A survey of North American equities heading in both directions
On the rise
Pipeline operator Enbridge Inc. (ENB-T) gained 0.2 per cent after it raised its short-term profit growth forecast on Wednesday and said it will invest about US$500-million in expanding its pipeline and storage assets to improve its U.S. Gulf Coast presence.
Enbridge, which operates North America’s biggest oil pipeline network, the Mainline, said it will acquire two marine docks and land from Flint Hills Resources for about US$200-million.
The assets are next to Enbridge Ingleside Energy Center, the largest crude oil storage and export terminal by volume in the United States.
The company will invest another US$100-million on the expansion of its Gray Oak Pipeline, a 850-mile crude oil pipeline that connects to some market centers in Texas.
Enbridge sanctioned about US$200-million of offshore pipelines to service Shell and Equinor’s planned offshore oil and gas project Sparta in the Gulf of Mexico.
The investment plans come over a month after Enbridge said it will reduce its workforce by 650 jobs, or 5%, in a bid to cut costs.
The Calgary-based firm raised its near-term core profit growth forecast to between 7 per cent and 9 per cent through 2026, saying the increase is primarily driven by the acquisitions, announced in September and expected to close in 2024.
In September, the company said it would acquire three U.S. gas utility companies from Dominion Energy for US$14-billion.
Calian Group Ltd. (CGY-T) was higher by 2.3 per cent after a late Tuesday announcement of the acquisition of assets associated with MDA Ltd.’s (MDA-T) nuclear services.
“While the size of this acquisition is not overly material (contribution represents only 3.5 per cent of CGY’s TTM [trailing 12-month] EBITDA), we believe CGY could scale the business up (see early success of the HPT acquisition),” said Desjardins Securities analyst Benoit Poirier, who raised his target for Calian shares. “Combined with Decisive, this latest deal means CGY has already executed on more than 25 per cent of its three-year M&A EBITDA target ($36–43-million) released at its investor day.”
Mr. Poirier said the deal, announced Tuesday after the bell, clearly strengthens Calian’s nuclear capability and thinks an “attractive” multiple was paid.
“MDA has expertise in refurbishments and operational support, which is complementary to CGY’s consulting expertise,” he said. “MDA’s assets come with a specialized team of engineers providing system engineering and operations support for nuclear outage tooling and refurbishment projects (CGY has locked in MDA’s key employees). MDA’s nuclear team will be integrated into CGY’s existing nuclear business within the AT [Advanced Technologies] segment. The acquisition will close immediately.
“Subsequent to a follow-up with management, we understand that historically the business generates $2.5-million of annual EBITDA from $8.0-million of annual revenue, which implies an attractive margin of 31 per cent (vs CGY at 10–11 per cent). When considering closing costs, CGY paid $8.0-million for the asset carve-out, which implies an attractive multiple paid of 3.2 times EBITDA (vs CGY trading at 8.2 times).”
Aecon Group Inc. (ARE-T) surged almost 12 per cent with the release of fourth-quarter and full-year financial results, calling 2023 “transformational” and raising its quarterly dividend by 2.7 per cent (to 19 cents per share).
The Toronto-based company reported adjusted EBITDA for the final quarter of the fiscal year of $70.2-million, exceeding the Street’s forecast of $62.9-million. The beat was driven by gains in its Construction segment, which saw a 13.0-per-cent gain year-over-year.
“Results were better than expected, highlighted by Adjusted EBITDA of $65-million in Construction (ATB estimate: $55.1-million) despite recognizing an additional $40-million reforecast loss on two legacy LRT projects, a book-to-bill of 1.0 times and a $0.13 one-time charge for costs tied to the Oaktree preferreds placement,” said ATB Capital Markets analyst Chris Murray. “Adjusted EBITDA of $19.7-million in Concessions also exceeded ATBe, reflecting improving results at the Bermuda Airport. Management reiterated the strength of the demand environment in core sectors and announced a small increase in the quarterly dividend. ... While ARE reported better-than-expected results, legacy projects impacted the quarter again, which we expect to weigh on sentiment following a period of strength in the share price.”
Canfor Corp. (CFP-T) finished up 2.2 per cent after its fourth-quarter results missed expectations as lumber market conditions to continue weigh.
After the bell on Tuesday, it reported adjusted EBITDA of a loss of $89.1-million, which included an inventory write-down. The Street’s expectation was a $19-million loss.
“We expect Canfor to underperform its peers [Wednesday] on weaker-than-expected results, including after making adjustments for inventory write-down recoveries and a duty expense well above our expectations,” said RBC analyst Matthew McKellar. “We also expect investors could be cautious on commentary related to a challenging environment for accessing economically viable fiber in B.C.”
He added: “Management expects global lumber market conditions to remain under pressure in Q124 from affordability challenges, despite recent declines in mortgage rates in the U.S.. However, it expects operational disruptions, driven by geopolitical tensions as well as fiber and market-related curtailments, especially in Western Canada, will help reduce inventories to more normalized levels. It expects R&R demand to remain relatively steady in Q124, but decline slightly from the levels experienced in 2023. Management expects signs of modest improvement in lumber demand in China and Japan in Q124, as benefits of various government stimulus measures are realized and inventories return to more normalized levels. It expects European lumber markets and pricing to show upward momentum later in Q124, as lumber supply constraints in the region, tied in part to reduced log availability and increasing log costs, should overshadow the ongoing impact of low levels of European residential construction activity. Management highlighted that there remains significant uncertainty around the availability of economically viable fiber in B.C., and noted that it anticipates sustained log cost pressures and persistent constraints accessing fiber in B.C. for its sawmills and pulp mills; as such, it will adjust operating rates in B.C. to align with demand and economically viable timber supply.”
U.S.-listed shares of China’s JD.com (JD-Q) advanced after the e-commerce group reported fourth-quarter revenue above estimates and upsized its share repurchase program.
In the final three months of 2023, in which the largest annual Chinese shopping festival “Singles Day” was held, aggressive price cuts helped revive demand from consumers grappling with an uncertain economy.
China’s shaky economic growth, high youth unemployment and lower wages for office workers have led to consumers tightening their purse strings, driving retailers like JD.com to offer heavy discounts to support sales.
Chief executive Sandy Xu Ran said the company would establish an international presence with a focus on supply chain.
“Given that our business model and advantages are distinct from other platforms, our approach to global expansion will likewise be different,” said told analysts on an earnings call.
“Supply chain is the cornerstone of our international business development, and we will continue to expand our capabilities on the global market.”
The company last month said it was considering acquiring UK electronics retailer Currys, with analysts saying that underscored JD.com’s efforts to expand its overseas presence as a counterweight to weak demand and cut-throat competition in the China market.
JD.com reported quarterly net revenue of 306.1 billion yuan (US$42.52-billion), compared with analysts’ average estimate of 300.04 billion yuan, according to LSEG data.
New York Community Bancorp (NYCB-N) jumped 7.5 per cent after it said on Wednesday it had raised US$1-billion from investors including former U.S. Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital and named a former Comptroller of the Currency its new CEO.
Investment firms Hudson Bay Capital, Reverence Capital Partners, Citadel Global Equities, other institutional investors and certain members of the bank’s management also participated in the investment, according to NYCB.
The lender has been under pressure since it posted a surprise fourth-quarter loss on Jan. 31, weighed down by higher provisions tied to its exposure to the beleaguered commercial real estate (CRE) sector.
It slashed its quarterly dividend by 70 per cent to bolster capital to deal with stricter regulation that banks with assets of US$100-billion and above are subjected to. NYCB’s acquisition of Flagstar Bank in 2022 and Signature Bank assets last year pushed it above that threshold.
“In evaluating this investment, we were mindful of the bank’s credit risk profile,” Mr. Mnuchin said in a statement.
“With the over US$1-billion of capital invested in the bank, we believe we now have sufficient capital should reserves need to be increased in the future to be consistent with or above the coverage ratio of NYCB’s large bank peers.”
CrowdStrike Holdings Inc. (CRWD-Q) closed almost 11 per cent higher on Wednesday, sparking a rally in cybersecurity stocks, after the company’s upbeat annual forecasts signaled healthy demand for platforms that act as one-stop shops for security.
Businesses have preferred consolidated platforms as a means to optimize spending and make operations more efficient at a time when cybersecurity threats became more sophisticated with the rise of generative AI.
The results also offered some respite to investors after sector heavyweight Palo Alto Networks (PANW-Q) cut its forecast last month due to softer client spending and steep promotions.
“CrowdStrike needed to deliver at or close to perfection. The company did just that,” BTIG analyst Gray Powell said.
CrowdStrike’s market value jumped to about US$79-billion, bringing it closer to the most valuable U.S. cybersecurity firm, Palo Alto Networks, which has a market value of about US$90-billion.
“This (CrowdStrike) does feel like the next mega-cap company and the first to truly separate itself from the rest of the younger enterprise software companies,” said investor Ophir Gottlieb, CEO of Capital Market Laboratories.
Shares of Palo Alto and other cybersecurity firms such as ZScaler (ZS-Q), Fortinet (FTNT-Q) and SentinelOne (S-N) also rose.
CrowdStrike forecast its annual adjusted profit to be between US$3.77 and US$3.97 per share and revenue in the range of US$3.92-billion to US$3.99-billion, both of which were above Wall Street estimates.
On the decline
Nuvei Corp. (NVEI-T) declined over 10 per cent after saying it earned US$14.1 million in the fourth quarter, up from US$9.4 million a year earlier.
The Montreal-based payment technology company reported revenue for the quarter ended Dec. 31 was US$321.5-million, up from US$220.3-million during the same quarter in 2022.
Earnings per diluted share were 8 US cents, up from 6 US cents a year earlier.
The company reported a loss for the full financial year of US$696,000, down from earnings of US$62-million in 2022.
In 2023, revenues rose to US$1.2-billion from US$843.3-million in 2022.
Nuvei says it’s taking a prudent approach in 2024, weighing optimism for its business against macro uncertainties.
Nordstrom (JWN-N) forecast annual results largely below Wall Street expectations on Tuesday, signaling a slower-than-expected rebound in demand even as consumers see some relief from easing inflationary pressures, sending shares down over 16 per cent.
The company joins Macy’s (M-N) in signaling weak 2024 sales as retailers brace for another year where spending on non-essential items such as apparel and household equipment is likely to remain pressured.
“We continue to see a cautious consumer that is mindful of discretionary purchases in light of inflation, higher interest rates,” Nordstrom CFO Cathy Smith said.
The company expects 2024 revenue to be between down 2 per cent and up 1 per cent, compared to LSEG estimates of a 0.04-per-cent rise.
Nordstrom forecast annual profit per share in a range of US$1.65 to US$2.05, while analysts had expected US$1.98. The company expects first-quarter results to be near break-even to a slight loss.
“The outlook is disappointing ... Nordstrom really just hasn’t recovered that well from the pandemic,” Morningstar analyst David Swartz said.
Shares of Campbell Soup Co. (CPB-N) were down after it edged past market estimates for quarterly sales and profit on Wednesday and stuck to its annual forecasts, helped by steady demand for branded, ready-to-eat meals and strength in its food service business.
Prices across Campbell’s products rose 1 per cent, while overall volumes dipped 2 per cent during the reported quarter, as holiday promotions encouraged shoppers to indulge in its Goldfish crackers and Pepperidge Farm cookies.
The pace of price increases has slowed from last year’s mid-double-digit rise, as most food companies try to limit pricing to cope with subdued demand.
Packaged foods peers Kraft Heinz, Mondelez, McCormick, Hershey and PepsiCo have all flagged softer volume growth in their latest quarterly results.
Still, benefits from prior price hikes and easing supply chains helped Campbell’s gross profit margin climb 31.6 per cent, from last year’s 30.5 per cent.
Net sales in its Meals & Beverages segment - Campbell’s biggest revenue churner - declined 2 per cent, owing to weaker demand for retail products in the U.S., including ready-to-serve and condensed soups as well as Pace Mexican sauces. Sales in the Snacks division were flat in the quarter.
The company, which is set to close its buyout of Rao’s sauce maker Sovos Brands next week, posted second-quarter net sales of US$2.46-billion, slightly above analysts’ average estimate of US$2.44-billion, according to LSEG data.
It logged adjusted earnings of 80 US cents per share, better than the 77 US cents analysts were expecting.
The New Jersey-based firm reaffirmed its fiscal-year 2024 target for net sales and earnings for the second time in a row.
Abercrombie & Fitch Co. (ANF-N) was down on Wednesday despite forecasting full-year revenue growth above Wall Street estimates, as the company bets on strong full-price demand for its apparel brands on the back of a robust holiday shopping season.
Apparel retailers such as Abercrombie and Vancouver-based Lululemon Athletica (LULU-Q) have benefited from their efforts to trim inventories and introduce fresh styles on their racks during the holiday shopping season.
This also enabled Abercrombie to tone down discounts for its brands over the holiday period, which is typically skewed towards higher markdowns and promotions.
Net sales growth at its Abercrombie brand improved sequentially to 35 per cent in the holiday quarter, from 30 per cent in the third-quarter.
However, net sales growth for its Hollister brand was 9 per cent, slower than the 11 per cent reported in the prior quarter.
In January, Abercrombie joined Lululemon, and peer American Eagle Outfitter (AEO-N) in raising its fourth-quarter sales targets, in a move that pointed towards resilience among bargain-hunting customers.
The Gilly Hicks parent expects net sales growth between 4 per cent to 6 per cent for fiscal year 2024, compared with the LSEG estimate of 4-cer-cent growth to $4.43 billion.
Excluding items, the Ohio-based company earned US$2.97 per share, ahead of estimates of US$2.83 per share.
Jack Daniel’s maker Brown-Forman (BF.B-N) cut organic net sales forecast for fiscal 2024 on Wednesday, a sign that higher prices are weighing on the demand for its whiskey and spirits, sending its shares down.
Higher input costs of raw materials such as agave — a key input for tequila — wood and glass have forced most alcoholic beverage makers to raise product prices in the previous years to shield their margin.
Increased prices, however, prompted cost-conscious consumers to look for cheaper alternatives in the face of sticky inflation, hurting demand for Brown-Forman’s spirits and premium whiskey brands.
The company said it saw lower volumes for its whiskey business, which includes Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey, so far in the fiscal year 2024.
Brown-Forman forecasts annual organic net sales to be flat, compared with its prior range of 3-per-cent to 5-per-cent growth.
The company posted net sales of US$1.07-billion for the quarter ended Jan. 31, compared with analysts’ average estimate of US$1.12-billion, according to LSEG data.
With files from staff and wires
David Leeder