A survey of North American equities heading in both directions
On the rise
Brookfield Asset Management Ltd. (BAM-T) closed narrowly higher after it raised US$93-billion for its funds last year and is predicting a busy period of dealmaking in 2024 as the prospect of declining interest rates could unlock troves of money that has been stuck on the sidelines.
The Toronto-based asset manager reported profit of US$374-million, compared with US$504-million in the previous year, and raised its dividend by 19 per cent to 38 US cents per share.
The company’s distributable earnings – a measure it uses as a proxy for cash earnings that could be paid to shareholders – was US$586-million, or 36 US cents per share. That beat analysts’ consensus estimate of 34 US cents per share, according to data from London Stock Exchange Group.
Brookfield has US$581-million of fee-related earnings, and now has US$457-billion of fee-bearing capital, which was an increase of 9 per cent from a year earlier.
The asset manager said it has US$107-billion of fund commitments that it has not yet called, as well as nearly US$3-billion of cash. That gives Brookfield considerable capacity to make new investments, even after a busy year in 2023 when the company invested more than US$55-billion.
“Market participants’ confidence in pricing in risk has increased, which has in turn improved liquidity in the capital markets,” said chief executive officer Bruce Flatt and president Connor Teskey, in a letter to shareholders on Wednesday.
“And with record levels of dry powder currently on the sidelines, we expect a very busy period of transaction activity in the next few years, and valuations for real assets should respond accordingly,” Mr. Flatt and Mr. Teskey wrote.
- James Bradshaw
Heroux-Devtek Inc. (HRX-T) jumped 10.5 per cent with the premarket release of better-than-expected third-quarter 2024 financial results.
The Montreal-based landing gear manufacturer reported adjusted earnings per share of 27 cents, exceeding the Street’s expectation by 11 cents as revenue of $164-million grew 16 per cent year-over-year. Its Commercial segment saw organic growth of 38.9 per cent alongside a gain of 2.5 per cent for its Defence business.
Chief executive Martin Brassard attributed the third-quarter results to progress in implementing its strategic initiatives, stabilizing its production system and the effect of price initiatives.
Calling the release “strong,” Desjardins Securities analyst Benoit Poirier said: “From a trading standpoint, we expect a positive reaction for HRX given the beat across the board (revenue, EBITDA, EPS) and the return to the coveted 15-per-cent margin level.”
Ford Motor Co. (F-N) shares surged 5.8 per cent on Wednesday after the automaker increased its dividend for the first quarter and decided to scale back investments in new capacity for loss-making electric vehicles (EV).
On Tuesday, the automaker disclosed its plans to return an extra 18 US cents per share in dividend on top of the regular 15 US cents to investors, joining rival General Motors (GM-N) in returning cash to investors.
The dividend payout is aimed at enhancing the firm’s payout ratio and distributing a portion of its substantial automotive cash balance, which stands at US$28.7-billion, to shareholders, David Whiston, analyst at Morningstar said in a note.
“With this much cash plus credit lines giving over $46 billion of year-end total automotive liquidity, we think Ford can handle most bad 2024 macroeconomic news without sacrificing investing for the future,” Mr. Whiston added.
The Dearborn, Michigan-based company said it was targeting US$2-billion in cost reduction, in a bid to offset expenses related to the labor contract deal reached with the United Auto Workers union.
Ford will reduce investments in new EV capacity to align with a decrease in demand, as consumers opt for hybrid vehicles and family SUVs due to price and charging concerns.
The carmaker also reported an adjusted profit of 29 US cents per share for fourth quarter ended December, beating analysts’ estimates of 14 US cents.
Shares of Ford trade about 6.81 times forward profit estimates, above rival GM’s 4.26 multiple.
Chipotle Mexican Grill (CMG-N) topped market estimates for quarterly profit and sales , helped by its relatively wealthier clientele ordering its burritos and rice bowls despite menu items getting pricier.
Shares of the California-based company were up 7 per cent in Wednesday trading.
While customer traffic dropped 1.6 per cent across the U.S. fast-food industry in the quarter, according to Placer.ai data, Chipotle has bucked the trend.
Visits to Chipotle stores rose in all three months of the quarter, the data showed. The company increased menu prices by 3 per cent in October.
“Compared to what McDonald’s reported, which was a little bit of a concern with the lower-income consumer, Chipotle is ... showing a lot of adaptability to whatever the economic circumstance of the consumer is,” Northcoast Research analyst Jim Sanderson said.
McDonald’s (MCD-N) on Monday posted its first quarterly sales miss in nearly four years and said low-income consumers in the U.S. were reducing order sizes or trading down to cheaper items.
Chipotle reported an adjusted profit of US$10.36 per share in the quarter, handily beating LSEG estimates of US$9.75 per share.
Yum! Brands Inc.’s (YUM-N) quarterly sales missed Wall Street estimates, with weaker growth for all three of its top chains, as fewer customers ordered at Taco Bell, KFC and Pizza Hut amid a choppy spending environment in the United States.
The company’s shares rose 2 per cent in Wednesday trading.
With their budgets stretched, Americans — particularly low-income households that frequent fast-food chains like KFC and McDonald’s (MCD-N) — have been increasingly cutting costs, including by switching to home-cooked meals.
Fast-food traffic worsened in the quarter, with KFC and Pizza Hut seeing declines of 4.8 per cent and 2.6 per cent, respectively, according to Placer.ai data.
Taco Bell, long viewed as the “crown jewel” of Yum’s portfolio, also saw a 3.5-per-cent drop, the data showed. UBS analysts had noted the Mexican-themed chain’s customers traded down to cheaper items in the quarter.
“For a lot of these fast-food players, what used to be $4, $5 or $6 meal has become a $10, $12, $13 meal over the past few years ... And people are starting to question that,” said Edward Jones analyst Brian Yarbrough.
Yum Brands’ total same-store sales rose 1 per cent in the fourth quarter, missing LSEG estimates for a 3.9-per-cent increase.
Uber Technologies Inc. (UBER-N) gained 0.3 per cent after forecasting quarterly core profit and gross bookings above estimates and reporting market-beating results for the holiday quarter on Wednesday, fueled by higher demand in its ride sharing and food delivery businesses.
Uber, which posted its first full-year profit on net basis, is expanding initiatives like memberships, corporate travel and advertising. Coupled with a pickup in travel, this is helping the company improve user retention.
After a drop during the COVID years, travel demand picked up last year as people stepped out more and many companies called their employees to work from offices.
Uber had said in September it was considering buybacks and dividend but did not announce a plan in its earnings statement.
“Uber’s platform advantages and disciplined investment in new growth opportunities resulted in record engagement and accelerating Gross Bookings in Q4,” Chief Financial Officer Prashanth Mahendra-Rajah said.
The company expects adjusted earnings before interest, taxes, depreciation, and amortization of US$1.26-billion to US$1.34-billion in the quarter ending March, compared with expectations of US$1.26-billion, according to LSEG data.
Uber’s gross bookings forecast of US$37-billion to US$38.5-billion came in higher than expectations of US$37.33-billion.
The outlook follows strong results in the seasonally strong October-December period. Revenue increased 15 per cent to US$9.9-billion and gross bookings rose 22 per cent to US$37.6-billion in the fourth quarter, exceeding Wall Street targets.
Its net profit nearly tripled to US$1.43-billion, thanks to a US$1-billion net pre-tax benefit from re-evaluation of the company’s equity investments.
Embattled lender New York Community Bancorp (NYCB-N) shuffled between gains and losses on Wednesday after the lender appointed a new executive chairman and said it could cut exposure to the troubled commercial real estate (CRE) segment.
Shares of NYCB were last up 6.7 per cent, following a sell-off that has eroded more than 60 per cent of their value since last week. The bank’s shares turned positive in the early afternoon after falling more than 14 per cent earlier in the session.
The bank last week posted a surprise quarterly loss due to huge provisions for loans tied to the CRE industry and cut its dividend to deal with tough regulation.
Banking veteran Alessandro DiNello, who was appointed executive chairman on Wednesday and has been on the board since NYCB bought Flagstar Bank in 2022, said the lender will, if needed, shrink its balance sheet by selling non-core assets to increase common equity tier 1 ratio, a key measure of financial strength.
Mr. DiNello also said the bank will consider the sale of loans in its CRE portfolio or allow them to run off the balance sheet naturally.
“The challenge today is not easy. But this company has a strong foundation, strong liquidity and a strong deposit base, which gives me confidence for our path forward,” Mr. DiNello said on a call with analysts.
Higher borrowing costs and low occupancies due to remote working have pressured CRE-tied borrowers, who are now at the risk of defaults, analysts have warned. Federal Reserve Chairman Jerome Powell last week shot down hopes of a March interest rate cut, saying policymakers needed to see more evidence that inflation was cooling.
“Stress in the regional banking sector has resurfaced,” said PIMCO economist Tiffany Wilding in a note to investors. “While we don’t believe these issues are likely to become systemic, they do emphasize how high rates can create an environment of increased financial stability risks.”
New York Community Bancorp is seeking to sell part of its loan book and also bring in investors that would assume part of its residential mortgage credit risk, a person familiar with the matter said. Bloomberg reported the company’s efforts to do so earlier on Wednesday.
Shares of American Healthcare REIT (AHR-N) rose 10.2 per cent to US$13.22 in their New York Stock Exchange debut on Wednesday, further underscoring a rebound in the market for new listings after a two-year lull.
The stock was listed at US$12.85 per share, above its initial public offering (IPO) price of US$12 apiece.
On Tuesday, the company raised US$672-million by selling about 56 million shares at the lower end of its targeted range.
The IPO market is looking for a turnaround in fortunes as bets of a soft landing for the U.S. economy firm up. Social media firm Reddit, cloud security company Rubrik and software startup ServiceTitan are all expected to go public in 2024.
REITs typically provide a better hedge against inflation and market volatility during times of economic turmoil.
The sector, however, was among the worst performers last year, weighed down by factors ranging from high interest rates to tepid demand for office space in an era of remote work.
American Healthcare REIT had initially planned the share sale in 2022, when the U.S. Federal Reserve’s policy tightening squeezed markets.
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On the decline
Shares of Finning International Inc. (FTT-T) dropped 9.3 per cent following the release of fourth-quarter results after the bell on Tuesday that drew a mixed reaction from the Street.
The Vancouver-based industrial equipment dealer reported adjusted earnings per share of 96 cents, up 7 per cent year-over-year but a penny below the consensus forecast. The miss came alongside adjustments stemming from a foreign exchange loss in Argentina as well as lower-than-expected margins in both Canada and the United Kingdom.
National Bank Financial analyst Maxim Sytchev called it a “weak top-line print” and believes global macroeconomic conditions are “likely to refocus attention on ‘peak earnings.”
“While one could argue that Argentina-related issues were largely idiosyncratic and outside of management’s control, lower LatAm mining sales and relatively flat global Product Support revenues suggest weakness could be more broad-based,” he said in a note. “On a regional basis, management expects Canada will continue to benefit from accelerating infrastructure spending and higher CapEx from both mining and energy clients. In South America, strong (copper-driven) mining demand and power systems demand is accompanied by stable construction activity (Argentina now is quite small and given numerous write-downs over time should be less of an issue). Within the UK & Ireland, weak GDP growth is expected to weigh on construction activity while the end of HS2 deliveries creates tough comps; that said, strong power systems and resilient Product Support revenue should mitigate this dynamic somewhat. Finning bought back another 1.250 million shares (0.9 per cent of shares outstanding) in the quarter, bringing the total to 7.2 million for the full year.”
Predicting the results won’t help Finning shares, Mr. Sytchev added: “Exactly 12 months ago we made an out-of-consensus call to step away from FTT ... hypothesizing that despite strong earnings the market will be unwilling to reward shareholders because EPS generation was getting closer to a peak. Shares have returned 7 per cent since then (vs. 2 per cent for the TSX) but our coverage was up close to 30 per cent over the same time frame. The surprisingly weak Product Support growth, ‘moderating’ growth language in outlook, potential pricing normalization when it comes to new equipment as telegraphed by OEM Caterpillar – in H2/24E, a bigger-than-expected Argentina write-down (and another $12 mln IT write-down – who knew there was more to go?) all lead to a rather lacklustre end of 2023. We do think that Finning now is a better run company, but we continue to believe that investors need a better risk / reward skew to generate a return commensurate with a risk of potential macro slowdown, uncertain Chinese copper demand due to residential market disarray and generally more cyclical revenue generation due to WTI / copper exposure.”
Algoma Steel Group Inc. (ASTL-T) declined 0.3 per cent after it reported a net loss of $84.8 million in its third quarter, compared with a net loss of $69.8 million a year earlier.
The Sault Ste. Marie, Ont.-based company says revenue totalled $615.4 million, up from $567.8 million during the same quarter last year.
Diluted losses per share were 78 cents, compared with a loss of 64 cents a year earlier.
Algoma says it has restored partial coke-making capabilities and completed necessary repairs at its blast furnace after a structure supporting utilities piping at its coke-making plant collapsed mid-January.
CEO Michael Garcia says the company aims to return to full production within the next two weeks, and that the incident is expected to weigh on fourth-quarter profitability.
Garcia says the results for the third quarter were consistent with the company’s previously disclosed outlook, noting the firm faced headwinds including the remaining impact of the United Auto Workers strike.
In a research note, Stifel analyst Ian Gillies: “Modestly negative in the near-term, but our thesis isn’t broken yet. The outage at ASTL’s steel making facility is roughly one to two weeks longer than anticipated. The balance sheet was slightly worse than modeled, but sufficient liquidity is available to complete the EAF project. It would seem that EAF is trending toward the high end of budget. F3Q24 results met expectations as they were previously released.
“Despite these issues, we continue to believe there’s significant upside for the stock as the EAF is placed into service. Moreover, if we look to CY2025E ASTL’s EV/EBITDA of 2.1 times continues to screen as a significant discount to the peer group at 5.6 times.. A successful re-rating will occur as operations return to normal and with successful start-up of the EAF.”
Fox Corp. (FOX-Q), Warner Bros. Discovery Inc. (WBD-Q) and The Walt Disney Co. (DIS-N) fell after announcing they will launch a U.S. sports streaming service later this autumn to capture younger viewers who are not tuned in to television.
The media companies will form a joint venture to create a new service from their broad portfolio of professional and collegiate sports rights, which span the National Football League, the National Basketball Association, Major League Baseball, FIFA World Cup and college competitions. The yet-to-be-named service would offer an all-in-one package of programming that would include television channels, such as ESPN, TNT and FS1, as well as sports content that is streamed. Subscribers would also have the option of subscribing to it as part of a streaming bundle from Disney+, Hulu or Max.
The platform is expected to be priced at above US$40 per month, CNBC reported on Wednesday, citing source
“This means the full suite of ESPN channels will be available to consumers alongside the sports programming of other leaders,” Disney CEO Bob Iger said in a statement.
Media analyst Michael J. Wolf of Activate Consulting said the venture will appeal to the 40 million households in the U.S. that pay for high-speed internet access, but don’t subscribe to pay TV. An all-sports digital offering also is likely to appeal to Amazon, Apple and Roku, which aggregate streaming video for millions of consumers.
“It’s a smart defensive move with potentially huge upside,” former Disney executive Bernard Gershon said. The launch will come at a time when cable television continues to lose subscribers. Live sports continue to serve a powerful audience draw, whether on television or online, as NBCUniversal’s Peacock demonstrated last month with its live streaming of the NFL’s AFC wild card playoff game, he said. Still, that audience comes at a hefty price, reportedly $110 billion for media rights for the NFL.
“Let’s figure out a way to split the costs of rights as they go up,” said Gershon, explaining the possible deal logic. “And let’s create a platform that people will go for a range of sports and capture some of the upside.”
On Wednesday morning, Fox beat analysts’ estimates for second-quarter revenue on Wednesday, helped by an increase in sports licensing on the company’s networks.
The company reported revenue of US$4.23-billion, compared with analysts’ estimates of US$4.20-billion, according to LSEG data.
“Fox Sports continues to benefit from the power of live sports programming ... while Tubi has been resilient in an increasingly competitive market,” CEO Lachlan Murdoch said.
Snap Inc. (SNAP-N) slumped 34.6 per cent on Wednesday after fourth-quarter revenue missed Wall Street expectations, with the company struggling to compete for advertising dollars against heavyweights such as Meta (META-Q) and Alphabet (GOOGL-Q).
The Snapchat owner’s results are in contrast to strong advertising sales that rivals reported, a sign that advertisers are gravitating towards larger, stable companies amid an uncertain economy.
Snap, whose shares nearly doubled last year, was on track to lose roughly US$9.2-billion in market value, based on its share price of US$11.83 on Wednesday. Rival Pinterest (PINS-N) also fell.
“Once again, Snap’s results have disappointed investors,” said Jasmine Enberg, principal analyst at Insider Intelligence, adding the company’s rebound hasn’t kept pace with the big tech titans.
Meta’s advertising sales surged 25 per cent during the holiday quarter and Alphabet’s Google ad business grew 11 per cent as ad sales from YouTube increased 16 per cent in the same period.
“Coming so soon after the stellar Meta performance, a nagging worry about the way Snap is being run has turned into a crisis of confidence,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
The company’s fourth-quarter revenue came in at US$1.36-billion, missing estimates of US$1.38-billion, according to LSEG data.
Snap said earlier this week it would lay off 10 per cent of staff, or 528 employees, in order to “invest incrementally” in the company’s growth over time.
“While the layoffs show a company unafraid to lean out ... cost per employee remains well above peer benchmarks, while ad revenue growth remains well below,” Bernstein analyst Mark Shmulik said.
Snap’s shares trade at 88.37 times expected earnings, compared with a forward PE of 22.71 for social media rival Meta and 29.47 for Pinterest.
China’s Alibaba Group Holding (BABA-N) on Wednesday missed analysts’ estimates for third-quarter revenue, hurt by softness in the retail market and sagging economic recovery in the world’s second-largest economy.
U.S.-listed shares of Alibaba fell almost 6 per cent after the company flagged an increase of US$25-billion to its share repurchase program through the end of March 2027.
Net income attributable to ordinary shareholders was 14.4 billion yuan (US$2-billion) and net income was 10.7 billion yuan (US$1.51-billion), a decrease of 77 per cent.
Alibaba announced the split of its business into six units last March in a transition overseen by CEO Eddie Wu and Chairman Joe Tsai, both Alibaba co-founders.
The company said in December that Mr. Wu, group CEO since September, would directly oversee its domestic e-commerce arm, increasing his focus on the core divisions of the company as it combats slower earnings growth and rising competition.
“Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing,” Wu said on Wednesday.
Alibaba is under pressure as consumers in China, the world’s second-largest economy, have been cutting costs in response to a stuttering post-COVID recovery, boosting low-cost domestic e-commerce players such as PDD Holdings.
New York Times (NYT-N) missed expectations for quarterly revenue on Wednesday, hurt by a slowdown in advertising sales owing partly to geopolitical events, sending its shares down..
An uncertain economy has led to advertisers reducing their marketing budgets and sticking with safe havens such as Meta , while readers also cut back on subscriptions as they try to keep a lid on costs.
Marketers have not been wanting to carry their content next to some news driven by current events including the conflict in the Middle East, the company said.
Advertising revenue fell 8.4 per cent to US$164.1-million in the fourth quarter, lower than estimates of US$177-million, per LSEG data.
“We continue to experience limited visibility in the advertising market, particularly around ongoing print declines,” finance chief William Bardeen said.
The publisher reported revenue of US$676.2-million for the quarter, missing estimates of US$679.24-million. Adjusted profit of 70 US cents per share beat expectations.
The Times’ bundling push by combining its core news reports with digital content ranging from games and sports helped drive 300,000 digital-only subscriber additions in the quarter, compared with 210,000 in the third quarter.
Agricultural commodities trader Bunge Global SA (BG-N) slid 2.4 per cent in volatile trading on Wednesday after it beat Wall Street estimates with a record fourth-quarter adjusted profit as strong oilseed processing results boosted its core agribusiness division.
The company, however, forecast a drop in adjusted profit in the year ahead due to narrowing crush margins.
The fourth-quarter earnings beat comes as Bunge is working to close a deal to acquire grain handler Viterra by midyear, a merger that would create an agribusiness powerhouse closer in size to its chief rivals Cargill and Archer-Daniels-Midland (ADM-N).
Agribusinesses make money by processing, trading and shipping crops around the world, often benefiting when crises such as droughts or war trigger shortages.
Bunge posted an adjusted profit of US$3.70 per share for the three months ended Dec. 31, up from US$3.24 per share in the same quarter a year earlier and above analysts’ average estimate of US$2.81, based on LSEG data.
It was also Bunge’s strongest fourth-quarter profit on record, LSEG data showed.
With files from staff and wires
David Leeder