On the rise
Suncor Energy Inc. (SU-T) soared after Elliott Investment Management said it is seeking changes to the Calgary-based company’s board of directors and is calling for a review of its executive leadership.
In a letter to Suncor’s board on Thursday, Elliott said shareholders have seen their investment lag behind nearly all large-cap North American oil and gas companies.
The U.S. investment manager, which said it holds a 3.4-per-cent economic interest in Suncor including shares and cash-settled derivatives contracts, wants to add five new independent directors to the Suncor board as part of other broad changes.
“Our investment in Suncor is underpinned by our conviction that, with the right leadership, the company can restore its prior success,” Elliott partner John Pike and portfolio manager Mike Tomkins wrote in their letter.
“Suncor’s integrated oilsands operations are a critical part of the global energy supply, and we believe these assets are dramatically undervalued.”
Pike and Tomkins said they looked forward to engaging with the board, along with their fellow shareholders, and hoped to meet with the board as soon as possible.
As part of its plan, Elliott wants to overhaul Suncor’s operational and safety culture.
It also wants the company to explore opportunities to unlock the value of assets outside of its core oilsands business, including its retail operations.
Canadian Pacific Railway Ltd. (CP-T) was higher after it saw revenue and profits dip in its first quarter as a weak grain harvest, a harsh winter and a work stoppage took their toll — though CP still expects major growth later this year.
CEO Keith Creel said last year’s drought devastated grain volumes, while frigid weather early in 2022 and a two-day strike in March brought down revenue by six per cent and earnings by two per cent year over year.
“It was a tough quarter. I’m not here to make any excuses,” Mr. Creel told analysts on a conference call Wednesday.
He said weather and COVID-19 hurdles were “uncontrollable” with roughly 500 employees going on sick leave due to the Omicron variant.
“This was going to be a tale of two halves.”
The Calgary-based company reported results a day after rival Canadian National Railway Co. (CNR-T) cited tough operating conditions and global economic uncertainty for its weaker profits, although adjusted earnings and revenues increased.
Volume dropped across all nine shipment categories, from energy to automotive, though revenue increased in five of them due partly to price hikes.
Revenue from grain shipments — typically the railroad operator’s biggest money maker — tumbled 20 per cent, putting it below container traffic. Grain carloads plunged 28 per cent, despite a major boost in U.S. grain haul.
First-quarter revenues fell to $1.84-billion from $1.96-billion last year.
Diluted earnings per share plunged to 63 cents from 90 cents a year earlier, well below analyst estimates of 73 cents per share, according to financial data firm Refinitiv.
The first-quarter operating ratio hit 70.9 per cent versus 60.2 per cent a year earlier. The figure measures a railway’s efficiency, dividing operating expenses by net sales — the lower the number the better.
Scotia Capital analyst Konark Gupta said: “CP posted an 10-per-cent miss on Q1 EPS due largely to a significant OR [operating ratio] deterioration as the quarter was full of challenges (Omicron, supply chain, weather, labour, and fuel). However, management remains upbeat on 2H outlook across all segments while pricing remains solid, which should bring the OR back to normal in the next quarters. Although the issues were well-known and were mostly priced in already, we expect a negative reaction today as CP missed beaten-down expectations (actually missed original expectations from late-January by 20 per cent). We would tactically take advantage of stock’s weakness as our outlook has changed only modestly, given the growth opportunity set remains strong organically and inorganically. We also continue to see a high probability of KCS merger approval and realization of long-term synergies, although the regulatory process has shifted to the right by up to three months. We continue to view CP as a 2H story based on our fundamental outlook and KCS approval timing.”
Shares of Precision Drilling Corp. (PD-T) increase after boosting its 2022 capital spending in anticipation of a continued strong run for the oilfield rig provider amid higher demand and surging prices for oil and natural gas.
The Calgary-based company said it will spend $125-million as the current market momentum is expected to continue in anticipation of higher activity and additional contracted rig upgrades.
Precision Drilling had said in February it anticipated spending $98-million this year.
The company said its first-quarter revenue increased nearly 50 per cent to $351.3-million, up from $236.5-million a year ago. U.S. and Canadian drilling activity increased by 56 and 48 per cent, respectively, and well service activity gained 10 per cent.
“Customer demand for our services in both the U.S. and Canada continues to grow with U.S. activity up 10 per cent sequentially and Canadian winter activity matching 2018 levels,” stated president and CEO Kevin Neveu in a news release.
“All indications point to the current market momentum continuing through 2022, driven by strong energy supply-demand fundamentals that have taken shape in the early post-pandemic recovery.”
A return of global energy demand is coming following years of upstream oil and natural gas underinvestment and sanctions imposed on Russian oil exports that have pushed up commodity prices.
“At current commodity price levels, we anticipate higher demand for our services and improved fleet utilization as customers seek to maintain production levels and replenish inventories, as drilled but uncompleted wells have been depleted over the past several years,” Precision said.
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In a research note, ATB Capital Markets equity analyst Waqar Syed said: “Adjusting for the hefty share-based compensation, the underlying Q1/22 results were ahead of ATB estimates. The stock has recently pulled back from its highs, and we expect strong margin performance in the US and Canada markets to be received positively. Moreover, we see a very strong outlook for the land drilling sector, which should help this premier driller. "
Facebook rebounded from a drop in users early this year and its parent Meta Platforms Inc. (FB-Q) posted a profit ahead of Wall Street targets, defying low investor expectations with a quarterly report that sent shares soaring.
Meta CEO Mark Zuckerberg also said that the company would scale back costs and was investing in artificial intelligence tools to improve recommendations and ads, a sign Meta is buckling down to make money while working on its long-term ambitions to build the metaverse.
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Meta’s profit soundly beat Wall Street targets at US$2.72 per share, compared with an average analyst estimate of US$2.56, according to IBES data from Refinitiv. The earning beats were tempered by Meta recording its slowest revenue growth in a decade.
Facebook daily active users (DAU), a key metric for advertisers, were 1.96 billion, slightly higher than the estimate of 1.95 billion, according to IBES data from Refinitiv. Monthly active users came in at 2.94 billion, missing Wall Street estimates by 30 million.
Meta has lost about half of its value since the start of the year, after a dismal February earnings report when Facebook’s daily active users declined for the first time and it forecast a gloomy quarter, blaming ongoing factors including Apple’s privacy changes and increased competition from platforms like ByteDance’s TikTok.
“It’s good news that Meta somehow managed to eke out growth in DAU. It needed to show some sort of turnaround from last quarter’s performance,” Insider Intelligence analyst Debra Williamson said.
“However, growth in monthly active users is slowing quickly. A few quarters ago it could count on developing markets to keep the growth engine going but it’s likely that even these high-growth opportunities are starting to dry up,” she said.
Total revenue, the bulk of which comes from ad sales, rose 7 per cent to US$27.91-billion in the first quarter, but missed analysts’ estimates of $28.20 billion, according to IBES data from Refinitiv.
In a conference call with analysts on Wednesday, Chief Financial Officer Dave Wehner cited factors including a slowdown in ecommerce after rapid growth during the COVID-19 pandemic, as well as a loss of revenue in Russia and reduced ad demand amid global economic uncertainty. On the call, Mr. Zuckerberg also echoed previous warnings about the challenges of engagement shifting toward features like its short video offering Reels, which generates less revenue than other ad formats.
Russia banned Facebook and Instagram in March, finding Meta guilty of “extremist activity” amid Moscow’s crackdown on social media during its invasion of Ukraine. Meta’s messaging service WhatsApp is not affected by the ban. Meta has also barred advertisers in Russia from creating and running ads anywhere in the world.
Meta forecast second-quarter revenue between US$28-billion and US$30-billion. Analysts on average were expecting current-quarter revenue of US$30.63-billion. The company said its outlook reflected factors including the war in Ukraine and said it was monitoring the potential impact of regulatory moves in Europe.
Qualcomm Inc. (QCOM-Q) forecast third-quarter revenue above analyst expectations after beating second quarter revenue and profit estimates on Wednesday after the bell, largely due to its move to focus on a growing non-handset business to cushion a likely hit from slowing smartphone demand.
The robust earnings outlook and record quarterly revenue for the last quarter pushed Qualcomm shares up.
Lockdowns in China, war in Ukraine and rising inflation has taken a toll on consumers, preventing them from spending on electronic gadgets like phones. However, Qualcomm has not been affected so far.
“The market in China is changing a bit. I think we’re kind of less impacted by it because we’re really focused on the premium and high-tier” smartphone market, Chief Executive Officer Cristiano Amon told Reuters.
Runar Bjørhovde, an analyst at research firm Canalys, said smartphone makers will want to focus on selling more profitable high-end phones as the supply chain constrains production, while consumers will want to buy cheap phones as inflation and uncertainty hold them back from spending.
He said the “sweet spot” will be in the mid-range devices ($300-$800), where Qualcomm has a strong hold and excellent partnerships with the vendors who dominate this market segment.
Qualcomm’s strong results coupled with Meta Platforms’ surprising profit beat pushed Apple Inc’s (AAPL-Q) shares up in after-hours trading, providing glimmers of hope for a solid showing when the iPhone maker reveals results on Thursday.
“These (Qualcomm) results lay the foundation to make a strong case that the smartphone business is still strong after the traditionally big holiday quarter,” said Dan Morgan, senior portfolio manager at Synovus Trust Company, adding that Qualcomm derives 25 per cent of its sales from making modem solutions for Apple.
But Apple is working on its own chips to replace Qualcomm’s. Analysts have said Qualcomm is preparing for the inevitable.
“Qualcomm is certainly relying on the Android market, leaning into it heavily as they anticipate losing Apple’s business for its modem chips. Within Android, Samsung is the clear leader in premium handsets, and will likely be an important customer for Qualcomm in the future,” said Logan Purk, an analyst at Edward Jones.
Qualcomm forecast current-quarter revenue between a range of US$10.5-billion and US$11.3-billion, compared with analysts’ estimates of US$9.98-billion, according to IBES data from Refinitiv.
Adjusted revenue for the quarter ended March 27 was US$11.16-billion, above estimates of US$10.6-billion.
Excluding items, Qualcomm earned US$3.21 per share, beating estimates of US$2.91.
PayPal Holdings Inc. (PYPL-Q) shares traded higher even after the company lowered its full-year profit outlook, signaling that payments volumes could take a hit from surging inflation and the conflict in Ukraine.
Still, the company reported a modest increase in revenue and user growth, appearing to quell some investor fears.
The company said it expects adjusted profit between US$3.81 and US$3.93 on a per share basis, down from its previous forecast of US$4.60 to US$4.75.
In a conference call with analysts, Chief Executive Officer Dan Schulman said the company was withdrawing its medium-term outlook as both e-commerce penetration and macroeconomic conditions presented challenges.
He also acknowledged that “our shareholders expect more from us than our track record over the past several quarters.”
Customers in the United States have started tightening their belts in recent months as inflation surges to its highest in decades, pressuring earnings of payment processors like PayPal.
The company is also expected to take a financial hit from its decision to join the Western corporate boycott of Russia over the invasion of Ukraine, which Moscow has called a “special operation.”
PayPal had hit 52-week lows this week before reporting its earnings for the first quarter of 2022 as the market braced for a grim readout.
It earned a profit of 88 US cents per share on an adjusted basis, which was in line with analysts’ expectations.
The company said it expected an adjusted profit of 86 US cents per share in the current quarter, below analysts’ estimates of US$1.12 per share.
Menu price hikes and a new loyalty program helped McDonald’s Corp. (MCD-N) beat estimates for quarterly sales and profit on Thursday, despite inflationary pressure on consumers, the war in Ukraine and COVID-19 lockdowns in China.
Shares of the Chicago-based company rose.
Pinched by higher costs for gas, rent and groceries, lower-income customers are starting to buy cheaper or fewer McDonald’s menu items in some areas, Chief Executive Officer Chris Kempczinski said in a call with investors.
In “certain parts of the business and in certain geographies, there is a little bit of a trade down that we’re seeing that we’re just keeping an eye on,” he said. “We need to make sure that we continue to have value be an important part of our proposition.”
Even so, the world’s largest burger chain saw little resistance to menu prices that were roughly 8 per cent higher in the first quarter versus the prior year.
Most U.S. restaurant chains have raised prices to offset soaring costs for everything from worker salaries to beef and paper packaging.
McDonald’s commodity costs roughly doubled even since the previous quarter in the United States and Europe and are now as much as 14 per cent higher for the year, Chief Financial Officer Kevin Ozan said.
Even so, global comparable sales rose 11.8 per cent, above estimates for an 8.2-per-cent gain. Total revenue increased 11 per cent to US$5.67-billion, beating expectations for US$5.59-billion.
The introduction of a digital loyalty program late last year - which now has 26 million members - also helped drive a 3.5-per-cent increase in first-quarter comparable sales in the United States, its biggest market.
Analysts expected an increase of 3.3 per cent, according to Refinitiv IBES.
McDonald’s is losing roughly US$55-million a month to pay staff, landlords and suppliers “for keeping the infrastructure going” for its restaurants in the Ukraine and Russia, Ozan said.
McDonald’s, one of the first Western brands to enter Russia after the fall of the Soviet Union, said in early March it would suspend operations in Russia after Moscow invaded Ukraine.
Excluding costs to support the company’s business in Russia and Ukraine as well as other one-time expenses, McDonald’s earned a profit of US$2.28 per share, besting estimates of US$2.17.
Twitter Inc. (TWTR-N) on Thursday reported overall revenue and ad sales that fell short of expectations, hurt by the ongoing war in Ukraine, laying out the challenges billionaire Elon Musk will face if he takes over the social media company.
However, after it reported stronger-than-expected user growth in what could be the last quarter as a public company, Twitter shares rose slightly.
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“Elon Musk is buying Twitter at a time when the company is struggling to attract new users following the pandemic-driven surge,” said Haris Anwar, senior analyst at Investing.com.
To put Twitter’s user growth in perspective, the sequential addition of 12 million users in the first quarter is the biggest since the height of the pandemic. Since then, it has not come near that level and has ranged between 1 million to 7 million new users per quarter, after growing by 20 million daily active users in the second quarter of 2020.
The company would need to add at least 12 million users every quarter until the end of next year to achieve the ambitious 2023 goals it set for itself, which Twitter has now disavowed because of the deal.
“We think macro issues will take (Twitter) further away from its previously-stated 2023 goals,” said Angelo Zino, analyst at CFRA Research. “We believe results along with ongoing ad related industry headwinds solidify the Board’s decision to approve the Musk offer, as we see little reason to believe (Twitter) could extract greater shareholder value remaining public.”
Twitter has long faced criticism for its sluggish pace of product launches. Musk has tweeted suggestions ranging from releasing a widely-demanded edit button to making the Twitter algorithm open-source.
Daily active users on Twitter rose to 229 million in the first quarter ended March 31, from 199 million a year earlier. The figure beat analyst expectations of 226.8 million daily active users.
Twitter said an internal error resulted in the company overstating quarterly user numbers by about 1.5 million between the fourth quarter of 2020 to the end of 2021. The company said it also overstated the figures in 2019, but was unable to provide data.
Total revenue in the first quarter was US$1.2-billion, compared with analysts’ average estimate of US$1.23-billion, according to IBES data from Refinitiv.
The company earns the majority of its revenue from selling digital ads on the website and app. Twitter paused ads in Ukraine and Russia in February amid the ongoing invasion, which the Kremlin calls a “special military operation.”
“The macro environment is becoming hostile with advertisers curbing their spending as they deal with inflation, which is running at a four-decade high,” Anwar said.
Its net income rose to US$513.3-million, or 61 US cents per share, from US$68-million, 8 US cents per share, a year earlier.
On the decline
Ford Motor Co. (F-N) was lower after it posted better-than-expected quarterly results on Wednesday after the bel; and maintained its profit forecast for the year, citing strong vehicle pricing that partly offset higher costs and inflation.
Chief Financial Officer John Lawler called the performance “mixed,” saying continued chip shortages hit the company hard, especially on its large and most profitable vehicles - the F-Series pickup and Expedition and Navigator SUVs.
“The capability of this business is much stronger than what we were able to provide in the quarter and that was due to the constraints,” Mr. Lawler said, citing about 53,000 vehicles that had been built but not shipped as they awaited final parts held up by the chip shortage.
Ford and other automakers have been hit by supply-chain disruptions, inflation of raw materials and rising U.S. interest rates, but Mr. Lawler said higher vehicle prices had mostly offset those pressures.
A day earlier, General Motors Co (GM-N) also cited strong pricing on sales of more expensive models as its first-quarter results beat estimates.
Ford’s Lawler would not rule out additional price increases if the company faces further cost inflation. He also said Ford was being aggressive in cutting costs ahead of possible further inflation.
Ford posted operating earnings of US$2.3-billion in the first quarter, above expectations but well below the year-earlier US$3.9-billion. A markdown in the value of its stake in electric vehicle maker Rivian Automotive Inc (RIVN-Q) resulted in a first-quarter net loss of US$3.1-billion.
The automaker’s operating profit of 38 US cents a share beat analysts’ estimates by a penny. Revenue of US$34.5-billion also topped estimates of US$31.1-billion.
Citing the strong demand and pricing, Ford reaffirmed its forecast for operating earnings in the full year of US$11.5-billion to US$12.5-billion.
Bellwether Caterpillar Inc. (CAT-N) on Thursday warned that demand for excavators in China, one of its largest markets, could slip below pre-pandemic levels in 2022, as construction activity takes a hit in the country from strict pandemic lockdowns.
Shares of the Deerfield, Illinois based-company fell, as analysts expressed disappointment over the company’s current-quarter margin forecast.
“The 10-ton and above excavator market in China was very strong in 2020 and 2021. We now anticipate this market will be slightly lower than 2019 levels (this year),” Caterpillar Chief Executive Jim Umpleby said on a post-earnings call.
China’s “zero Covid” policy to combat the Omicron variant has triggered fresh lockdowns, shutting factories and hurting sales of companies such as General Electric Co and 3M Co in the first quarter.
The stringent policy also hit Caterpillar, which gets about 5-10 per cent of its total revenue from the country.
“The lockdowns could weigh on CAT results in China in the second quarter,” Edward Jones analyst Matt Arnold said.
The company, however, benefited from demand else where. Sales rose across all other regions, with the exception of Asia-Pacific, buoyed by price hikes as well as higher mining and construction activity.
“Mining activity will continue to increase,” Caterpillar Chief Financial Officer Andrew Bonfield said in an interview.
Total operating costs in the first quarter rose 16.5 per cent to US$11.73-billion.
The company has managed to dodge the impact of supply-chain challenges and higher input costs by announcing price hikes.
Caterpillar also expects further price increases, which will help improve margins in the second half of the year, compared with the first, it said.
Adjusted profit for the latest period was US$2.88 per share, beating average analysts’ expectation of US$2.60 per share.
Revenue rose about 14 per cent to US$13.59-billion, beating expectations of about US$13.4-billion.
With files from staff and wires
David Leeder