Jennifer Dowty, Chartered Financial Analyst, writes exclusively for Globe Unlimited subscribers. The Before the Bell report is updated throughout the premarket to reflect latest developments.
Good Thursday morning to you. North American futures are higher, indicating a positive opening for major equity markets. In the U.S., Dow futures are up 52 points, S&P 500 futures are ahead by 7 points, and Nasdaq futures are up 13 points. In Canada, S&P/TSX 60 index futures are up 2 points.
Major Asian markets closed higher in overnight trading. In Japan, the Nikkei 225 advanced 1 per cent. In China, the Shanghai composite and Shenzhen composite gained 1.8 per cent and 0.2 per cent, respectively. The Hang Seng closed relatively unchanged.
In Europe, The Bank of England on Thursday signaled that the need to raise borrowing costs in the U.K. anytime soon has receded given the gloomier prospects for global growth, after it held its benchmark interest rate steady. The London FTSE is down 0.15 per cent. Meanwhile, other major European markets are in a rally mode. In Germany, the Xetra DAX is up 0.9 per cent despite weaker-than-expected September factory orders reported. Orders declined 1.7 per cent month-over-month, below a gain of 1 per cent expected. Turning to France, the CAC 40 is up 0.9 per cent.
Today is the busiest day of the third-quarter earnings season for the S&P/TSX composite index with 41 companies reporting financial results. Among the parade of companies reporting are Air Canada, Agrium, BCE, Canadian Natural Resources, CCL Industries, Crew Energy, Enbridge, Great-West Lifeco, Magna, Penn West Petroleum, ShawCor, SNC-Lavalin, Stantec, and TELUS. In the S&P 500, there are 24 companies reporting financial results among them are Apache, Celgene, Duke Energy, Kraft Heinz, Molson Coors Brewing, Monster Beverage, Ralph Lauren, TripAdvisor and Walt Disney. See our Corporate News Section below for highlights on how many of the key reports came out.
Turning to commodities, on Wednesday, intra-day volatility was front-and-centre with the price of oil after the U.S. Energy Information Administration (EIA) report showed an larger-than-expected increase in inventory levels. The price of West Texas Intermediate oil futures climbed to over $48 (U.S), before closing down 3 per cent to $46.32. This morning, the price of oil is stable, up a few cents. Natural gas futures are relatively unchanged ahead of the weekly inventory report from the EIA released at 10:30 a.m. (EST). Gold prices are also steady, still holding above the $1,100 level at $1,108.71.
The Canadian dollar is down slightly this morning, slipping below the 76 cent level to 75.91 cents per U.S. dollar.
Here's the bottom line. On a stock level, we are seeing a number of companies during this earnings season reduce or suspend their dividends and the result has been significant haircuts to the stock prices. On Wednesday, there was a slew of negative dividend announcements by companies. Torstar chopped its dividend in half, sending the stock price lower by 6 per cent. Wi-Lan slashed its dividend by 76 per cent, sending the stock price down 27 per cent. Management at Strad Energy Services announced it the suspension of its dividend, sending that stock down 10 per cent, and Essential Energy Services announced it will be reducing its dividend, again, this time by 80 per cent causing the stock price to decline 4 per cent. Whether companies can sustain their current dividend policy is a critical question for investors to consider.
On a macro level, investors await Friday's U.S. non-farm payrolls report. On Wednesday, Federal Reserve Chair, Janet Yellen, spoke before the Committee on Financial Services in Washington and hinted at a potential Dec. 16 rate hike if economic data suggested strengthening economic conditions, which would warrant a rate hike. U.S. Treasury yields are moving higher as anticipation grows that the Federal Reserve will pull the trigger and lift interest rates. The 2-year treasury yield is at its highest level since 2011. If U.S. non-farm payrolls are reported in-line or ahead of 182,000 jobs forecast, expect equity markets to pullback. The S&P/TSX composite index could drift down to the 13,500 level in the near-term. If so, I would recommend using any weakness as a buying opportunity. For long-term investors, a strengthening U.S. economy is positive.
Now, here is a closer look at major markets, and corporate and economic news.
S&P 500 +0.2 per cent; Dow +0.2 per cent; Nasdaq: +0.2 per cent
Hong Kong's Hang Seng -0.01 per cent
Shanghai composite index +1.83 per cent
Japan's Nikkei +1.00 per cent
London's FTSE 100 -0.01 per cent
Germany's DAX +0.91 per cent
France's CAC 40 +1.05 per cent
Stoxx 600 +0.19 per cent
WTI crude oil (Nymex Dec) +0.26 per cent at $46.43 (U.S.) a barrel
Gold (Comex Dec) +0.33 per cent at $1,110.10 (U.S.) an ounce
Copper (Comex Dec) -1.85 per cent at $2.28 (U.S.) a pound
Canadian dollar +0.04 at 76.07 cents (U.S.).
U.S. dollar index -0.027 at 97.92
U.S. 10-year Treasury yield 2.24 per cent, +0.01
U.S. initial jobless claims for the week of Oct. 31 came in at 276,000, a little higher than the estimated 262,000.
(10 a.m. ET) Canada Ivey Purchasing Managers Index for October
Stocks anticipated to have major moves today in U.S. markets are Whole Foods, Expedia, and Facebook. On Wednesday, after the closing bell, organic supermarket retailer, Whole Foods Market, reported results short of the Street's expectations sending the shares down 8 per cent in after-hours trading. Expedia announced plans to acquire HomeAway, lifting the stock price of Expedia by 4 per cent and the price of HomeAway up 23 per cent in after-hours trading. Facebook reported better-than-expected results, sending the stock price up 4 per cent in after-hours trading to a record high.
Enbridge says delays in completing its Line 9 pipeline project through southern Ontario is having a negative effect on its profit this year. The Calgary-based company says it now expects 2015 adjusted earnings to be at the low end of its previous estimates of between $2.05 and $2.35 per share of adjusted earnings. The company — which has a number of controversial pipeline projects in the works in different parts of Canada — says deliveries on Line 9 are now expected to begin in December. Enbridge also said its adjusted earnings were up from last year at $399 million or 45 cents per share. That was four cents per below analyst estimates of 49 cents per share.
BCE said it had net income attributable to shareholders of $739 million, or 87 Canadian cents a share, compared to $600 million, or 77 cents, a year ago. Revenue rose 2.9 per cent to $5.35 billion.
Telus earned 66 Canadian cents per share in adjusted earnings in its latest quarter. Analysts had on average expected Telus to earn 64 cents a share.Operating revenue rose to $3.16 billion, inline with expectations. Telus also announced about 1,500 job cuts.
SNC-Lavalin reported Q3 adjusted EPS 47 cents vs. a Street estimated 50 cents.
Canadian Natural Resources reported a net loss of $111 million, or 10 cents per share, in the three months ended Sept. 30, compared with a profit of $1.04 billion, or 94 cents per share, a year earlier. Excluding one-time items, the company reported a surprise profit of 10 Canadian cents per share. Analysts on average had expected a loss of 10 Canadian cents, according to Thomson Reuters I/B/E/S. The company also cut its 2015 capital expenditure for the fifth time, and estimated a much lower 2016 budget as oil prices show no signs of recovery.
Air Canada reported a better-than-expected quarterly profit, helped by lower fuel costs. It now expects its adjusted cost per available seat mile, which excludes fuel expenses, to decline by up to 1 per cent in 2015, as a weaker Canadian dollar increases some expenses. The carrier had previously forecast a 1 per cent to 2 percent decrease. On an adjusted basis, the company earned $2.50 per share in the quarter, higher than the average analyst estimate of $2.21, according to Thomson Reuters I/B/E/S. Operating revenue rose nearly 6 per cent to $4.02 billion, above analysts' estimate of $3.94 billion.
Canadian auto parts maker Magna International Inc reported a 7 percent drop in quarterly sales, hurt by a strong U.S. dollar. However, the company raised the low end of its 2015 sales forecast to $31.3 billion from $30.9 billion. The company kept the top end of the guidance unchanged at $32.6 billion. Magna said it now expects the 2015 operating margin to be about 7.7 percent, lower than the 8 percent it forecast in August. Magna also said it would buy back up to 40 million of its common shares over the next 12 months, nearly 10 percent of its total outstanding shares.
CI Financial reported Q3 EPS of 51 cents vs. estimates of 52 cents.
Sun Life reported quarterly net income of 78 cents per share, up from 76 cents a year ago.
Home Capital Group reported Q3/15 results after the close Wednesday, with core diluted EPS of $1.05 close to analysts' forecasts and ahead of $1 from a year ago. Revenues of $145.1-million were slightly below expectations of $148.0-million.
Penn West Petroleum Ltd said on Thursday it expects to create "additional headroom" in a key debt covenant in the current quarter by using proceeds from asset sales to pay down debt. Penn West amended some of its debt covenants earlier in the year after it had trouble meeting some terms related to its cash flow. The company said on Thursday the ratio between its senior debt and EBITDA was 4.3 times, relative to a covenant that requires it to be 5 times or lower.
The world's largest automaker, Toyota, reported better-than-expected financial results but reduced its full-year sales outlook as management is cautious on demand from emerging markets.
Facebook Inc posted surprisingly strong profit and revenue growth as the world's largest social network grew even larger, with a spike in mobile users and advertising that lifted its stock to an all-time high. The company on Wednesday reported audience numbers that suggest it is poised to take on mainstream media as an advertising force, helping investors to overlook Facebook's huge spending on hiring and building data centers.
The world's second largest sportswear manufacturer, Adidas, increased its guidance for 2015 sending the stock price up 5 per cent in German markets.
The world's largest staffing agency, Adecco, reported weaker-than-expected results causing shares to tumble 8 per cent in Swiss markets.
British infrastructure firm, Amec Foster Wheeler, announced a 50 per cent dividend cut, driving the stock price down 22 per cent on the London Stock Exchange.
Other earnings out today include: ACADIA Pharmaceuticals Inc; AES Corp; Agrium Inc; Air Lease Corp; Algonquin Power & Utilities Corp; AMC Networks Inc; Apache Corp; Atlantic Power Corp; AutoCanada Inc; Axia NetMedia Corp; Bellatrix Exploration Ltd; Bioteq Environmental Technologies Inc; Bonavista Energy Corp; Broadridge Financial Solutions Inc; Brookfield Property Partners LP; Callidus Capital Corp; Canadian Natural Resources Ltd; Cardiome Pharma Corp; Celgene Corp; Ceres Global Ag Corp; Chicago Bridge & Iron Company NV; Consolidated Edison Inc; Crescent Point Energy Corp; Crew Energy Corp; DREAM Unlimited Corp; Duke Energy Corp; Echelon Corp; Echelon Financial Holdings Inc; Enbridge Income Fund Holdings Inc; Great Canadian Gaming Corp; Great-West Lifeco Inc; Halogen Software Inc; Hardwoods Distribution Inc; Houghton Mifflin Harcourt Co; IGM Financial Inc; Inter Pipeline Ltd; Interfor Corp; Kelso Technologies Inc; Laredo Petroleum Inc; Liquor Stores NA Ltd; Lucara Diamond Corp; Magna International Inc; Mandalay Resources Corp; Marret Resource Corp; Mitel Networks Corp; Monster Beverage Corp; Newmarket Gold Inc; OGE Energy Corp; Pacific Exploration and Production Corporation; Parkland Fuel Corp; Pembina Pipeline Corp; Perk.com Inc; Polaris Materials Corp; Pure Technologies Ltd; Ralph Lauren Corp; Richmont Mines Inc; Ritchie Bros. Auctioneers Inc; Saputo Inc; Savaria Corp; Shake Shack Inc; SMART Technologies Inc; SNC-Lavalin Group Inc; Stantec Inc; Take-Two Interactive Software Inc; TECO Energy Inc; Time Inc; TMX Group Ltd; Tree Island Steel Ltd; Tucows Inc; Turquoise Hill Resources Ltd; Ubiquiti Networks Inc; Walt Disney Co; Weight Watchers International Inc;
QUOTE OF THE DAY:
"The beginning is the most important part of the work." - Plato