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A look at North American equities heading in both directions

On the rise

Canadian copper miner Teck Resources Ltd. (TECK.B-T) surged 1.8 per cent after Bloombeg reported its biggest shareholder, China Investment Corp, is in favor of Glencore’s takeover offer, which would allow investors to exit their coal exposure for cash.

Glencore on Tuesday modified its US$22.5-billion all-share takeover bid for Teck to include up to US$8.2-billion in cash, but Teck’s board called it “largely unchanged”.

CIC, which owns a little over 10 per cent of Teck’s Class B shares, may still seek a higher bid from Glencore before supporting the offer, and senior Glencore executives have held conversations with the fund to try and win their support, the Bloomberg report said, citing people familiar with the matter.

Teck CEO plays down quick sale of Teck Metals to larger competitor, saying most value to come from in-house copper projects

Teck has repeatedly rejected Glencore’s offer of merging the companies and subsequently spinning off their combined thermal and steel-making coal businesses, saying it would expose shareholders to thermal coal, oil, LNG and related sectors.

It has instead urged its investors to vote for a restructuring proposal which will see it spin off its highly polluting coal business and focus on production of copper.

Teck investors will decide on the Canadian miner’s restructuring plan on April 26.

CIC is considering a vote against Teck’s restructuring proposal, although it has yet to make a final decision, the report added.

Shares of Canadian Pacific Railway Ltd. (CP-T) rose 0.6 per cent after finalizing its merger with Kansas City Southern to create Canadian Pacific Kansas City.

CP completed its US$31-billion acquisition of KCS in December 2021, but placed the KCS shares into a voting trust, which ensured the U.S. railway operated independently during a regulatory review.

The U.S. Surface Transportation Board gave its final approval of the deal last month, clearing the way for the combination.

The company says it will mark the occasion by driving of a ceremonial final spike in Kansas City, Mo., where the two railways meet.

Opinion: Canadian Pacific’s Kansas City Southern merger does not solve railway’s decline

CPKC will also break ground Friday on a new yard office, that will be the future location of its U.S. operations centre.

It says shares in the railway will remain listed on the Toronto Stock Exchange and New York Stock Exchange under the ticker symbol CP and are expected to begin trading under the new name on April 18.

Loblaw Companies Ltd (L-T) was higher by 0.8 per cent after it said on Friday it would spend $2-billion to expand its business in 2023 and create more than 6,000 new jobs in retail, supply chain, technology and construction in Canada.

The retailer’s investment comes at a time when it is seeing strength in its pharmacy business, as well as a steady demand for groceries amid rising fears of a recession.

Loblaw also expects to use the investment to grow and improve its stores; it said it will open 38 new or relocated stores and renovate or convert nearly 600 others.

Currently, the retailer’s network of corporate and independent operations employs about 220,000 Canadians.

In February, the company had forecast annual earnings above analysts’ expectations after it posted upbeat fourth-quarter results, helped by steady demand for groceries, cough and cold medicines, as well as high-margin beauty and cosmetics products.

JPMorgan Chase & Co’s (JPM-N) first-quarter profit beat Wall Street estimates as higher interest income offset weakness in dealmaking, and the biggest U.S. lender remained resilient through the banking crisis in March.

The lender’s shares jumped 7.5 per cent as its performance underscored how big banks - with their diversified businesses and trillions of dollars in assets - withstood the crisis better than regional banks.

Chief Executive Jamie Dimon said the U.S. consumer and the economy remain robust but cautioned that the banking crisis could turn lenders more conservative and impact consumer spending.

“The U.S. economy continues to be on generally healthy footings — consumers are still spending and have strong balance sheets, and businesses are in good shape,” Mr. Dimon said.

“However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”

Silicon Valley Bank and Signature Bank failed last month after depositors yanked their funds, marking the second and third largest collapses in U.S. history.

JPMorgan set aside loan loss provisions of US$2.3-billion, up 56 per cent from last year. It reported a 52-per-cent increase in profit to US$12.62 billion, or US$4.10 per share, in the three months ended Mar. 31.

Excluding one-time costs, the bank earned US$4.32 per share, ahead of analysts’ average expectation of US$3.41 per share, according to Refinitiv IBES data.

“JPM is one of those household names in a sector that we were the most concerned about reporting better than expected earnings and that is certainly putting a bid in the stock and a bid in the market,” said Art Hogan, chief market strategist at B Riley Wealth in Boston.

Citigroup Inc. (C-N) gained 4.8 per cent on a better-than-anticipated first-quarter profit as it earned more from borrowers paying higher interest on loans, benefiting from a tighter monetary policy by the Federal Reserve.

However, it set aside US$241-million in the quarter to cover potential loan losses against the backdrop of a slowing economy and compared to a reserve release of US$138-million a year ago.

The lender’s deposit growth was flat at US$1.33-trillion from a quarter as well as a year ago as investors moved their cash into money market funds to chase greater yields.

Its loans also fell marginally to US$652-billion, while its net interest income rose 23 per cent to US$13.3-billion.

Analysts expect an economic slowdown to curb demand for loans and depress net interest margins (NIM) across the industry in the coming quarters.

Citi’s NIM could be the worst hit due to its high deposit betas, the difference in interest rates banks pass on to consumers, Moody’s said in February. That could derail its plan to better rival peers in profitability.

Under Chief Executive Jane Fraser, the bank has been simplifying its businesses in an effort to boost revenue and become more competitive with rivals.

Citi earned US$1.86 per share in the first quarter, beating analysts’ average estimate of US$1.67, according to Refinitiv data.

BlackRock Inc. (BLK-N) was higher by 3 per cent as it reported an 18-per-cent drop in first-quarter profit on Friday but it beat analysts’ estimates as investors continued to pour money into its funds, cushioning the hit to fee income from a global banking rout that rocked financial markets.

The market rout hit BlackRock, which makes most of its money from fees on investment advisory and administration services. Still, net inflows for the first quarter were at US$110-billion, compared with US$86-billion a year earlier.

Stocks and bonds fluctuated wildly in the first three months of the year as investors switched from expectations of tighter monetary policy to anticipating interest rate cuts following the collapse of two U.S. regional banks in March.

“I believe today’s crisis of confidence in the regional banking sector will further accelerate capital markets growth, and BlackRock will be a central player,” said Larry Fink, chairman and chief executive of BlackRock.

BlackRock, the world’s largest asset manager, reported an adjusted profit of US$7.93 per share. Analysts had estimated a profit of US$7.76 per share, according to Refinitiv IBES data.

The New York-based firm ended the first quarter with US$9.1-trillion in assets under management (AUM), down from US$9.57-trillion a year earlier but up from US$8.59-trillion in the fourth quarter.

Quarterly revenue fell to US$4.2-billion from US$4.7-billion.

The drop was primarily due to “the impact of significantly lower markets and dollar appreciation on average AUM and lower performance fees,” BlackRock said in a statement.

On the decline

Reitmans Ltd. (RET-A-X) dropped almost 27 per cent after saying it saw sales rise in its fourth quarter and full fiscal year, while net earnings were down.

The Montreal-based retailer says sales for the fourth quarter of fiscal 2023 increased by 11.4 per cent to $211.9-million, while sales for the full year rose 20.9 per cent to $800.6-million.

Net earnings from continuing operations were $27.5-million for the fourth quarter, down almost 72 per cent from $97.5-million a year earlier, while earnings for the full year were $77.7-million, down almost 46 per cent from $143.2-million.

Reitmans attributed the decrease in earnings to a variety of factors including an increase in operating and financing costs and several one-time boosts in fiscal 2022.

President and CEO Stephen F. Reitman said he’s proud of the team’s performance in fiscal 2023 after exiting from creditor protection in January 2022.

The retailer initially filed for creditor protection in May 2020.

Cogeco Communications Inc. (CCA-T) slid 1.4 per cent following the late Thursday release of largely in-line second-quarter financial results.

The Montreal-based company reported revenue and adjusted EBITDA of $737-million and $351-million, respectively, meeting the Street’s forecast of $740-million and $352-million.

Desjardins Securities analyst Jerome Dubreuil called the addition of 1,369 Canadian subscriptions (revenue generating units) “a positive surprise.” He was projecting a loss of 5,500.

“These new customer gains were largely driven by the 7,799 net Internet additions, supported by CCA’s FTTH network expansions in Quebec,” he said in a note.

“Subscriber numbers being better than expected. The Ohio operations are still recovering as expected, but issues faced there in the last two quarters are affecting the top line of the U.S. operations. No material update was provided on wireless, as expected.”

Quantum computing pioneer D-Wave Quantum Inc. (QBTS-N) plummeted after it said Friday it had secured US$50-million in financing from its majority shareholder, Public Sector Pension Investment Board, which eased a near-term liquidity crunch but was overshadowed by a disappointing 2023 financial forecast.

Burnaby, B.C.-based D-Wave said Friday it had entered into a U$50-million, four-year term loan agreement with a PSP affiliate, starting with a US$15-million advance, with the rest to follow this year subject to meeting certain terms and conditions.

That financing was crucial as D-Wave ended 2022 with just US$7.1-million in cash. It used US$45.2-million cash to fund operations last year.

The company went public last August by merging with a New York Stock Exchange-listed special purpose acquisition company (SPAC) in the hopes of raising US$340-million. But it only secured a fraction of that as SPAC investors redeemed 97 per cent of the $300-million they had paid in. The remaining US$9-million didn’t even cover the merger deal costs. Existing D-Wave investors committed US$40-million but more than half of that went to repay a venture loan. D-Wave has to date raised more than US$350-million from investors plus tens of millions of dollars in federal aid.

- Sean Silcoff

Wells Fargo & Co (WFC-N) closed 0.4 per cent lower after it beat profit expectations for the first quarter as the lender earned more from higher interest rates, while executives said the U.S. economy is strong but expected to slow in response to tighter monetary policy.

The bank set aside US$1.21-billion in the quarter to cover for potential loan losses, compared to a release of US$787-million a year earlier.

While rate hikes have helped shore up interest income at U.S. lenders in recent quarters, the gains have come with increasing worries that economic storm clouds will get heavier as the Federal Reserve keeps rates “higher for longer.”

“There is a lot of activity in the economy,” said Chief Financial Officer Mike Santomassimo.

“Given the rate of rate increases, we do expect some slowing in the economy - but so far its been very strong. You can also see that in the labor market,” he added.

The provision included a US$643-million rise in the allowance for credit losses reflecting an increase for commercial real estate loans, primarily office loans, as well as an increase for credit card and auto loans, the bank said.

Analysts have warned of further weakness in the commercial real estate (CRE) market amid the proliferation of remote working that has emptied out offices in major cities.

Wells Fargo said outstanding CRE loans were US$154.7-billion, or 16 per cent of total loans, with US$35.7-billion in office loans at the end of March.

“We are glad to have been in a strong position to help support the U.S. financial system during the recent events that impacted the banking industry. Regional and community banks are an important part of our financial system,” CEO Charlie Scharf said in a statement on Friday.

The bank earned US$1.23 per share, excluding one-time items, for the quarter ended March 31. That compared with analysts’ average estimate of US$1.13 per share, according to Refinitiv IBES data.

“Both Wells Fargo and JP Morgan delivered very, very solid results, blowing past the expected earnings. Deposits were down, but really these big banks have been so awash in deposits for the past few years, that they have not known how to put the money to work,” said Opimas CEO Octavio Marenzi.

Boeing (BA-N) has halted deliveries of some 737 MAXs as it grapples with a new supplier quality problem by Spirit AeroSystems that could stretch back to 2019, the U.S. planemaker disclosed late Thursday.

The issue will likely affect a “significant” number of undelivered 737 MAX airplanes both in production and in storage, and could result in lowered 737 MAX deliveries in the near term, the company said.

Boeing shares fell 5.6 per cent and shares of Spirit AeroSystems (SPR-N) were also down following the announcement.

The problem, which affects a portion of the 737 MAX family of airplanes, including the MAX 7, MAX 8 and MAX 8200 airplanes as well as the P-8 Poseidon maritime surveillance aircraft based on the 737 NG, is not a safety of flight issue and in-service planes can continue to operate, Boeing said.

The Federal Aviation Administration said it had “validated” Boeing’s assessment that there was no immediate safety issue “based on the facts and data Boeing presented” and the agency will evaluate all affected aircraft before delivery.

The problem involves the installation of two fittings that join the aft fuselage made by Spirit to the vertical tail, which were not attached correctly to the structure of the fuselage before it was sent to Boeing. Certain versions of the aircraft, like the MAX 9, use fittings from different suppliers and were correctly installed.

Boeing was officially notified about the problem by Spirit on Wednesday, however the problem is believed to date back to 2019 and the company is still determining how many aircraft could be impacted, Boeing said.

Boeing declined to comment on whether the problem will force it to roll back plans to boost 737 production this year as it races to deliver at least 400 MAXs in 2023. The company, which announced deliveries of 111 MAXs over the first quarter, had aimed to increase monthly MAX production rates from 31 to 38 by June.

“We have notified the FAA of the issue and are working to conduct inspections and replace the non-conforming fittings where necessary,” Boeing said. “We regret the impact that this issue will have on affected customers and are in contact with them concerning their delivery schedule.”

United Airlines (UAL-Q) said late Thursday after discussions with Boeing that “at this time we do not expect any significant impact on our capacity plans for this summer or the rest of the year.”

Spirit said it is working to develop an inspection and repair for the affected fuselages. Officials said the FAA is likely to issue an airworthiness directive that would mandate an inspection and repair regime.

The FAA has closely scrutinized Boeing aircraft since two fatal plane crashes in 2018 and 2019. The FAA continues to inspect each 737 MAX and 787 aircraft before an airworthiness certificate is issued and cleared for delivery. Typically the FAA delegates airplane ticketing authority to the manufacturer.

Lucid Group Inc. (LCID-Q) fell 6.6 per cent after it reported first-quarter production and delivery figures that were lower than the preceding three months, in line with its guidance of weak production this year.

The luxury electric car-maker produced 2,314 vehicles and delivered 1,406 in the quarter ended Mar. 31, lower than the 3,493 vehicles produced and 1,932 delivered in the December quarter.

The company said it will report quarterly results on May 8.

The Newark, Cal.-based company, already battling supply chain and logistics issues, was hit by aggressive price cuts sparked by Tesla Inc that lured consumers away from its luxury cars amid rising interest rates and high inflation.

In its full-year forecast released in February, the EV company estimated it will produce 10,000 to 14,000 luxury vehicles through the year, missing analysts estimate of 21,815 cars by a wide margin.

The company, backed by Saudi Arabia’s sovereign wealth fund, Public Investment Fund, delivered 4,369 cars in 2022, far below the 7,180 units it produced.

Last month, the company announced it would lay off about 18 per cent of its workforce, or around 1,300 employees, to cut costs as part of a restructuring plan.

With files from staff and wires

Follow David Leeder on Twitter: @daveleederOpens in a new window

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