A survey of North American equities heading in both directions
On the rise
Enbridge Inc. (ENB-T) saw modest gains after it said on Tuesday it will reduce its workforce by 650 jobs, or 5 per cent, in a bid to cut costs.
Enbridge operates North America’s biggest oil pipeline network, the Mainline, which moves Canadian crude from Alberta to U.S. and eastern Canadian refineries, as well as the continent’s largest natural gas utility.
In September, the company surprised investors, saying it would acquire three U.S. gas utility companies from Dominion Energy for $14-billion. Its shares tumbled to a four-year low on news of the deal as investors fretted about the company’s debt load.
Enbridge employs 12,000 people, according to its website. The Calgary-based company said the cuts will begin in February and be completed by March 1. It will reduce vacant positions, contract positions and redeploy staff where possible, Enbridge said.
“Cost-reduction measures are necessary to maintain our financial strength, be more cost-competitive and enable us to grow,” Enbridge said in a statement. “Persistent headwinds - including higher interest rates, economic uncertainty and the ripple effects of geopolitical developments - all contribute to increasingly challenging business conditions across many industries.”
Shares of Toronto-based Celestica Inc. (CLS-T) were higher by 1.6 per cent following the release of better-than-expected fourth-quarter 2023 results and guidance for the first quarter of fiscal 2024 after the bell on Monday that exceeded expectations on the Street.
The tech manufacturer saw revenue rise 5 per cent year-over-year to US$2.14-billion and adjusted EBITDA jump 19 per cent to US$161.8-million, both topping the Street’s forecast (US$2.08-billion and US$150.3-million). AdjuSted earnings per share of 76 US cents also beat analysts’ projection by 8 US cents.
For the current quarter, Celestica expects revenue of US$2.025-$2.175-billion and adjusted EPS of 67-77 US cents. Both are also ahead of estimates (US$1.98-billion and 60 US cents, respectively).
From December: Celestica stock rides another tech wave – but can it avoid a crash this time?
“CLS reported Q4/23 results and provided Q1/24 guidance that were ahead of consensus, primarily due to strength in the Enterprise segment (servers and storage). We believe this stems from AI-driven demand from hyperscalers,” said BMO analyst Thanos Moschopoulos.
Converge Technology Solutions Corp. (CTS-T) soared over 13 per cent with the announcement of better-than-expected cash flow from operations and net debt guidance for the fourth-quarter of fiscal 2023.
The Gatineau-based IT & Cloud Solutions provider expects cash flow from operations of $109-116-million for the fourth quarter and $224-231-million for full year 2023, exceeding the Street’s expectations of $23.9-million and $123.1-million, respectively. It projects a net debt reduction of $52-million year-over-year to $209.8-million in 2023.
“These results support the prospects of ongoing gains rather than the potential that the Q323 outperformance wasn’t just a one-time catchup,” said Echelon Partners analyst Rob Goff.
“We returned CTS to our Top Picks Portfolio in Q124 where the Q323 Free Cash Flow and demand (revenues and bookings) outperformance supported prospects of 2024 financial outperformance and a positive revaluation. The rapidly increasing financial flexibility is expected to improve investor confidence while supporting considerations of a more aggressive share repurchase profile and/or a return to inorganic growth in FH224.”
General Motors (GM-N) rose 7.8 per cent after it reported lower pre-tax profit for the fourth quarter but gave investors an upbeat outlook for 2024 and signaled more capital could be returned to shareholders.
“Consensus is growing that the U.S. economy, the job market and auto sales will continue to be resilient,” GM Chief Executive Mary Barra told investors in a letter.
In contrast, Tesla Chief Executive Elon Musk cautioned investors last week that the world’s most valuable automaker expected a year of slow growth, prompting a sell-off that cut the company’s market value by US$80-billion.
GM is pinning hopes on strong demand for its combustion trucks and SUVs in North America, cost-cutting and increasing sales of its new generation of electric vehicles after 2023 deliveries fell short of earlier plans. GM expects overall EV sales will rise this year to 10 per cent of the U.S. market from 7 per cent in 2023.
GM Chief Financial Officer Paul Jacobson said in a call with reporters that the automaker expects its electric vehicle operations will begin returning variable profit by the second half the year.
In a letter to shareholders, Ms. Barra highlighted the automaker’s moves to return cash to shareholders, including US$12-billion in 2023 through a US$10-billion share buyback and a 33-per-cent dividend increase.
GM will “continue to consistently return excess free cash flow to shareholders,” the company said in a presentation.
The automaker forecast adjusted pre-tax profits in a range of US$12-billion to US$14-billion this year, compared to US$12.4-billion reported for 2023. GM will hold capital spending roughly flat with the US$10.7-billion spent last year.
The 2024 forecast translates to a range between US$8.50 and US$9.50 a share compared to US$7.68 in 2023. The reduction in shares due to buybacks adds US$1.45 a share to the 2024 forecast, GM said. That will be offset by 50 US cents a share in higher taxes and interest payments.
For the fourth quarter, GM reported net income rose 5.2 per cent to US$2.1-billion on revenues of $43 billion. Adjusted pre-tax profit fell by 54 per cent to US$1.8-billion. The decrease reflected the impact of last fall’s United Auto Workers’ strikes, higher costs at Cruise and a US$1.1-billion writedown related to EV battery cells held in inventory, the company said.
Marathon Petroleum Corp. (MPC-N) beat quarterly profit estimates on Tuesday as the top U.S. refiner was aided by upbeat margins and lower costs, sending its shares up over 6 per cent.
Despite an increase in global refining capacity, supplies of fuel remain tight amid production cuts by OPEC+ countries and the ongoing war in Ukraine.
The company’s fourth-quarter revenue of US$36.82-billion topped Wall Street’s expectations of US$35.25-billion, according to LSEG data, backed by higher sales volumes.
The Gulf Coast and West Coast results are a positive surprise as Marathon had some planned and unplanned downtime there, UBS analysts said in a note.
Maintenance costs in the refining segment also fell to US$299-million, from US$442-million in the year-ago quarter.
Last week, rival Valero Energy (VLO-N) beat profit estimates on the back of resilient margins.
Marathon said crude capacity utilization was 91 per cent, resulting in a total throughput of 2.9 million barrels per day (bpd) for the reported quarter, higher than last year.
Its refining and marketing margin, however, fell 38.3 per cent, to IS$17.79 per barrel for the October to December quarter, as fuel prices scaled back from 2022 peaks.
The company reported adjusted net income of US$3.98 per share for the three months ended Dec. 31, compared with analysts’ average estimate of US$2.20 per share.
Super Micro Computer (SMCI-Q) shares hit a fresh record high on Tuesday after the artificial intelligence server maker delivered blowout quarterly results and raised its full-year revenue forecast significantly ahead of Wall Street estimates.
Supermicro’s upbeat 2024 revenue forecast, raised to US$14.3-billion to US$14.7-billion from US$10-billion to $11 billion and above analysts’ average estimate of US$11.51-billion, also lifted other AI-related companies.
Shares of Nvidia (NVDA-Q), the biggest beneficiary of the AI hype, and Microsoft (MSFT-Q) an early investor in ChatGPT-maker OpenAI, also rose Microsoft is expected to report results after market close.
At least four brokerages raised their price target on Supermicro, with Rosenblatt setting the highest target at US$700, up from US$550.
“SMCI is the Switzerland of AI,” said Rosenblatt analyst Hans Mosesmann, highlighting that the company has benefited from increased orders from new and existing customers.
Supermicro’s stock has more than tripled since May last year when CEO Charles Liang said the generative “AI momentum has benefited Super Micro greatly.”
On the decline
Concerns over a flat profit expectation for 2024 sent Metro Inc. (MRU-T) shares lower by 1.6 per cent following the release of its first-quarter 2024 results on Tuesday that saw it benefit from a strong holiday week.
“MRU’s 1Q results were solid and in line,” said Desjardins Securities analyst Chris Li in a research note. “Adjusted EPS of $1.02 was slightly ahead of our estimate and consensus of $0.99. The outperformance came mainly from higher-than-expected food same-store sales growth of 6.1 per cent vs our 5.0 per cent due to a greater-than-expected benefit from the Christmas week shift (approximately 270 basis points vs our 200bps), and slightly better gross margin (stable vs our -20bps); this was partly offset by higher-than-expected SG&A expenses from the automated DC ramp-up costs and a 1-per-cent decrease in PJC’s front-store SSSG vs our 2.0 per cent as it cycled through a strong cough and cold season last year. There is no change to management’s full-year outlook. Temporary duplication of costs and learning curve inefficiencies, as well as higher depreciation and lower capitalized interest from the ramp-up of new automated distribution centres, should weigh on profitability this year. Compared with FY23, adjusted EBITDA is expected to grow by less than 2 per cent and adjusted EPS is expected to be flat to down $0.10 (down 2 per cent) in FY24.
“We continue to believe MRU’s solid and consistent execution should make it an appealing investment for long-term investors. However, with the shares having fully recovered from the stock’s low back in November and now trading at 16.5 times forward EPS vs 15.8 times for L and 11.1 times for EMP.A, we expect limited upside and do not see a near-term catalyst until there is better earnings visibility from the end of DC ramp-up costs in the back half of the year.”
The grocery and drugstore retailer says it will pay a quarterly dividend of 33.5 cents per share, up from 30.25 cents per share.
The increased payment to shareholders came as Metro says its profit amounted to 99 cents per diluted share for the quarter ended Dec. 23 compared with a profit of $231.1-million or 97 cents per diluted share a year earlier when the company had more shares outstanding.
Sales for the 12-week period totalled $4.97-billion, up from $4.67 billion in the same quarter a year earlier that ended on Dec. 17, 2022.
It is outlook, Metro continued to say it expected significant headwinds in 2024 with the launch of its automated distribution centre in Terrebonne, Que., and the launch of the final phase of its automated fresh produce plant in Toronto next spring.
It says it expects some temporary duplication of costs and learning curve inefficiencies, as well as higher depreciation and lower capitalized interest.
The company maintained its guidance for operating income before depreciation and amortization to grow by less than two per cent and adjusted net earnings per share to be flat to down 10 cents in its 2024 financial year compared with 2023.
Copper miner Lundin Mining Corp. (LUN-T) was narrowly lower after erasing early declines following a warning its fourth-quarter revenue and earnings was expected to be negatively impacted by lower metal prices.
“Revenue in the fourth quarter 2023 is expected to be negatively impacted by decreases in metal prices for molybdenum and nickel during the quarter,” it said in a late Monday release. “The sales volume during the quarter for molybdenum and nickel was 978 tonnes and 3,105 tonnes, respectively. Downward provisional pricing adjustments on concentrate sales completed in prior quarters is expected to reduce revenue in the fourth quarter by approximately $5/lb for molybdenum and approximately $1/lb for nickel. Downward provisional pricing adjustments on concentrate sales completed in prior quarters relating to other metals are not expected to be significant.”
Ahead of the Feb. 21 release of its full results, the Vancouver-based company added: “Items of significant impact in the fourth quarter 2023 are expected to include unaudited foreign exchange and trading gains on debt and equity investments supporting the capital funding for the Josemaria Project of approximately $19 million on a pre-tax basis and unaudited realized gains on foreign exchange and diesel derivative contracts of approximately $9 million on a pre-tax basis,” it said in a late Monday release.
“In the fourth quarter 2023 the Company is also expected to recognize an unaudited non-cash unrealized gain of approximately $19 million on a pre-tax basis related to the mark-to-market valuation of the Company’s unexpired foreign exchange and diesel derivative contracts. This non-cash gain will impact the Company’s earnings but not adjusted EBITDA, adjusted earnings or adjusted earnings per share.”
Exro Techologies Inc. (EXRO-T) dropped 9 per cent with the premarket announcement of the US$300-million acquisition of Los Angeles-based automotive technology company SEA Electric Inc.
Touting their “complementary technologies driving significant synergy potential which provides a full scope solution with enhanced performance and reduced cost of ownership,” the Calgary-based company added: “This business combination is expected to strengthen Exro’s technology offerings while accelerating revenue growth and Exro’s path to profitability.”
United Parcel Service Inc. (UPS-N) fell 8.2 per ent after it said on Tuesday it would cut 12,000 jobs and explore strategic options for Coyote, its truckload freight brokerage business, after the company forecast full-year 2024 revenue below estimates.
“The small package market in the U.S., excluding Amazon is expected to grow by less than 1 per cent,” CEO Carol Tome said in a post-earnings call with analysts.
Reuters reported in October that U.S. retailers and other delivery customers were winning discounts from UPS and rival FedEx (FDX-N) as they seek to fill trucks amid shrinking demand.
UPS, seen as a bellwether for the U.S. economy, expects full-year 2024 revenue in the range of US$92-billion to US$94.5-billion, below analysts’ estimates of US$95.57-billion, according to LSEG data.
Meanwhile, customers shifting to less lucrative ground-based delivery from air-based services is also piling pressure on both UPS and FedEx.
For the fourth quarter, UPS reported a 6.9-per-cent decline in revenue from its international segment due to volume softness in Europe and 7.3-per-cent decline from its domestic segment.
The two segments accounted for about 86 per cent of the company’s revenue in 2023, and have declined for the last four and five quarters, respectively.
The company reported quarterly revenue of US$24.9-billion, down from US$27-billion a year earlier and below analysts’ estimates of US$25.43-billion.
Peer FedEx Corp. also lost ground.
JetBlue Airways (JBLU-Q) said it was evaluating deeper cost cuts after the company forecast a fall in revenue and higher costs in the first quarter as it grapples with uneven travel demand.
The airline’s shares were down 4.7 per cent in Tuesday trading.
The New York-based carrier is looking to plot its path forward after a U.S. federal judge blocked its planned US$3.8-billion acquisition of ultra-low-cost carrier Spirit Airlines (SAVE-N). While the two airlines are appealing the ruling, many analysts are now questioning the merits of the deal amid mounting concerns about Spirit’s finances.
In its earnings release, however, JetBlue did not share any update on the merger deal.
Even as travel demand remains strong, airlines in the domestic market are being forced to adjust their network to deal with wild swings in demand between peak and off-peak travel periods. Meanwhile, an excess industry capacity in the domestic market has weakened their pricing power.
Southwest Airlines (LUV-N) last week said it has cut more flights on Tuesdays and Wednesdays when passenger volumes tend to be lower.
JetBlue said it will move underperforming capacity to premium leisure and popular markets.
“Demand during peak periods remains strong, and we continue to manage our capacity during off-peak periods to reflect evolving demand trends,” Joanna Geraghty, JetBlue’s incoming CEO, said in a statement.
The company is also dealing with engine issues related to Pratt and Whitney’s Geared Turbofan engines that multiple JetBlue aircraft use.
The carrier currently has seven aircraft out of service and the number is expected to be between 13 and 15 by the end of 2024.
JetBlue expects first-quarter revenue to fall between 9 per cent and 5 per cent, while full-year revenue is expected to be flat compared with last year.
The company reported an adjusted fourth-quarter loss of 19 US cents per share compared with a loss of 28 US cents expected by analysts in a LSEG survey.
Pfizer (PFE-N) declined despite a surprise quarterly profit on Tuesday, helped by cost-cutting measures and fewer returns of its COVID treatment Paxlovid by the U.S. government than it had expected, but revenue fell short of Wall Street estimates.
Investors fled Pfizer last year as pandemic worries declined and billions of dollars in COVID-19 vaccine and treatment sales disappeared. The company has responded with a recent purchase of cancer drugmaker Seagen, a US$4-billion cost-cutting program, and internal restructuring.
The New York-based drugmaker earned 10 US cents per share on an adjusted basis for the fourth quarter. Analysts on average had expected a loss of 22 US cents per share, according to LSEG data.
Overall revenue in the quarter was US$14.25-billion, shy of Wall Street estimates of US$14.42-billion.
Jeff Jonas, portfolio manager at Gabelli Funds, said he was concerned about the company’s non-COVID performance, after revenue for products like breast cancer treatment Ibrance and the Prevnar pneumonia vaccine were lighter than expected.
“Historically I thought they had one of the best sales forces in the industry and they’ve been able to at least sell and execute on drugs pretty well, even if their R&D maybe wasn’t always the best. But there have been some challenges there recently,” Jonas said.
The company maintained its 2024 adjusted profit and sales forecasts of US$2.05 to US$2.25 per share earnings, and revenue of US$58.5-billion to US$61.5-billion.
That includes a US$3.1-billion contribution from cancer drugmaker Seagen and US$8-billion in sales from Paxlovid and COVID-19 vaccine Comirnaty, which it makes with German partner BioNTech.
With files from staff and wires
David Leeder