 16.24 billion yuan.
Alibaba has also been struggling to attract new users as China’s e-commerce sector matures and it grapples with inroads made by new competitors such as PDD Holdings and Douyin, the Chinese version of TikTok that is also owned by ByteDance.
Revenue for the full year climbed 2 per cent to 868.69 billion yuan, marking its slowest rate of growth since the company went public in 2014.
With files from staff and wires
David Leeder