A survey of North American equities heading in both directions
On the rise
Bank of Nova Scotia (BNS-T) rose 2.5 per cent on Tuesday after it reported lower fiscal third-quarter profit as it set aside more money to cover future losses on loans, with customers in Canada and Latin America feeling the strain from higher interest rates.
Scotiabank reported profit of $1.91-billion, or $1.43 per share, in the three months that ended July 31. That was down from $2.19-billion, or $1.72 per share, in the same quarter last year.
After adjusting for certain items, Scotiabank said it earned $2.19-billion, or $1.63 per share. On average, analysts expected adjusted profit of $1.62 per share, according to data from the London Stock Exchange Group.
The bank earmarked $1.05-billion of provisions for credit losses – the funds banks set aside to cover loans that could default in future – compared with $819-million in the third quarter last year.
The bank’s provisions for impaired loans, which are already past due, jumped 31 per cent higher to $970-million, as more borrowers fell behind on payments. Many of those customers were in three of Scotiabank’s key markets in Latin America: Colombia, Chile and Peru. Provisions also increased for Canadian banking clients, mostly on car loans as well as credit card balances.
The ratio of provisions to the bank’s total loan book was 55 basis points, or 0.55 per cent, which is at the high end of the bank’s guidance for the year. But the low level of provisions against performing loans that are still being repaid, at $82-million, suggests the bank expects potential losses from defaults are nearing their peak.
- James Bradshaw
Shares of Winnipeg-based Pollard Banknote Ltd .(PBL-T) soared 13.3 per cent after it announced it has signed a contract to provide a full turn-key iLottery solution for the Kansas Lottery.
“This positive development, quick on the heels of the disappointing exclusion from the Michigan iLottery RFP [request for proposal], renews our confidence in Pollard’s positioning for North American iLottery opportunities,” Canaccord Genuity analyst Robert Young said. “Once deployed, barriers to participate on RFPs that demand a North American reference customer are reduced or removed. We also highlight the decision to forgo an RFP process is strong evidence of the strength of Pollard’s lottery org relationships but also the quality and scope of its Catalyst iLottery platform.”
Eli Lilly (LLY-N) increased 0.4 per cent after it said it has begun selling vials of the smallest, starter dose of its popular weight-loss drug Zepbound in the United States for US$399 for a month on its direct-to-consumer website to try to increase supplies in the marketplace.
Zepbound is typically sold in auto-injector pens, but with vials Lilly will eliminate that step and be able to get the drug to patients more quickly.
The 2.5-milligram and 5-mg vials - the lowest doses of the drug - will cost US$399 and US$549 for a month’s supply on its website LillyDirect, the company said. It has previously said patients could get the drug in a pen through LillyDirect for as little as US$550.
Lilly said the prices were in line with its current offering and a 50-per-cent discount to the list prices of rivals, which includes Wegovy from Danish rival Novo Nordisk.
Lilly and Novo have been struggling to make enough of their obesity medications to meet soaring demand but in the last quarter, Lilly ramped up its manufacturing while Novo missed expectations. The company raised its sales forecast for the year by US$3-billion.
Lilly’s medicines are now listed as available by the U.S. Food and Drug Administration, though they are not yet off the FDA’s official shortage list where they have been most of the year.
Shares of Apple Inc. (AAPL-Q) nudged higher after it named insider Kevan Parekh as its chief financial officer, replacing company veteran Luca Maestri who will transition from the role on Jan. 1, 2025.
The leadership change comes ahead of Apple’s multiple product launch this fall season, which analysts have called the biggest software upgrade for the iPhone.
It includes artificial intelligence features, which are crucial for Apple as it looks to reverse a slowdown in global sales, particularly in China, and better compete with rivals who have rolled out AI upgrades.
Mr. Parekh, who has been with Apple for more than a decade and will join the company’s executive committee, most recently served as vice president of financial planning and analysis.
“It appears that the transition to the new CFO is planned and orderly, which is the most important question. Maestri staying on with Apple is also very important, as it removes the risk of financial questions,” D.A. Davidson analyst Gil Luria said.
“(Parekh) will need to continue the prudent capital management, but may also be tasked with restarting Apple’s exploration of complimentary acquisitions.”
Before Apple, Mr. Parekh held senior leadership roles at Thomson Reuters and General Motors.
Apple said Mr. Maestri will continue to lead the corporate services teams, including information systems and technology, information security and real estate and development, reporting to CEO Tim Cook.
Chinese e-commerce giant JD.com’s (JD-Q) U.S.-listed shares gained after its board approved a new US$5-billion share repurchase program.
JD.com, which last week beat profit forecasts for the June quarter, and rivals such as Alibaba, have been seeking to alleviate investor concerns over the sluggish Chinese retail market through major share buybacks.
This marks JD.com’s second share buyback announcement this year, after announcing a US$3-billion repurchase in March. Alibaba announced a US$25-billion share buyback in February.
Chinese consumers have been shy to spend in the face of a macroeconomic slowdown, an extended property slump and employment security concerns, prompting JD.Com to offer regular discounts and promotions.
All of China’s major e-commerce retailers have been engaged in a cut-throat competition for market share in the world’s largest e-commerce market.
News on Monday that rival PDD Holdings - which operates discount retailers Pinduoduo in China and Temu for the international market - had missed revenue expectations and was warning of an uncertain landscape wiped $55 billion from its market cap.
On the decline
Bank of Montreal (BMO-T) dropped 6.5 per cent after it reported quarterly profit below analysts’ estimates, its sixth miss in a row, hurt by weakness in its U.S. retail segment and as the lender made bigger than expected provisions for potential bad loans.
Canadian banks have sought growth south of the border expanding through acquisitions or brick by brick as opportunities in a saturated an highly regulated market at home were limited.
BMO purchased U.S. regional lender Bank of the West for $16.3-billion last year, giving it exposure to nearly 2 million customers, about 500 retail branches and commercial and wealth offices across the midwest and western United States.
But BMO and other Canadian banks that have a U.S. presence have faced many challenges in a competitive U.S. banking market, forcing them to spend more to retain deposits and boost loan growth.
Analysts also noted two independent customers, one in the U.S. and one recorded under its Capital Markets business, created roughly 9 basis points of impaired provisions for BMO.
“The weakness was widespread with all segments showing some deterioration,” TD Securities analyst Mario Mendonca said in a note. He expects loan loss provisions to remain elevated in the fourth quarter and easing in 2025 as rates fall.
BMO, Canada’s third-largest lender, said provision for credit losses jumped to $906-million in the third quarter, from $492-million a year earlier. Analysts were expecting $734-million, according to LSEG data.
Adjusted net income at its U.S. personal and commercial banking segment fell 7 per cent, while earnings from its business at home rose 3 per cent, helped by higher margins. Adjusted net income fell to $1.98-billion, a 7.8-per-cent decline from a year earlier.
BMO earned $2.64 per share, compared with analysts’ expectations of $2.76.
Super Micro Computer (SMCI-Q) slipped 2.6 per cent after short seller Hindenburg Research said on Tuesday it had a short position in the server maker, citing evidence of “accounting manipulation.”
The report pits the short seller, which has tussled with billionaire-investor Carl Icahn and India’s Gautam Adani, against the server marker that has been one of the biggest winners of the generative artificial intelligence boom.
The stock has nearly doubled in 2024, after more than tripling last year.
Hindenburg said it found evidence of undisclosed related party transactions, failure to abide by export controls, among other issues, citing an investigation that included interviews with former senior employees and litigation records.
“It (Super Micro) benefited as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition,” Hindenburg said in its report.
Close ties with chip giant Nvidia have allowed Super Micro, known for its liquid cooling technology for high-power semiconductors, to capitalize on the surge in demand for AI servers.
Though revenue has surged, margins have taken a hit recently due to the rising costs of server production and pricing pressure from rivals including Dell.
Paramount Global (PARA-Q) fell 7.2 per cent after media veteran Edgar Bronfman Jr withdrew from the race for the company, clearing the way for Skydance Media to take control of Shari Redstone’s media empire.
Mr. Bronfman, executive chairman of streaming service Fubo, told Paramount’s special committee of directors Monday night that he would not proceed with his bid.
“While there may have been differences, we believe that everyone involved in the sale process is united in the belief that Paramount’s best days are ahead,” he said.
Mr. Bronfman, the former chairman and CEO of Warner Music, had intitially offered US$4.3-billion for Shari Redstone’s National Amusements, the controlling shareholder of Paramount, according to multiple media reports. He then upped that bid to US$6-billion.
Paramount agreed last month to a merger deal with Skydance that will inject desperately needed cash into a legacy studio that has struggled to adapt to a shifting entertainment landscape.
Since then, during what’s known as a “go shop” period, a special committee of Paramount’s board had reached out to more than 50 third parties to determine whether they were interested in making offers. The go shop period was extended for Bronfman, but has now closed.
Shari Redstone’s National Amusements has owned more than three-quarters of Paramount’s Class A voting shares through the estate of her late father, Sumner Redstone. She had battled to maintain control of the company that owns CBS, which is behind blockbuster films such as Top Gun and The Godfather.
The Hershey Co. (HSY-N) sustained losses after Citi analyst Thomas Palmer downgraded its shares to a “sell” recommendation from “neutral” previously, seeing volume weakness and “stepped up” cocoa inflations represent a “looming downside risk.”
“We see a challenging year for gross margin given HSY’s recently announced pricing plans for 2025 (up mid single digits) will likely not be enough to offset cocoa inflation (especially in 1H25),” he said in a research note released before the bell. “HSY’s current volume trends have underwhelmed, in part due to continued distribution declines in measured retail channels. Price elasticity could also be particularly challenging for HSY next year (especially if chocolate competitors do not follow HSY’s lead on pricing) given other snacks categories (especially salty snacks) could be lowering prices. We appreciate 2026 earnings could be much improved, but the starting point from which HSY grows could be lower than expected.”
With files from staff and wires