A survey of North American equities heading in both directions
On the rise
First Quantum Minerals Ltd. (FM-T) rose 1.3 per cent on Wednesday after it beat third-quarter profit estimates on higher sales volumes for copper and gold along with stronger realized gold prices.
Canadian miner First Quantum in talks with potential partners for Zambian assets
Late Tuesday, the Toronto-based company reported revenue of $1.279-billion and adjusted earnings per share of 14 US cents, respectively, both topped the Street’s projections (US$1.13-billion and 1 US cent), . The beat came as production surpassed expectations, driven by gains at Kansanshi mine in Zambia.
“FM posted a strong operating quarter with copper, gold and nickel production beating our estimates at lower than forecast costs,” said Raymond James analyst Farooq Hamed. “Full-year copper and gold production guidance was increased with copper costs being reduced. The guidance changes for copper production and costs are generally in-line with our previously modeled estimates with the increase in gold production ahead of our previous expectations.”
Starbucks Corp. (SBUX-Q) suspended its forecast through the next fiscal year as new CEO Brian Niccol looks to turn around the coffee giant struggling with falling demand for its pricey drinks.
The coffee chain also reported preliminary fourth-quarter results, saying same-store sales, net revenue, and profit declined, weighed down by weak demand in the U.S.
Its shares closed up 0.9 per cent in Wednesday trading. The stock has gained nearly 28 per cent since the company named Mr. Niccol as CEO in early August.
Mr. Niccol, who was named to the top job in a surprise move, said, “It’s clear we need to fundamentally change our strategy so we can get back to growth and that’s exactly what we are doing with our ‘Back to Starbucks’ plan.”
He said Starbucks would simplify its “overly complex menu, fix our pricing architecture.”
The company now expects comparable sales to decline 6 per cent in the U.S. and 14 per cent in China for the fourth quarter ended Sept. 29. It suspended annual outlook for the fiscal year that will end in September 2025.
“Despite our heightened investments, we were unable to change the trajectory of our traffic decline,” said Chief Financial Officer Rachel Ruggeri. “We are developing a plan to turn around our business, but it will take time.”
Still, Starbucks increased its quarterly dividend to 61 US cents from 57 US cents per share, to boost investor confidence in the turnaround plan, Ms. Ruggeri said.
The company’s rewards program did not help improve customer traffic. As part of the turnaround plan, Mr. Niccol said the company aimed to change its marketing efforts, and shift focus to all customers and not just “Starbucks Rewards” members.
“While we remain optimistic that Starbucks can return to positive comparable sale as fiscal 2025 progresses under Niccol’s leadership, we suspect a reality check is needed on the timeline to reinvigorate profitability,” William Blair analyst Sharon Zackfia said.
“We suspect multiple avenues of attack (by Niccol) are likely, including increasing labor hours at stores and reducing the frequency of limited-time promotions.”
Before taking the helm at Starbucks, Niccol was CEO of Chipotle Mexican Grill, where he owned the burrito maker’s problems, agreed with critics, and revitalized sales.
Starbucks still plans to hold its scheduled fourth-quarter earnings conference call on Oct. 30.
On the decline
Shares of Canadian National Railway Co. (CNR-T) turned negative in late trading and closed narrowly lower on Wednesday despite following the release of better-than-expected third-quarter despite feeling the heat of wildfires and labour disputes last quarter, as the company looks to rebound from the resulting cargo backlogs and lost business.
The slower freight flow and higher costs associated with July’s devastating forest fire in Jasper, Alta., and CN’s coast-to-coast work stoppage in August tamped down third-quarter profits by 2 per cent year-over-year, the company said after the bel Tuesday.
Reaction from the Street: Wednesday's analyst upgrades and downgrades
“The Alberta wildfires came with some additional expenses which, combined, came through in our margin performance this quarter,” CEO Tracy Robinson told analysts on a conference call.
Executives noted that the railway’s busiest corridor runs through Jasper, which saw a third of its buildings reduced to rubble and ash.
“There was a two-day period when the fires were burning that we just couldn’t run any trains at all” — though two of CN’s three firefighting trains, Neptune and Trident, arrived on the scene to battle the blaze — said Derek Taylor, who heads field operations.
“Once the worst of the fires passed, we were still severely limited in our operations.”
A month later, the phased shutdown of operations at both CN and rival Canadian Pacific Kansas City Ltd. (CP-T) culminated in a simultaneous lockout in late August, spooking shippers and stranding cargo.
“On the demand side, the noise created by the labour situation clearly had an impact on our business in the quarter,” said Ms. Robinson, pointing to container shipments in particular — CN’s biggest segment.
Despite the obstacles, the railway’s second- and third-biggest categories enjoyed much higher revenues, as petroleum and chemicals as well as grain and fertilizers jumped 11 per cent and 9 per cent year-over-year, respectively.
CN said it moved more than 2.81 million tonnes of grain from Western Canada in September, beating the previous monthly record and despite a four-day grain workers strike in British Columbia.
Lower sales from its smaller coal and auto segments partly offset the oil-and-wheat windfall, while falling lumber prices yielded flat revenues for forest products.
“The macro is lighter than what we expected coming into 2024, and maybe even a bit softer than what we thought on our last call back in July,” Ms. Robinson acknowledged, citing economic “challenges.”
“We’re seeing this play out in our merchandise business, especially in construction-related commodities as well as in automotive.”
In September, CN lowered its financial forecast for the year. It expects to deliver adjusted diluted earnings per share growth in the low single-digit range, compared to its July expectation of mid-to-high single-digit increases.
On Tuesday, CN reported that third-quarter revenues rose three per cent to $4.11-billion from $3.99-billion the year before.
However, net income slipped to $1.09-billion in the three months ended Sept. 30, down from $1.11-billion in the same period a year earlier.
On an adjusted basis, diluted earnings increased nearly two per cent to $1.72 per share from $1.69 per share last year, in line with analysts’ expectations, according to financial markets firm LSEG Data & Analytics.
Boeing (BA-N) CEO Kelly Ortberg laid out a turnaround plan on Wednesday, calling for a “fundamental culture change” at the struggling planemaker as its quarterly losses surged to US$6-billion due to a crippling strike.
The company has now racked up losses of nearly US$8-billion for the current year, as a halt in production of its 737 MAX, 777 and 767 planes following the strike and an ailing defense and space division hammer its business.
Boeing shares was down 1.8 per cent in Wednesday trading.
In a letter, Mr. Ortberg stressed the need for improving performance in its defense business and its 737 MAX and 777 programs while broadly stabilizing Boeing, which is “at a crossroads” after lapses in its performance disappointed customers and eroded trust.
“This is a big ship that will take some time to turn, but when it does, it has the capacity to be great again,” Mr. Ortberg told the planemaker’s employees in a message containing prepared remarks for his first earnings call as CEO.
Mr. Ortberg’s call to arms follows sweeping plans for significant downsizing announced earlier this month as a strike by about 33,000 workers that has dragged on for more than a month hits production of its best-selling 737 MAX jet as well as 767 and 777 widebody planes.
The former Rockwell Collins executive, who took the helm of the U.S. planemaker in August, said he was hopeful that a new contract proposal being voted on Wednesday by more of the striking workers would be approved, though analysts say ratification is not certain.
It is a crucial day for the planemaker, which was already struggling with the fallout from a regulator-imposed cap on production of MAX aircraft following a harrowing mid-air door panel blowout.
Even if the strike ends, restarting production of 737 MAX as well as 767 and 777 widebodies will be a fresh challenge given the supply chain is still struggling in some pockets.
Boeing will also have to convince suppliers who have announced furloughs and put off investments over the last few weeks, to now reverse course and support its production plans.
“It’s much harder to turn this on than it is to turn it off,” Mr. Ortberg said, referring to its factories and the supply chain.
Mr. Ortberg did not address a possible capital raise, which Reuters has reported could be around US$15-billion.
“We view his (Kelly’s) comments as encouraging, as Boeing has historically been averse to recognizing that it has issues, let alone actually fixing them,” Vertical Research Partners analyst Robert Stallard said.
Boeing on Wednesday reported a quarterly cash burn of US$1.96-billion, compared with a cash burn of US$310-million a year earlier.
Quarterly revenue fell 1 per cent to US$17.84-billion.
The company’s commercial aircraft business recorded a US$4-billion loss, while its defense, space and security business lost US$2.38-billion.
Meanwhile, revenue growth in the company’s aftermarket business, Boeing Global Services, slowed to 2 per cent in the quarter through September, compared with 9-per-cent growth last year and 7 per cent in the first quarter of this year.
The division has been a bright spot in recent quarters given the turmoil in Boeing’s other two businesses.
McDonald’s (MCD-N) shares had their worst day since March 2020 on Wednesday, as the fast-food giant scrambles to limit the damage from an E. coli outbreak linked to Quarter Pounder burgers in several states that has killed one person and sickened nearly 50 others.
McDonald’s USA President Joe Erlinger on Wednesday said the world’s biggest fast-food chain could rebuild trust with the public as it works to soften the blow of the E. coli outbreak, which resulted in the death of one person and caused 49 other people in parts of the U.S. West and Midwest to fall ill. Previous E. coli outbreaks at big U.S. fast-food chains have caused consumers to shun those stores for months.
Erlinger pointed to the Chicago-based company’s steps to quickly pull the Quarter Pounder from its menu in the areas where the outbreak has occurred during an appearance on NBC’s “Today” show on Wednesday.
“Given the recent events of the past 24 hours, our priority is to reinforce the confidence of American consumers,” he said.
The outbreak sickened people in 10 states, with 10 hospitalized due to serious complications, according to the U.S. Centers for Disease Control and Prevention (CDC). A serious kidney disorder known as hemolytic uremic syndrome was reported in one child, the CDC said.
The CDC and McDonald’s are scrutinizing McDonald’s supplies of slivered onions and Quarter Pounder beef patties as they investigate the cause of the E. coli outbreak, the company said.
McDonald’s suppliers test their products frequently and in the date range given by the CDC for the outbreak, and none of them identified this E. coli strain, company spokespeople said.
The company’s stock closed down 5.1 per cent at US$298.57 as spokespeople added that it had not yet ruled out the possibility of beef being part of the outbreak. McDonald’s shares earlier hit a low of US$290.88.
McDonald’s said on Wednesday that a fifth of its 14,000 U.S. restaurants were no longer selling Quarter Pounders. It pulled the item from its menu at McDonald’s locations in the affected area, which spans Colorado, Kansas, Utah, Wyoming, and parts of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico and Oklahoma.
Coca-Cola (KO-N) is aiming to hit the higher end of its organic sales forecast for 2024 as growing demand for its higher-priced sodas and juices in the U.S. helped it post a surprise rise in third-quarter sales on Wednesday.
Shares of the Sprite and Fanta maker, however, fell 2.1 per cent as CEO James Quincey flagged decline in volumes in China and the Middle East.
Demand in China has taken a hit from a slow post-pandemic economic recovery caused largely by a protracted property downturn, while the Middle East conflict has impacted supply in the region.
But North America revenue jumped 12 per cent as the company’s efforts to offer 12-ounce slim cans to attract customers with tight budgets in the U.S. drove demand.
“Coca-Cola has shown some pretty fancy footwork to persuade drinkers to keep shelling out premium prices for its products,” said Danni Hewson, head of financial analysis at AJ Bell.
“The team have doubled down on delivering the right product in the right places to the right people.”
The beverage company expects annual organic sales to grow about 10 per cent compared with a prior view of 9-per-cent to 10-per-cent rise. Its average selling price rose 10 per cent, while unit case volumes fell 1 per cent.
Coca-Cola’s revenue in Europe, the Middle East and Africa fell 7 per cent and in the Asia Pacific region it dropped 4 per cent.
Coca-Cola’s comparable net revenue rose 0.3 per cent to US$11.95-billion. Analysts had expected a 2.62-per-cent drop, according to data compiled by LSEG.
Its adjusted profit came in at 77 US cents per share, compared with estimates of 74 US cents and the company stuck to its annual growth forecast for adjusted profit of 5 per cent to 6 per cent despite price hikes.
“The weakness of the stock a little bit here is that they’re leading more on price ... (while) guidance is just being maintained here,” said Christian Greiner, senior portfolio manager at F/m Investments, which owns shares in Coca-Cola.
Qualcomm (QCOM-Q) was down 3.8 per cent after a report said Arm Holdings (ARM-Q) is cancelling an architectural license agreement that allows the chipmaker to use intellectual property to design chips.
Bloomberg reported Arm has given Qualcomm a mandated 60-day notice of the cancellation of the licensing agreement, the report said, adding that the contract allows Qualcomm to create its own chips based on standards owned by Arm.
UK-based Arm, which is majority-owned by Japan’s SoftBank Group, sued Qualcomm in 2022 for failing to negotiate a new license after it acquired Nuvia.
Arm had previously said the current design planned for Microsoft’s Copilot+ laptops is a direct technical descendant of Nuvia’s chip and it had cancelled the license for these chips.
“This is more of the same from ARM – more unfounded threats designed to strongarm a longtime partner, interfere with our performance-leading CPUs, and increase royalty rates regardless of the broad rights under our architecture license,” a Qualcomm spokesperson said in an emailed statement.
“With a trial fast approaching in December, Arm’s desperate ploy appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless. We are confident that Qualcomm’s rights under its agreement with Arm will be affirmed. Arm’s anticompetitive conduct will not be tolerated.”
Hilton Worldwide (HLT-N) lowered the upper end of its annual room revenue growth forecast on Wednesday, as steady travel demand in Europe was not enough to counter a decline in China and a slowdown in the United States.
Shares of Hilton, which houses hotel brands such as Waldorf Astoria and DoubleTree, were down 1.9 per cent in Wednesday trading. Rival Marriott International (MAR-Q) was also lower.
Travel demand in the U.S. has been facing challenges since the beginning of the year as Americans remain wary of depleting savings and rising credit card debt. Chinese consumer spending has also eased in the face of macroeconomic difficulties.
That has prompted many travelers to trade down, pick low-cost and budget alternatives in lieu of full-service hotels.
System-wide comparable RevPAR, or revenue per available room, increased 1.4 per cent in the third quarter over the year earlier, as room revenue fell 3.4 per cent in Asia and rose 1 per cent in the U.S.
“We were pleased to deliver continued strong bottom line results that exceeded our guidance, despite slower top line growth, which was driven by modestly slower macro trends, weather impacts and unfavorable calendar shifts,” Hilton CEO Christopher Nassetta said in a statement.
Hilton expects its system-wide 2024 room revenue growth to be between 2 per cent and 2.5 per cent, compared with its prior range of 2-per-cent to 3-per-cent increase.
It reported an adjusted profit per share of US$1.92 for the third quarter, compared with analysts’ average estimate of US$1.85, according to data compiled by LSEG.
With files from staff and wires