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A look at North American equities heading in both directions

On the rise

Apple Inc. (AAPL-Q) rebounded from premarket declines and finished up 2.5 per cent after it forecast that revenue would fall for a second quarter in a row but that iPhone sales were likely to improve as production had returned to normal in China after COVID-related shutdowns.

While striking an optimistic tone on sales of services and iPhones, CEO Tim Cook said an uncertain economy is expected to hurt categories like gaming and digital advertising.

Overall, Apple’s leaders tried to reassure investors that despite the firm being buffeted by up-and-down sales cycles for its flagship device and vulnerable to supply chain shocks, the world’s largest listed company remains on a steady - if somewhat slower - rise. And in the immediate aftermath of some of the company’s worst financial results in years, at least some investors seemed to give Cook the benefit of the doubt, imposing only modest share price declines.

For the just-ended quarter, Apple’s profits missed Wall Street expectations for the first time since 2016, dragged down by iPhone sales falling for the first time since 2020.

The stock was down after Chief Financial Officer Luca Maestri said that iPhone sales were likely to improve compared with the quarter ended Dec. 31. That did not quite erase a 3.7-per-cent gain during regular trade.

Apple sales fell 5 per cent to US$117.2-billion and were down in every part of the world in the quarter. Sales from each product category dropped, except for gains in services and iPads. Earnings per share were US$1.88.

Analysts had expected sales of US$121.1-billion and profits of US$1.94 per share, according to IBES data from Refinitiv.

In an interview, Mr. Cook told Reuters that the production disruptions that plagued Apple’s key quarter were now over.

“Production is now back where we want it to be,” he said.

During its fiscal first quarter ended Dec. 31, Apple faced a wave of challenges that left Wall Street expecting lower sales. Chief among those were supply chain pressures when COVID lockdowns at a production facility in Zhengzhou, China, slowed production of iPhone 14 Pro and Pro Max devices, both premium priced models that would traditionally help drive Apple’s margins higher.

Cook said the lockdowns in China created a dual challenge where both supply and demand were constrained, with greater China sales falling 7 per cent to US$23.9-billion.

Shares of Methanex Corp. (MX-T) gained 7.3 per cent following the late Thursday release of its fourth-quarter financial results.

While the Vancouver-based company missed the Street’s expectations on adjusted EBITDA (US$160-million versus US$174-million), it beat the consensus projection on revenue by 5 per cent (US$986-million versus US$943-million) and adjusted earnings per share by 65 per cent (72 US cents versus 44 US cents).

“While Methanex reported a headline miss ($160M vs. $174M), we suggest investors ignore it,” said Scotia Capital analyst Ben Isaascson. “As we highlighted a week ago, there was a build of produced inventory in Q4, as the methanol sold was more weighted to purchased methanol due to a FIFO inventory flow. Simply put, the Street/Scotia guessed incorrectly at what produced methanol sales volume would be due to the FIFO flow (1.36M vs. 1.43M mt). The actual number could have easily been a little above consensus, but it happened to settle below. We see no negatives in the results, only positives.”

OpenText Corp. (OTEX-T) jumped 5.1 per cent after it reported revenues for the most recent quarter were up 2.4 per cent year over year, with cloud revenues rising 12 per cent.

Net income for their second quarter ended Dec. 31 amounted to US$258.5-million, up 192.7 per cent, representing earnings of 96 cents US per diluted share, up from 32 US cents a year earlier.

Reaction from the Street: Friday's analyst upgrades and downgrades

That net income figure included $172-million of pre-tax unrealized gains related to its acquisition of U.K. software giant Micro Focus.

The Waterloo, Ont.-based company says year-to-date revenues are up four per cent.

The company announced earlier this week it had closed its acquisition of Micro Focus for almost US$6-billion.

At the same time, it announced layoffs of around eight per cent of the workforce due to the acquisition.

Nordstrom Inc. (JWN-N) surged almost 25 per cent on news billionaire investor Ryan Cohen is building a large stake and plans to push the upscale retailer to shake up its board as its performance has lagged behind rivals, people familiar with the matter said on Thursday.

Mr. Cohen, who built his fortune by co-founding online pet retailer Chewy Inc and cemented it with investments in videogame retailer GameStop and Apple Inc, would like to replace at least one director on Nordstrom’s 10-member board, the people said.

He appears to be taking aim at Mark Tritton, who chairs the compensation committee and has served as a director since 2020. Cohen has privately called Tritton, a former chief executive of Bed Bath & Beyond, “conflicted and unqualified,” said the people, who were not permitted to discuss the private negotiations. Bed Bath & Beyond is preparing to file for bankruptcy, Reuters reported this week.

Nordstrom shares have dropped roughly 55 per cent over the past five years, and ratings agency Fitch again downgraded the company last month, saying that its “operating trajectory has been weaker than most retailers.”

“While Cohen hasn’t sought any discussions with us in several years, we are open to hearing his views, as we do with all Nordstrom shareholders,” a company representative said.

The Wall Street Journal first reported Cohen’s stake in Nordstrom.

Canada-born Cohen is now one of the company’s top five non-insider shareholders alongside investment firms BlackRock and Fidelity, the people familiar with his stake said.

Tritton was ousted as Bed Bath & Beyond’s CEO as part of a management shakeup in June just a few months after Cohen had taken a stake in the home goods retailer and criticized it for an “overly ambitious” strategy, for overpaying executives and failing to reverse market share losses.

Mr. Cohen, 37, has a net worth estimated at US$2.5-billion. He made a splash in the investing world two years ago when he joined the board of GameStop, igniting a frenzy in the stock price that turned the video retailer into a “meme stock” backed by retail investors.

On the decline

Northland Power Inc. (NPI-T) was lower after releasing updated 2023 guidance ahead of its Investor Day presentation later in the morning.

It now is forecasting adjusted EBITDA of $1.2-$1.3-billion with its midpoint falling 4 per cent from a year ago ($1.25-$1.35-billion). The Street was expecting $1.3-billion.

The Toronto-based power producer’s adjusted free cash flow per share estimate is $1.70-$1.90 from $1.85-$2.05 in 2022.

“One key driver behind the lower guidance ranges year-over-year is the outlook for the offshore wind business, which has seen cash flows impacted by a lower wholesale power pricing forecast compared to 2023,” said ATB Capital Markets analyst Nate Heywood. “The release also included details on the robust growth pipeline, which included development projects in Canada and the planned expansion into new technologies like storage and hydrogen. Lastly, we would note NPI has adopted a net zero emissions target for 2040.” Inc. (AMZN-Q) on Thursday after the bell said its operating profit could fall to zero in the current quarter as savings from layoffs do not make up for the financial impact of consumers and cloud customers clamping down on spending.

And while Amazon’s holiday revenue beat Wall Street’s expectations, the company believes sales growth in its long-lucrative cloud business will slow for the next few quarters, its chief financial officer told reporters.

Tech earnings hit pause button on market rally

Shares fell 8.5 per cent on Friday, erasing their 7-per-cent gain before the market’s close Thursday.

Making a rare appearance on Amazon’s quarterly call with financial analysts, Chief Executive Andy Jassy said “virtually every enterprise” was treading carefully on cloud and other costs in light of economic uncertainty.

“We’re going to help our customers find a way to spend less money,” he said. “We’re trying to build a set of relationships in business that outlasts all of us.”

Facing high inflation and recession fears, Mr.. Jassy has embarked on extensive cost-cutting inside Amazon as well.

Last month, the online retailer said more than 18,000 employees particularly in its commerce and human resources divisions would lose their jobs. It booked a US$640-million severance charge in the fourth quarter, CFO Brian Olsavsky told reporters.

Amazon likewise has scaled back or shut down entire services like its virtual primary care offering for employers. It took another US$720-million charge from closing or impairing assets of some grocery stores, among other items, believing it has yet to find the right formula in its long-running supermarket bet.

“We’re not going to expand the physical Fresh stores until we have that equation, with differentiation and economic value that we like, but we’re optimistic that we’re going to find that in 2023,” Mr. Jassy said.

Despite this cost-cutting, Amazon forecast it would earn between US$0 and US$4-billion in operating income this quarter, compared with US$3.7-billion in the same period a year prior and US$4.04-billion that analysts were expecting, according to research firm FactSet.

Mr. Olsavsky attributed this to sales growth easing in the cloud, as well as brands pouring money into Amazon ads more slowly now that the holiday shopping season is over. Retail demand is another factor.

“We remain nervous as everyone else is about the consumer spending and ... how people will prioritize their budgets moving forward,” he said.

The company’s total net sales were US$149.2-billion in the fourth quarter, compared with analysts’ expectations of US$145.4-billion, according to IBES data from Refinitiv.

Consumer spending, however, shifted more to value brands in some categories and a greater percentage of sales in home essentials, Mr. Olsavsky said.

Still, its outlook is particularly tied to the fortunes of its cloud-computing division.

Andrew Lipsman, an analyst at Insider Intelligence, called slower growth in cloud and ads “a drag on profits going forward.”

Alphabet Inc. (GOOGL-Q) on Thursday posted fourth-quarter profit and sales short of Wall Street expectations as Google’s advertising clients pulled back spending from a period of pandemic-led excess.

Big Tech earnings show digital ads market not out of the woods

Executives of the search and advertising giant adopted a subdued tone on a call with investors, promising an extended period of belt-tightening, particularly on hiring, real estate costs and experimental projects that can take years to reach fruition.

Shares of Alphabet were down 2.7 per cent in Friday trading, after losing about 40 per cent of their value in 2022.

“We are committed to investing responsibly with great discipline and defining areas where we can operate more cost- effectively,” Chief Executive Sundar Pichai told analysts on a call to discuss the company’s results. That echoed comments from Meta Platforms Inc boss Mark Zuckerberg the previous day on cost efficiencies.

Gone was some of the exuberance of the pandemic when consumers flocked to the internet amid lockdowns and heightened interest in e-commerce and touchless deliveries.

Alphabet’s chief financial officer, Ruth Porat, promised a more measured approach for 2023 and a focus on “delivering sustainable financial value,” not necessarily a hallmark of Silicon Valley firms. “We’re focused on revenue upside as well as durable changes to the expense base.”

Advertisers, who contribute the bulk of Alphabet’s sales, have cut their budgets as rising inflation and interest rates fueled concern over consumer spending.

Mr. Pichai pointed to advertisers’ more modest spending and the impact of foreign exchange rates abroad as drags on Alphabet’s overall results.

He said artificial intelligence (AI) software will be an important focus for the company and that it plans to make its LaMDA chatbot software publicly available in the coming weeks.

Net income fell to US$13.62-billion, or US$1.05 per share, from US$20.64-billion, or US$1.53 per share, a year earlier. That was the sharpest decline for Alphabet in four quarters.

Adjusted profit of US$1.05 per share fell short of an expected US$1.18 per share, according to Refinitiv.

Revenue from Google advertising, which includes Search and YouTube, fell 3.6 per cent to US$59.04-billion. Total revenue rose 1 per cent to US$76.05-billion, its slowest growth ever barring a small decline in the second quarter of 2020. Analysts were expecting US$76.53-billion.

Revenue from YouTube ads, one of Alphabet’s most consistent money-makers, fell nearly 8 per cent to US$7.96-billion, well below the estimate of US$8.25-billion, according to FactSet.

Ford Motor Co. (F-N) closed 7.5 per cent lower after it said quarterly profits fell and the automaker predicted a difficult year ahead, sending its shares down after the bell as investors were disappointed following this week’s robust report from rival General Motors Co. (GM-N)

Ford blamed chip shortages and other supply chain issues and production “instabilities” that raised costs, along with lower-than-expected volumes. Ford shares dropped more in Friday trading.

“We should have done much better last year,” Ford CEO Jim Farley said in a statement. “We left about $2 billion in profits on the table that were within our control.”

In an analyst call, Mr. Farley added: “We have deeply entrenched issues in our industrial system,” saying “this has been humbling for both me and my team.”

Ford forecast flat to lower pre-tax profits for 2023, as well as greatly reduced free cash flow, and signaled an accelerated effort to slash costs.

GM shares jumped on Tuesday, and Ford’s shares rose slightly after GM reported higher net income for the fourth quarter, forecast stronger-than-expected earnings for 2023 and said it would cut US$2-billion in costs.

In a briefing late Thursday, Ford Chief Financial Officer John Lawler said “2023 is a pivotal year for us as we reshape the company.” Some aspects of Ford’s overhaul are “lagging and need more work,” he said.

“In the simplest terms, we need to improve quality and lower costs now,” Mr. Lawler told reporters.

He also predicted a “mild” recession for the U.S. market in 2023, compared with a more upbeat economic forecast by GM.

Mr. Lawler said Ford’s fourth-quarter sales volumes were 100,000 vehicles short of expectations. He blamed most of that on the company’s inability to get enough chips for its cars. Lawler said it was “hand-to-hand combat” to get chips and capacity was still constrained for the larger, older chips used in the auto sector.

He said Ford faces US$5-billion in higher costs this year, but has kept the mid-range of its profit guidance flat with 2022. Ford had previously set a target of cutting US$3-billion in costs from operations, but Lawler said the company will be “very aggressive” in reducing expenses in its manufacturing and supply chain operations, adding, “Everything’s on the table.”

Ford expects full-year adjusted pretax earnings of US$9-billion to US$11-billion. The company’s 2022 adjusted profit of US$10.4-billion was short of Ford’s forecast at the end of the third quarter for US$11.5-billion.

Fourth-quarter net income fell to US$1.3-billion, from US$12.3-billion in the year-earlier period. Revenue climbed to US$44-billion, from US$37.7-billion the previous year. Adjusted pretax earnings were US$2.6-billion, compared with US$2.0-billion last year.

Starbucks Corp.’s (SBUX-Q) quarterly sales decline in China was four times worse than the coffee chain expected and it has no “line of sight” into when business there will fully recover, the company said on Thursday, sending its shares down 4.5 per cent.

Starbucks Corp’s comparable sales in China fell 29 per cent in its first fiscal quarter ended Jan. 1, pulling international comparable sales 13 per cent lower.

Investors are scrutinizing global brands like Starbucks that have significant exposure to China as they worry about the lingering financial impact of the pandemic there.

While the country has largely abandoned its zero-COVID policy and began reopening in early December, fewer people are picking up their Starbucks coffees at stores due to widespread COVID-19 outbreaks.

Seattle-based Starbucks does not have “clear line of sight into the timing of recovery” and believes sales will continue to decline through this quarter, Chief Financial Officer Rachel Ruggeri said on a conference call.

Still, traffic started recovering in January and was “fantastic” during Lunar New Year, Starbucks China Chief Executive Officer Belinda Wong told investors on an earnings call on Thursday.

Starbucks posted a profit of 75 US cents per share on an adjusted basis versus analysts average expected profit of 77 US cents, according to Refinitiv.

The steep losses in China “took us by surprise by a huge margin because we were expecting trends to improve compared to the last quarter,” said Edward Jones analyst Brian Yarbrough.

China has been Starbucks’ fastest-growing market. It added a net 69 stores there over the quarter for a total of 6,090 locations.

The chain still plans for 9,000 total outlets there by the end of 2025, executives said. Ruggeri reiterated the company’s overall guidance for global comparable sales growth of 7 per cent to 9 per cent for its fiscal 2023.

Global comparable sales at Starbucks rose 5 per cent, compared with analysts’ average estimate of a 6.75-per-cent rise, according to Refinitiv IBES data.

Active membership in the recently revamped Starbucks Rewards loyalty program grew 15 per cent to 30.4 million in the United States.

Promotions and seasonal menu items like its Irish Cream Cold Brew and Peppermint Mocha drove increased U.S. traffic on some weeks in November and December. But overall, monthly visits to Starbucks were consistently lower than last year, according to location analytics firm

Qualcomm Inc. (QCOM-Q) slid 0.6 per cent after it forecast second-quarter revenue and profit below Wall Street estimates on Thursday as the chipmaker grapples with the combined toll of weak demand for smartphones and a supply glut, a situation that is expected to persist into the first-half of this year.

Inflation and macroeconomic uncertainty have hurt consumer electronics sales, and while Qualcomm has been somewhat buffered by its focus on premium smartphones, analysts said even that market has been hit.

“The handset industry continues to experience reduced demand, and we are now expecting elevated channel inventory levels to persist at least through the first half of calendar 2023,” Cristiano Amon, Qualcomm CEO told investors.

To cope, he said the company would further cut spending and streamline operations.

On Wednesday, Samsung Electronics launched its latest Galaxy S23 series smartphone which now uses 100 per cent of Qualcomm processors globally, but the launch comes at a tough time in the market.

“Discussions with mobile service providers revealed a continued and deepening weakness in smartphone demand globally which doesn’t bode well for Qualcomm,” said Maribel Lopez, tech analyst at Lopez Research.

Apple, the world’s largest listed company, said iPhone sales fell last quarter for the first time since 2020.

Qualcomm has also diversified, pushing into new fast-growing areas such as automotive. Revenue for that business in the fiscal first quarter rose 58 per cent on year to US$456-million, although the company expects that to be sequentially flat in the current quarter.

The chipmaker forecast current quarter revenue in the range of US$8.7-billion to US$9.5-billion, compared with analysts’ estimates of $9.55 billion, according to Refinitiv data.

Its fiscal first quarter revenue dropped 12 per cent year-on-year to US$9.46-billion, below Wall Street expectation of US$9.60-billion.

In the first quarter, Qualcomm reported adjusted earnings per share of US$2.37, which compares with the analyst consensus of US$2.34 per share, according to Refinitiv data.

With files from staff and wires