A survey of North American equities heading in both directions
On the rise
Loblaw Companies (L-T) rose 1.3 per cent after topping expectations for first-quarter revenue and profit on Wednesday, aided by sustained consumer demand well as easing prices of grocery items.
Loblaw reports 9.8% quarterly profit boost, hikes dividend 15%
The food and pharmacy retailer has seen gains from steady sales of essential items such as groceries and medicines, as well as higher demand for its private labels as consumers trade down from well-known brands that are typically more expensive.
Cost cut measures and promotional strategies have also helped the company to mitigate inflationary pressures, Loblaw has said.
With food prices now coming off their peaks in Canada, analysts expect consumer spending power to grow and boost sales across products, including on discretionary items such as apparels.
The Brampton, Ont.-based company reported a 4.4-per-cent rise in its retail segment sales in the first quarter, echoing strong growth in its food and drug businesses.
Loblaw’s revenue rose 4.5 per cent to $13.58-billion from a year earlier, compared with analysts’ average estimate of $13.46-billion, according to LSEG data.
On an adjusted basis, Loblaw’s earnings per share came in at $1.72, above analysts’ average estimate of $1.70.
In a research note, Desjardins Securities analyst Chris Li said: “There is no change to our view. As expected, 1Q results reflected L’s consistent execution and strong positioning within the food and drug retailing market, supported by favourable industry tailwinds. High earnings visibility is further highlighted by management’s expectation that its full-year high-single-digit EPS growth outlook should be consistent through the quarters. This should drive L’s outperformance near-term.”
Bombardier (BBD-B-T) jumped 7.4 per cent after it said on Wednesday NetJets was the customer for the order of 12 Challenger 3500 business jets announced in December.
At list prices, the order was valued at US$326.4-million at the time of signing, but could amount to more than US$6-billion if NetJets exercises its option for all 232 jets.
Ahead of its investor day on Wednesday, Bombardier said it was on track to hit its 2025 goals, which include revenue rising to over US$9-billion.
The business jet-maker added it was a year ahead in meeting its objective of growing its services revenue to US$2-billion by 2025.
“This morning, BBD officially released new targets and material related to its investor day today. It also reaffirmed its 2025 targets, noting that it is well on track to meet its objectives, and provided additional details on how it plans to achieve them (its presentation includes an EBITDA-to-FCF bridge),” said Desjardins Securities analyst Benoit Poirier. “When combined with upcoming management commentary, this should provide investors with confidence that the US$900-million FCF target is achievable — both our estimate (US$787-million) and Street consensus (US$854-million) are currently below this threshold.”
Engineering firm Stantec Inc. (STN-T) was higher by 1 per cent after saying it has acquired Hydrock, an engineering design firm based in England.
Financial terms of the deal that closed on Tuesday were not disclosed.
Stantec says the addition of Hydrock and its 950 employees will increase its workforce in the United Kingdom by over 30 per cent.
The Canadian company says Hydrock’s project experience is focused on building design and performance, energy and sustainability, climate adaptation, and geo-environmental services.
The deal is Stantec’s third acquisition in recent months.
It recently added Markham, Ont.-based engineering firm Morrison Hershfield as well as German infrastructure firm Zetcon Engineering.
Interfor Corp. (IFP-T) gained 3.8 per cent despite announcing it plans to reduce its lumber production by approximately 175 million board feet between May and September, representing just under 10 per cent of its normal operating stance.
Citing “persistently weak” market conditions, the Burnaby, B.C.-based says the temporary curtailments will “impact all of Interfor’s operating regions, including the U.S, South, through a combination of reduced operating hours, prolonged holiday breaks, reconfigured shifting schedules and extended maintenance shut-downs.”
Canfor Corp. (CFP-T) gained 4.2 per cent after saying it has signed a deal with an affiliate of Domtar Corp. to buy its El Dorado lumber manufacturing facility in Arkansas for US$73-million.
The facility in Union County, Ark., produces dimensional lumber and specialty wood products.
Canfor says it expects production capacity at the mill to increase to 175 million board feet per year after planned upgrades.
The deal came as the forestry company reported a loss of $64.5-million or 54 cents per diluted share for the quarter ended March 31 compared with a loss of $142.0 million or $1.17 cents per diluted share a year earlier.
Sales totalled $1.38-billion for the quarter compared with $1.39-billion in the same quarter last year.
On an adjusted basis, Canfor says it lost 44 cents per diluted share in its latest quarter compared with a loss of $1.20 per diluted share in the first quarter of 2023.
Fortis Inc. (FTS-T) finished 0.6 per cent higher after saying it earned $459-million in its first quarter, up from $437-million in the same quarter last year.
The gas and electric utility company says the profit amounted to 93 cents per share for the quarter ended March 31, up from 90 cents per share a year earlier.
Revenue in the quarter totalled $3.12-billion, down from $3.32-billion in its first quarter last year.
Capital expenditures amounted to $1.13-billion in the quarter, up from $995-million a year earlier.
On an adjusted basis, Fortis says it earned 93 cents per share in its latest quarter, up from an adjusted profit of 91 cents per share in the same quarter last year.
Fortis serves utility customers in five Canadian provinces, 10 U.S. states and three Caribbean countries.
Amazon (AMZN-Q) reported quarterly results above Wall Street’s expectations after the bell on Tuesday, as interest in artificial intelligence helped drive cloud-computing growth.
CEO Andy Jassy told analysts that for Amazon “there is a big opportunity in front of us” in servicing AI customers.
Shares of the Seattle-based e-commerce and tech company climbed 2.2 per cent in Wednesday trade after its current-quarter revenue forecast came in below expectations.
Chief Financial Officer Brian Olsavsky told reporters on a call that capital spending would increase throughout the year, compared with US$14-billion in the first quarter. “That will be the low point for the year as far as capex by quarter,” he said.
“The majority of that will be to support AWS infrastructure and in particular generative AI efforts,” he said later on a call with analysts. Amazon is investing upfront to build out its AI offerings to meet customer demand, particularly as customers seek out longer-term contracts, he said.
Amazon is racing to keep abreast of rivals in offering generative AI software. Competitors include Alphabet (GOOGL-Q) as well as Microsoft-backed (MSFT-Q) OpenAI.
First-quarter sales increased 13 per cent to US$143.3-billion, higher than the US$142.5-billion average, according to LSEG data. Net income more than tripled to US$10.4-billion in the first quarter.
The company expects revenue of US$144.0-billion to US$149.0-billion for the current quarter ending June, compared with analyst consensus expectations of US$150.07-billion, according to LSEG data.
“After a year and a half of cutting cloud costs, it appears that enterprise customers are ready to move more workflows to the cloud again, which is positive not just for Amazon, but also for many software companies that sell to enterprise customers,” said D.A. Davidson analyst Gil Luria.
Amazon Web Services (AWS), the largest provider of cloud-computing services, posted a 17-per-cent rise in revenue to US$25.0-billion in the first quarter, compared with expectations of $24.53 billion.
That compares with a rise in cloud-computing revenue of 31 per cent for Microsoft and 28 per cent for Alphabet for the January-to-March period.
Amazon bucked a Big Tech trend of announcing a dividend, after rivals Alphabet and Meta Platforms (META-Q) rolled out the investor goodie. The latter two announcements were cheered by investors who pushed the stock prices higher.
Amazon and Tesla (TSLA-Q) remain the only members of the so-called Magnificent Seven tech stocks that do not offer dividends. Its shares have climbed about 15 per cent in 2024, outperforming the S&P 500′s gain of about 6 per cent.
Net income of US$10.4-billion, or 98 US cents per diluted share, compared with US$3.2-billion, or 31 US cents per diluted share in 2023′s first quarter. That beat analysts’ average EPS estimate of 83 US cents.
Pfizer (PFE-N) was up 6.1 per cent after lifted its annual profit forecast on Wednesday, and reported first-quarter results that topped Wall Street estimates on cost cuts, a smaller-than-feared drop in sales of its COVID antiviral treatment and strong sales of its pneumonia vaccine.
Sales of cancer treatment Padcev, which Pfizer gained through its US$43-billion deal for Seagen, also came in ahead of analysts’ expectations.
The Seagen deal, as well as its US$4-billion cost-cutting plan, are a key part of Pfizer’s post-COVID growth strategy. Investors have also been tracking the performance of the company’s new RSV vaccine, which has been trailing a rival shot from GSK since they both launched.
The company raised both ends of its 2024 profit forecast range by 10 US cents and now expects to earn US$2.15 to US$2.35 per share.
Seagen’s targeted cancer therapies Padcev and Adcetris brought in combined sales of $598 million in the quarter for Pfizer, however Adcetris sales fell short of analysts’ expectations.
“We believe stronger new launch performance and further progress on the pipeline will be necessary to change the current narrative on the stock,” said JP Morgan analyst Chris Schott.
Pfizer said it still expects US$8-billion in combined sales of its COVID-19 products, the vaccine Comirnaty it shares with BionTech and oral antiviral Paxlovid.
Pfizer posted an adjusted profit of 82 US cents per share, while analysts on average were expecting it to earn 52 US cents, according to LSEG data.
On the decline
Brookfield Asset Management (BAM-T) was narrowly lower on news it has joined technology giant Microsoft (MSFT-Q) to develop new wind and solar farms in an attempt to bring over 10.5 gigawatts of new renewable energy capacity.
The agreement provides a pathway for Brookfield to deliver the new renewable energy capacity between 2026 and 2030 in the U.S. and Europe, a Microsoft spokesperson told Reuters in an emailed statement.
The Financial Times first reported on the partnership, and said the 10.5 gigawatts of new capacity would cost more than US$10-billion, citing recent industry trends.
Both Brookfield and Microsoft did not disclose any financial terms of the agreement.
The deal underscores the race to meet clean energy commitments while satisfying the voracious energy demand of cloud computing and artificial intelligence.
Shares of Toronto-Dominion Bank (TD-T) lost ground after it revealed it is setting aside US$450-million to cover penalties it’s facing as a result of a lengthy U.S. regulatory and law enforcement investigation that derailed the bank’s takeover of Tennessee-based First Horizon Corp. last spring.
Last year, TD said that it anticipated fines or other penalties stemming from probes by the U.S. Department of Justice and other agencies related to its anti-money-laundering practices.
The provision announced late Tuesday – which the bank said relates to penalties by one undisclosed regulator – is the first indication Canada’s second-largest lender has provided on the impact of the investigation as its stretches into its second year.
Investors and analysts have closely watched TD’s anti-money-laundering issues, drilling into questions on the matter on quarterly earnings calls and at annual shareholder meetings. But the bank has consistently said it cannot disclose any information on its discussions with regulators.
The probe prompted TD to terminate its takeover of First Horizon, a deal that would have significantly accelerated TD’s strategy in the United States, its most strategically important market. The acquisition would have allowed TD to scoop up hundreds of retail branches and tens of billions of dollars in its biggest growth market.
- Stefanie Marotta
Cenovus Energy (CVE-T) was lower by over 1 per cent after it beat first-quarter profit estimates on Wednesday, buoyed by higher production and throughput volumes at its refineries.
Quarterly refining throughput in the quarter of 655,200 barrels per day (bpd) was a record while high operational availability at its downstream assets helped benefit from improved benchmark pricing in the U.S., the company said.
“During the first quarter of 2024, we saw strong operational performance from our oil sands and Canadian refining assets, and improved operational performance from our U.S. refining assets,” Cenovus said.
Calgary-based Cenovus said total upstream production rose nearly 3 per cent to 800,900 barrels of oil equivalent per day (boepd) in the January-March quarter from a year earlier.
Crude oil prices were range-bound during the quarter, but still remained at a level at which oil and gas companies can produce profitably.
Cenovus said WTI crude prices stood at US$76.96 per barrel in the first three months of 2024, compared with US$76.13 a year earlier.
The company reported a net income of 62 cents per share in the first quarter, beating analysts’ average estimate of 54 cents, according to LSEG data.
Higher operating margin and a gain on asset sales also helped boost earnings, the company said.
Shares of cannabis companies dipped a day after surging on an Associated Report report that he U.S. Drug Enforcement Administration will move to reclassify marijuana as a less dangerous drug, marking a historic shift to generations of American drug policy that could have wide ripple effects across the country.
On Tuesday, Canopy Growth Corp. (WEED-T) closed up 80 per cent, while Aurora Cannabis Inc. (ACB-T) and Tilray Brands Inc. (TLRY-T) rose 46 per cent and 40 per cent, respectively.
The proposal, which still must be reviewed by the White House Office of Management and Budget, would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the nation’s most dangerous drugs. However, it would not legalize marijuana outright for recreational use.
The agency’s move, confirmed to the AP on Tuesday by five people familiar with the matter who spoke on the condition of anonymity to discuss the sensitive regulatory review, clears the last significant regulatory hurdle before the agency’s biggest policy change in more than 50 years can take effect.
In a research note released before the bell, Eight Capital analyst Ty Collin called it a “transformational shift” for the industry.
“The DEA’s proposed scheduling rule will likely be followed by a public comment period and a hearing, but we are not aware of any instances in recent history where an initial rescheduling rule did not ultimately go into effect,” he said.
“We believe the final rule could be issued sometime between late-summer and Election Day. We view this as a watershed moment for the U.S. Cannabis industry, with far-reaching and potentially transformational implications. Rescheduling represents the first major shift in federal Cannabis policy since the Nixon administration, formally recognizing for the first time that Cannabis offers medical benefits, and providing a key signal about the direction of U.S. cannabis policy going forward.”
Shares of Barrick Gold Corp. (ABX-T) slid 1.6 per cent on Wednesday after it beat first-quarter profit estimates on higher bullion prices and said it has entered into an exploration partnership with Geophysx Jamaica.
Prices of the precious metal rose about 8.2 per cent to US$2,231 per ounce in the January-March quarter, on buying from central banks and hopes the U.S. Federal Reserve could cut interest rates as early as June.
The world’s second-largest gold miner said its average realized gold prices rose to US$2,075 per ounce from US$1,902 per ounce a year earlier.
All-in sustaining costs per ounce of gold, an industry metric that reflects total expenses, was US$1,474 in the quarter, up from US$1,370 per ounce a year earlier.
Rival Newmont (NGT-T) also topped profit estimates last week, as the world’s largest gold miner benefited from robust production, prices and lower operating costs.
The Toronto-based company, in a separate release, said as part of its agreement with Geophysx, Barrick will have the right to work with the private mineral exploration company to earn up to an 80% joint-venture interest in designated properties located in Jamaica.
The partnership would initially provide Barrick with access to about 4,000 square kilometres of consolidated land positions throughout the country, with a favorable geological setting comparable to the Dominican Republic, where it operates the Pueblo Viejo mine.
Barrick’s gold production fell to 940,000 ounces in the quarter, versus estimates of 947,330 ounces.
But it expects production to increase steadily through the year, with operations ramping up at its Goldrush mine in Nevada and at Pueblo Viejo, along with restarting of the Porgera mine in Papua New Guinea.
The company’s quarterly revenue of US$2.75-billion was higher than the US$2.64-billion a year ago.
It posted adjusted profit of 19 US cents per share, compared with LSEG estimates of 15 US cents.
Montreal’s CGI Inc. (GIB.A-T) was down 2 per cent after it reported a second-quarter profit of $426.9-million, up from $419.4-million a year ago.
The consulting firm says the profit amounted to $1.83 per diluted share for the quarter ended March 31, up from $1.76 per diluted share in the same quarter last year.
Revenue totalled $3.74-billion, up from $3.72-billion a year earlier.
Excluding specific items, CGI says it earned $1.97 per diluted share for its second quarter, up from $1.82 per diluted share last year.
CGI says its bookings for the quarter totalled $3.75-billion compared with $3.84-billion a year ago.
The company’s backlog stood at $26.82-billion at March 31.
Desjardins Securities analyst Jerome Dubreuil said: “CGI’s 2Q FY24 results were decent in the current environment, with a sequential decline in organic growth but robust profitability. The weaker revenue was largely telegraphed after Accenture’s (ACN) recent update although this was not fully reflected in consensus—the stock has sold off 13 per cent since ACN’s update, fully reflecting the industry weakness in our view. Global peers continue to face a difficult demand environment, with budget constraints in particular impacting the banking vertical and discretionary IT spending—the higher-for-longer mindset for interest rates does not help in that regard.”
Shares of Starbucks (SBUX-Q) fell 15.9 per cent on Wednesday to their lowest in nearly two years on Wednesday, after the coffee chain cut its annual forecasts on persistent weak demand in the United States from inflation-weary customers and a slower-than-expected recovery in China.
Several quarters of price hikes have forced customers to ditch cafes and restaurants and instead drink coffee at home, hurting business for chains such as Starbucks.
Severe cold weather in the U.S. also discouraged sales at the company’s stores, while its business in the Middle East took a hit due to the Israel-Hamas war.
“The inability to stop the traffic leakage from the early signs of pull-back in November to date and the worsening macro and competitive dynamics in China may suggest prolonged challenges and no evidence of light at the end of the tunnel,” Danilo Gargiulo, senior analyst at Bernstein, wrote in a note.
The company expects its full-year comparable sales — both globally and in the U.S. — to be in the range of a low single-digit decline to flat, compared with its previous range of 4-per-cent to 6-per-cent growth.
It also cut its per-share profit growth forecast to between flat and low-single digits, versus its earlier range of 15-per-cent to 20-per-cent growth.
“Many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent,” CEO Laxman Narasimhan said on a post-earnings call.
Starbucks’ global comparable sales fell 4 per cent for the second quarter, compared with a 1.44-per-cent rise estimated by analysts, according to LSEG data.
Shares of Advanced Micro Devices (AMD-Q) and Super Micro Computer (SMCI-Q) sank on Wednesday, sparking a selloff in chip stocks, after their earnings disappointed investors who have piled into the sector on hopes rising AI investments would boost demand.
AMD’S forecast of US$4-billion in AI chip sales for 2024 fell short of Wall Street’s lofty expectations, having been used to Nvidia’s (NVDA-Q) massive forecasts over the past year.
Super Micro Computer, whose near-200-per-cent stock jump this year has outpaced even gains in Nvidia, as its third-quarter revenue missed estimates amid questions over the profitability of a new line of servers.
Executives of both AMD and Super Micro Computer said supply constraints were hampering their efforts to capitalize on demand for equipment powering the boom in generative AI.
“Stepping back, AMD has several customers who are all trying to ramp MI300 (AI chip) very quickly. This is stressing the supply chain to a certain extent,” said analysts at TD Cowen.
“However, from a demand perspective, customer engagement is in fact increasing, not only for MI300X but its successor products.”
Other AI-linked chip firms also traded lower, with Marvell Technology (MRVL-Q), Micron Technology (MU-Q) and Nvidia down.
The stocks have widely outperformed the benchmark S&P 500 index this year and powered a 11-per-cent jump in the Philadelphia Semiconductor Index.
Kraft Heinz (KHC-Q) missed Wall Street expectations for first-quarter sales on Wednesday, as inflation-weary consumers pushed back on higher prices of its branded lunch combos, meat cold cuts and mac & cheese.
Shares were down 6 per cent even as the packaged food maker kept unchanged its fiscal year 2024 targets.
In a shift from 2023 when government benefits helped Americans expand their grocery budgets, shoppers this year are hunting for value, prompting Kraft-Heinz and peers to re-jig their products and strategies following years of price hikes.
Overall volumes for the quarter fell 3.2 percentage points, while prices rose 2.7 percentage points across Kraft-Heinz’s portfolio.
Volumes decline in its biggest North America segment eased, down 3.7 percentage points from last year’s drop of 6.5 percentage points.
Kraft Heinz is leaning on promotions to help aid a recovery in volumes across its markets but still-high inflation has hampered those efforts.
The company still expects volumes to turn positive in the back half of the year.
The Heinz ketchup maker posted net sales of US$6.41-billion in the three months ended March 30, compared with analysts’ average estimate of US$6.43-billion, according to LSEG data.
Adjusted earnings per share of 69 US cents was in line with analysts’ estimates.
The company maintained its forecasts for organic net sales growth to be flat to 2 per cent and adjusted earnings to grow in the range of 1 per cent to 3 per cent.
Estee Lauder (EL-N) lowered its annual organic sales estimate on persistent softness in Mainland China’s prestige beauty space, even as a demand rebound in the U.S. and Asia-Pacific markets drove a profit forecast raise.
Shares of the New York-based company dropped over 13 per cent on Wednesday.
Estee also beat Wall Street targets for third-quarter results, hinting at a recovery in demand for beauty and cosmetic products in the U.S. after a long bout of inflation had pressured sales of luxury items in the world’s biggest economy.
A pick-up in China demand after several quarters of weakness also underscored customer willingness to splurge on “affordable luxuries” such as fragrances and make-up products.
“Estee Lauder’s management might have taken the view it is better to be cautious now and over-deliver, than continue with high expectations and fail to sell enough products,” said Dan Coatsworth, investment analyst at AJ Bell.
The company expects annual organic sales to fall 1 per cent to 2 per cent, compared with its previous forecast for a 1-per-cent decrease to a 1-per-cent increase.
Third-quarter organic net sales in the Americas grew 1 per cent, with a 3-per-cent rise in the Asia Pacific region.
Last month, European rival L’Oreal also beat sales expectations and eased concerns about waning demand in the U.S. and China - the two biggest beauty markets.
“The sector has held better than I expected and the question really around luxury and personal luxury goods is whether 2024 will be a hard or soft landing ... so far it speaks to the narrative of a soft landing,” said Javier Gonzalez Lastra, luxury-focused portfolio manager at Tema ETFs.
Estee now expects full-year 2024 adjusted profit per share between US$2.14 and US$2.24, compared with a prior forecast of $2.08 to $2.23.
Net sales rose 5 per cent to US$3.94-billion, compared with LSEG estimates of US$3.91-billion. Adjusted profit of 97 US cents per share surpassed expectations of 49 US cents.
With files from staff and wires