A survey of North American equities heading in both directions
On the rise
Shares of Metro Inc. (MRU-T) turned higher in afternoon trading and closed up over 0.9 per cent after it reported sales growth and a slight decline in profits in its fourth quarter as the company completed investments in its supply chain.
The Montreal-based retailer, which owns grocery banners Metro, Food Basics and Super C, as well as the Jean Coutu drugstore chain, reported that sales grew across its store network in the quarter ended Sept. 28. Same-store sales – an important metric that tracks sales growth not caused by new store openings – grew by 2.2 per cent at Metro’s grocery stores, and by 5.7 per cent at its pharmacies.
Metro executives had previously said that higher-than-usual expenses related to investments in its supply chain would weigh on net earnings this fiscal year. That has included transitions to new automated distribution centres in Quebec and Ontario, which are now complete.
On Wednesday, the company reported net earnings fell by 1 per cent to $219.9-million in the quarter ended Sept. 28. Earnings per share grew slightly to 98 cents per share in the quarter, compared with 96 cents per share in the same period the previous year, when the company had more shares outstanding.
Grocery prices have continued to be a pain point for many Canadians’ budgets. While food inflation has slowed compared to the double-digit increases seen in 2022 and 2023, consumers are still facing significantly higher prices than they were just a couple of years ago. And in recent months, grocery prices have been rising faster than overall inflation. On Tuesday, Statistics Canada reported the price of food bought in stores rose by 2.7 per cent in October, compared with the same month one year ago. That was higher than the growth in the Consumer Price Index, which was up 2 per cent.
Metro reported on Wednesday that its own internal measure of food basket inflation was higher than Statistics Canada’s CPI measure, which was 1.7 per cent during the quarter. The company’s internal metric is metric is based on prices for a basket of goods frequently purchased at its stores, and is not directly comparable with CPI. Last week, competitor Loblaw Cos. Ltd. also reported its internal food inflation measures were higher than CPI in its third quarter, which ended Oct. 5.
Overall, Metro reported its sales fell 2.6 per cent in the fourth quarter because of a calendar issue: this year’s quarter spanned a 12-week period, while the same quarter in the previous year included 13 weeks. Total sales were $4.9-billion, growing by 5.7 per cent when compared to a similar 12-week period. The growth came both from higher sales at the company’s stores, as well as the fact that it compared to a period in the previous year when Metro faced lost profits and added costs from a five-week strike that shuttered 27 stores in Ontario.
Online sales grew by 27.6 per cent, when compared on a 12-week basis with the prior year.
In a research note, Desjardins Securities analyst Chris Li said: “MRU reported adjusted EPS of $1.01 vs our estimate and consensus of $0.99. The outperformance mainly came from a slightly lower-than-expected tax rate and interest expense. Food SSSG of 2.2 per cent was largely in line while pharmacy SSSG of 5.7 per cent was ahead of our 4.9-per-cent estimate, with outperformance from prescription drugs (6.8 per cent vs our 6.0-per-cent estimate). Lower-than-expected gross margin was offset by lower SG&A expenses, resulting in largely in-line EBITDA of $460-million. As MRU begins to lap significant investments in its supply chain modernization, the focus shifts to realizing efficiency gains and improving service to its store network. The company expects to gradually resume profit growth in FY25. Management is maintaining its publicly disclosed annual growth target for adjusted EPS of 8–10% over the medium and long term vs consensus expectations of 10–11 per cent for FY25. MRU is also taking advantage of its strong balance sheet (2.2 times net debt/EBITDA) and increasing its NCIB to up to 10m shares (vs previous NCIB of 7m shares).”
- Susan Krashinsky Robertson
Dye & Durham Ltd. (DND-T) is putting a sale of the company on hold after a pair of institutional shareholders told its representatives they wouldn’t vote in favour of conditional deals on the table, a source familiar with the situation said.
The Toronto legal software company announced early Wednesday it was pausing the “well-advanced process” after receiving “significant inbound interest” from multiple bidders “at attractive premiums to the market price of its shares.” D&D stock closed up 13 per cent Tuesday to $17.99 and saw further gains on Wednesday after the the Australian Financial review reported one of the bidders was Melbourne-based PEXA Group Ltd. D&D and Pexa both declined to comment.
The company blamed an activist campaign led by dissident shareholder Engine Capital LP as well as feedback to the process from a select group of its shareholders. Engine, which has 7.1 per cent of the stock, is proposing a six-person slate at the Dec. 17 board of directors, to counter a slate of mostly new directors proposed by D&D for the seven spots on its board. If Engine prevails it could lead to the departure of CEO Matt Proud, the hedge fund has intimated in recent statements.
The source said D&D received four conditional takeover bids, all in the low to mid $20s range, in the second round of a process being handled by investment bank Goldman Sachs. One of the bids came from Pexa while three came from North American private equity firms, the source said.
But when company representatives approached two of D&D’s largest shareholders, Mawer Investment Management and EdgePoint Wealth Management to gauge whether they would agree to bids in the $20s – which included the prospect of rolling some of their shares over in a transaction – they came away feeling the company wouldn’t necessarily get their support for a deal. Mawer portfolio manager Samir Taghiyev confirmed in an interview that he told Mr. Proud in recent weeks that he felt the company was potentially worth more, adding that he wasn’t briefed on any specific bids.
Both fund managers were critical of management and the board in private meetings a year ago and pushed then-chairman Brian Derksen to resign. When he didn’t they withheld their support for him at last December’s annual meeting, although he still won enough votes to be re-elected. Mr. Derksen has since stepped down as chairman and isn’t on either slate for the upcoming meeting. Mawer was also one of two shareholders that told the company it would withhold support for two directors that had been involved in offering a rich compensation package to the CEO in 2021, prompting them to not run again at last year’s annual meeting.
- Sean Silcoff
Cryptocurrency-linked shares, including Bitfarms Ltd. (BITF-T), Hut 8 Corp. (HUT-T) and Hive Digital Technologies Ltd. (HIVE-X), jumped after bitcoin rose to a fresh record high just shy of US$95,000 after a report that Donald Trump’s social media company was in talks to buy crypto trading firm Bakkt boosted expectations of a crypto-friendly regime under his incoming administration.
Bitcoin, the world’s biggest and best-known cryptocurrency, has more than doubled this year. It was last at US$93,709, up 1.6 per cent, after hitting an all-time peak of US$94,982.37.
The Financial Times said Trump Media and Technology Group (DJT-Q), which operates Truth Social, is close to an all-stock acquisition of Bakkt (BKKT-N), which is backed by NYSE-owner Intercontinental Exchange.
Bitcoin has soared more than 40 per cent since the Nov. 5 U.S. presidential election, as traders bet that Trump’s stated commitment to support cryptocurrencies would lead to a less restrictive regulatory environment, lifting the sector overall.
“The rise of bitcoin over the past 15 years is due to an innovation that cannot be recreated: decentralized electronic cash,” wrote Nikhil Bhatia, founder of The Bitcoin layer, a research provider analyzing bitcoin through a global macroeconomic lens, in emailed comments.
“The term ‘digital gold’ best describes this digital asset that has an algorithmically limited supply function. If bitcoin were to reach the market size of gold ($17 trillion), it would imply a price of around $800,000 for 1 BTC,” said Bhatia, who is also an adjunct professor of finance at USC Marshall School of Business.
Comcast (CMCSA-Q) said on Wednesday it plans to spin off some NBCUniversal cable TV networks, as the rise of streaming prompts the media company to relinquish some of its most prized assets.
Its shares erased an early decline after the company said it would separate its entertainment and news channels including MSNBC, CNBC, USA, Oxygen, E!, Syfy and Golf Channel.
Comcast will retain some NBC entertainment, sports and news properties, along with the Peacock streaming service, its theme parks as well as film and television studios.
“The most likely buyers of these cable channels are private equity firms or other media conglomerates,” said Emarketer senior analyst Ross Benes.
“PE would have an easier time hiding financial losses from a purchase than public companies would. PE buyers would cut costs and wrangle out what value is left of the networks, attempting to squeeze out quick profits.”
Profitability in traditional television and cable networks has been declining as consumers increasingly shift to streaming services such as Netflix, leaving media firms to explore other options for their legacy businesses.
Paramount Global (PARA-Q) - home to cable television networks Comedy Central, Nickelodeon and MTV - agreed to merge with streaming-era upstart Skydance Media earlier this year.
Mark Lazarus, who currently serves as the chairman of NBCUniversal’s media group, will lead the new venture as CEO, while Anand Kini, who served as CFO of NBCUniversal, will be the operating chief and finance head of the new company.
The spin-off is expected to take a year to complete and the new venture will have an ownership structure that mirrors that of Comcast.
TJX Cos (TJX-N) raised its annual profit forecast on Wednesday, benefiting from lower costs and strong demand from cash-strapped customers flocking to its off-price stores for products such as apparel and footwear.
The TJ Maxx and Marshalls parent has hit the right spot as customers continue to hunt for value and better deals even as inflationary pressures ease, driving steady traffic and sales at the company’s outlets.
Retailers including TJX, Walmart and Amazon have rolled out deals on everything from toys to household items earlier than usual this holiday shopping season as they are locked in a battle for penny-pinching shoppers.
“Customer transactions drove our comp sales increases, which tells us that our values and treasure hunt shopping experience are appealing to a wide range of customers,” TJX CEO Ernie Herrman said in a statement.
The Marshalls chain parent expects annual earnings per share of US$4.15 to US$4.17, compared with its prior forecast of $4.09 to $4.13.
It, however, maintained its annual comparable store sales forecast to be up 3 per cent. TJX’s shares, up 28 per cent this year, closed narrowly higher in Wednesday trading.
Ahead of the all-important holiday shopping season, the top two U.S. retailers have provided different pictures of the consumer.
Retail giant Walmart, which offers products at the lowest price possible, again raised its annual forecasts. Smaller rival Target, where non-essentials account for a bigger share of revenue, signaled a muted holiday season.
TJX’s net sales rose 6 per cent to US$14.1-billion in the third quarter, beating analysts’ average estimate of US$13.95-billion, according to data compiled by LSEG.
On an adjusted basis, the company reported a profit of US$1.14 per share, compared with estimate of US$1.09.
On the decline
Target (TGT-N) forecast holiday-quarter comparable sales and profit below estimates on Wednesday as value-conscious consumers shopped for low-priced essentials at rival retailers including Walmart, sending its shares plummeting 21.4 per cent.
The U.S. retailer now expects flat comparable sales in the fourth quarter and a profit of US$1.85 to US$2.45 per share. Analysts on average had expected a 1.64-per-cent rise in sales and profit of US$2.66 per share.
The Minneapolis-based company has cut prices on thousands of essential and gift items ahead of the holiday season. It is also offering discounts on food, beverages and toys, while expanding its private-label brand, dealworthy, to include items such as smartphone chargers and toiletries.
Still, those efforts have so far failed to attract shoppers to its stores.
Apparel sales were soft as warmer-than-usual weather across the U.S. deterred spending on winter clothing, although spending on essentials and beauty was strong during the quarter.
The results are in contrast to the world’s no. 1 retailer Walmart (WMT-N), which raised its annual sales and profit forecast for the third consecutive time a day earlier, as it took market share in groceries and merchandise.
“Things have taken a turn (for Target) in Q3. And it seems that the softness is going to linger into the holiday season as well,” CFRA analyst Arun Sundaram said.
“Clearly, it’s Walmart that’s executing better and Target is really missing the mark,” Sundaram said.
Lingering weakness in higher-margin categories such as home decor, electronics and furniture has hurt Target this year, as shoppers watch their budgets in the face of still-high inflation.
“We are seeing the consumer become increasingly resourceful and strategic on how they shop,” Rick Gomez, Target’s chief commercial officer, said on a media call.
Meanwhile, the company’s efforts to pull forward holiday inventory in preparation for the U.S. ports strike led to additional costs in its supply chain, Target’s executives said.
With five fewer holiday shopping days between Thanksgiving and Christmas in what is expected to be a so-so holiday season, retailers such as Target face competition as promotions at Walmart and Amazon.com kicked off earlier than usual.
“We encountered some unique challenges and cost pressures that impacted our bottom-line performance,” Target CEO Brian Cornell said.
Target also trimmed its annual forecast for per-share earnings to between US$8.30 and US$8.90 from its prior range of between US9 and US$9.70 after weaker-than-expected third-quarter results.
The company, which operates nearly 2,000 U.S. stores, reported third-quarter adjusted earnings of US$1.85 per share. Analysts on average were expecting US$2.30 per share.
Nvidia Corp. (NVDA-Q) dipped ahead of the highly anticipated post-market release of its quarterly results.
A nearly 800-per-cent run in shares of Nvidia over the past two years, driven by its gold standard AI business, has propelled the semiconductor company to the world’s top spot by market value.
That heft gives Nvidia huge sway in market benchmarks, such as the S&P 500 and Nasdaq 100, while its results will also be a gauge for the market’s appetite for tech stocks, the AI trade and sentiment for equities broadly, investors said.
Markets are “looking for direction right now,” said Garrett Melson, portfolio strategist at Natixis Investment Managers. “If those results are pretty strong, that tells you that there’s still momentum behind that investment and that trade and I think that helps to broaden out risk appetite.”
Nvidia’s dominant AI position has catapulted its share price and led to an astonishing financial performance. For its fiscal third quarter, the company is expected to post net income of US$18.4-billion as revenue jumped over 80 per cent to US$33-billion, according to LSEG data.
Options traders are primed for a nearly US$300-billion swing in Nvidia’s market value following the chipmaker’s quarterly results on Wednesday, U.S. options market data showed.
Nvidia options implied an 8.5-per-cent swing for the shares in either direction following the results, which will be reported after markets close, according to data from options analytics service ORATS. That is in line with previous percentage moves following results over the last 12 quarters. But with the AI-chipmaker’s market cap having grown to US$3.44-trillion, the expected swing in market value is close to the biggest ever, at about US$292-billion.
A move of that size would dwarf the market cap of about 95 per cent of S&P 500 constituents.
Post-earnings moves in Nvidia’s shares have typically undershot market expectations. Larger-than-expected moves, however, have tended to be to the upside, said ORATS founder Matt Amberson. Of the last 12 quarterly earnings reports, five post-earnings moves have been outside what has been expected by the market. Of those, all have seen the stock price go higher, Mr. Amberson said.
Christopher Jacobson, a strategist at Susquehanna Financial Group, wrote on Monday that traders are assigning a slightly higher probability to an outsized move to the upside than to the downside. Results for the chipmaker - which is at the heart of the generative artificial intelligence boom - could be a key factor in determining the market’s trajectory. Investors are turning their focus to Nvidia following a post-U.S. election rally that has stalled in recent days.
Delta Air Lines (DAL-N) slipped after it said on Wednesday it expects 2025 revenue to grow by a mid single-digit percentage as it strengthens its bet on premium travel, a major revenue driver for the carrier.
The airline added that affluent customers were thriving with leisure travel being the highest priority purchase for high-income households.
Premium travel has been on the rise since the pandemic, with consumers preferring to pay extra dollars for amenities such as more comfortable seats.
Premium seating, which previously depended heavily on corporate bookings, is now seeing increased interest from individual travelers.
Delta Air said it is targeting profit per share to increase 10 per cent in the next three to five years, and expects operating margins to be in the mid-teens percentage.
The Atlanta-based company expects its high-margin premium offerings to outpace its main cabin by 2027.
That opens up avenues for the carrier to grow revenue through non-ticket sources such as airline-branded credit card fees, checked bags and extra legroom.
Delta also forecast 2025 capacity growth between 3 per cent and 4 per cent. The carrier’s shares fell suggesting investor worries about effects of excess capacity on air fares.
An excess supply of airline seats in the U.S. market during the summer travel season had forced carriers to discount fares to fill their planes, hurting their earnings.
However, measures taken by airlines to moderate capacity growth have since aided pricing power.
With files from staff and wires