A roundup of some of the North American equities that made moves in both directions
On the rise
Keyera Corp. (KEY-T) jumped 2.6 per cent after announcing after the bell on Wednesday a reduction in its 2020 capital program following a decision to delay the construction of the KAPS pipeline system by 12 months.
The Calgary-based midstream energy company is now projecting to invest growth capital of between $475-million and $525-million in 2020, down from between $700-$800-million previously.
Keyera also suspended its premium dividend and dividend reinvestment plan in "response to challenging industry conditions related to the unfolding COVID-19 crisis and the significant decrease in global oil prices."
In a research note, Industrial Alliance Securities analyst Elias Foscolos said: “[Wednesday’s] announcement that Keyera was deferring its KAPS pipeline by one year and suspending its DRIP program come as no surprise to us as the two go hand in hand. In our view, takeaways for investors are (a) Keyera’s dividend is safe, (b) Keyera is essentially self-funded, and (c) the delay in KAPS, in our view, is simply a delay. The impact of the 2022 reduction in EBITDA by the loss of KAPS is compensated for by the lower share count.”
Trucking, logistics and oilfield services firm Mullen Group Ltd. (MTL-T) was 7.2 per cent higher after announcing late Wednesday it has temporarily laid off about 1,000 people because of the impact of measures to control the COVID-19 pandemic.
Chairman and CEO Murray Mullen says the Calgary-based company was outperforming its year-earlier performance until mid-March, when demand for its services turned lower.
He says there’s been a sharp decline in the demand for discretionary consumer goods as well as in commodity-based industries but its less-than-truckload and large diameter pipe transport businesses are doing well.
The company reported net income of $4.7-million or four cents per share on revenue of $318-million in the three months ended March 31.
That’s down from net income of $11.6-million or 11 cents on revenue of $320-million in the first quarter of 2019.
Industrial Alliance Securities analyst Elias Foscolos said: “MTL’s Q1/20 results were in line with our estimates. Free cash flow was solid, and liquidity and debt covenants appear to be in good shape as of quarter-end. MTL has been systematically repurchasing shares in order to effectively replace its temporarily suspended dividend ($5-million per month). However, the downturn in economic activity and oil & gas markets due to COVID-19 was not felt materially until closer to the end of the quarter, and we expect a much more pronounced impact on results beyond Q1. As such, we are more focused on what the future holds than we are on the Q1/20 results.”
Zoom Video Communications Inc. (ZM-Q) sat up 12.5 per cent after its video conferencing app’s user base grew by another 50 per cent to 300 million in the last three weeks, as the company fought to quell a backlash around security and safety that has seen a number of governments and firms ban its applications.
Chief Executive Eric Yuan gave the numbers late on Wednesday in an update on the platform’s 90-day security plan, while also outlining the rollout next week of a new version of the app with more encryption features.
German carmaker Daimler was the latest company on Thursday to say it had banned use of Zoom for all corporate content until further notice.
“There are some reports about security gaps and challenges regarding data protection of Zoom,” Mercedes-Benz Cars spokesperson Christoph Sedlmayr said.
“This does not comply with the security requirements of our company. Therefore, we can confirm that Daimler prohibits the use of Zoom for corporate content until further notice.”
Eli Lilly and Co. (LLY-N) was up 2.1 per cent after it beat quarterly profit estimates and raised the top-end of its 2020 earnings forecast on Thursday, benefiting from customers stockpiling on medicines such as its diabetes treatment Trulicity amid the coronavirus pandemic.
Shares of the drugmaker rose 2.7 per cent in early trading as the drugmaker’s first-quarter revenue got a nearly US$250-million boost due to the stay-at-home orders that led people to stock up on its insulin products and diabetes drug Trulicity.
The health crisis has resulted in massive business disruptions and foiled drug development plans as healthcare providers prioritize treating COVID-19 patients.
The company forecast full-year adjusted profit per share of between US$6.70 to US$6.90, a 10-cent boost to the top-end, citing more demand for its newer drugs and said it expect clinical trials to resume in the second half of the year.
Top-selling drug Trulicity brought in 40-per-cent higher revenue of US$1.23-billion in the quarter. Overall revenue rose 15 per cent to US$5.86-billion, exceeding Wall Street estimates of US$5.51-billion in the quarter.
Delta Air Lines Inc. (DAL-N) closed flat in the wake of revealing late Wednesday it intends to raise US$3-billion in debt by offering senior secured notes and entering into a new credit facility, in a bid to combat the slowdown in air travel demand induced by the coronavirus crisis.
The company said it would offer US$1.5-billion in aggregate principal amount of senior secured notes due 2025 and intended to enter into a new $1.5 billion Term Loan B facility due 2023.
Atlanta-based Delta reported its first first-quarter loss in nine years and forecast a 90-per-cent decline in second-quarter revenue as the coronavirus crisis devastates air travel demand.
Chief Executive Officer Ed Bastian had said the company expected to raise several billion dollars more in financing in coming months.
Blackstone Group Inc. (BX-N), the world’s largest manager of alternative assets such as private equity and real estate, gained 4.4 per cent after it reported a 4-per-cent rise in its first-quarter distributable earnings on Thursday driven by a surge in management fees, even as its funds took a hit in the coronavirus-induced downturn.
Blackstone posted a 16-per-cent rise in management and advisory fee revenue thanks to its continued fundraising, which offset a 32-per-cent drop in revenue generated from performance fees it books when it cashes out on assets.
Distributable earnings (DE) rose to US$557.1-million from US$538-million a year earlier. This translated into DE per share of 46 US cents, lower than the 50 UScents that analysts estimated on average, according to data compiled by Refinitiv.
U.S. stock prices have tumbled as stay-at-home measures to fight the coronavirus pandemic have shut down large swathes of the economy, weighing on Blackstone’s portfolio.
Blackstone said the value of its private equity funds fell by 21.6 per cent in the first quarter, compared with a 20-per-cent drop in the benchmark S&P 500 stock over the same period. This reflected the economic impact not just of the COVID-19 pandemic, but also of the steep decline in oil prices that weighed on Blackstone’s holdings in the energy sector. Excluding the energy sector assets, Blackstone said its private equity portfolio declined 11.1 per cent.
U.S. railroad operator CSX Corp. (CSX-Q) jumped 0.9 per cent higher after it withdrew its financial forecasts after the bell on Wednesday and said it was evaluating future spending as business shutdowns triggered by the COVID-19 pandemic weigh on the U.S. economy.
The company, considered one of the most efficient U.S. railroads, also said profit fell less than expected in the latest quarter as cost controls helped offset revenue declines from shipments of products like coal, automobiles and fertilizer.
First-quarter net income declined almost 9 per cent to US$770-million, or US$1 per share. Analysts expected a 94-US-cent per-share profit for the quarter, according to Refinitiv IBES data.
Revenue for the first quarter fell 5 per cent to US$2.86-billion.
Citi analyst Christian Wetherbee said: “Coming off CSX’s 1Q20 earnings conference call we note that the company continued the strong trends we’ve seen so far from the rails posting another sub-60-per-cent operating ratio. In addition, CSX pulled off a strong operational and cost quarter in spite of a weaker volume environment than KSU or CP enjoyed. That said, we feel like there is a bit more downside risk to 2Q-4Q20 EPS than what we’ve seen from the rails so far. Based on our expectation of volume declines, incremental headwinds from coal and RE sales, and CSX’s already streamlined cost structure, we see 11-per-cent downside to our estimates and 12-per-cent downside to consensus for 2Q-4Q. However, we note that we are making only modest changes to 2021 estimates and still believe $4.00 of earnings power is possible. In that context, we expect a more muted reaction in shares than CP, but still see solid upside in the 12-18 month time frame.”
U.S. railroad operator Union Pacific Corp. (UNP-N) was up 3.5 per cent after it topped Wall Street estimates for quarterly profit on Thursday, but withdrew its full-year operating ratio and volume forecasts as business shutdowns triggered by the coronavirus crisis weigh on the U.S. economy.
The company said it would reduce capital spending in 2020 by US$150-million to US$200-million and forecast a drop of about 25% in second-quarter volumes.
The railroad also warned that improvement in its operating ratio for the second quarter was unlikely.
The company had previously expected an operating ratio of about 59 per cent for the full year and had forecast volumes turning slightly positive in 2020.
Ratings agency Moody’s has said railroads in North America will face lower demand for freight services in the event of an extended or more widespread outbreak of the coronavirus which has been disrupting supply chains and slowing economic activity.
Online travel services provider Expedia Group Inc. (EXPE-Q) rose 3.2 per cent after it said on Thursday private equity firms Silver Lake Partners and Apollo Global Management Inc would invest about US$1.2-billion in the company.
David Sambur, co-lead partner of Apollo’s private equity business, and Greg Mondre, managing partner of Silver Lake, will join the company’s board upon the closing of the deal in May, Expedia said.
Expedia, which would also raise about US$2-billion in new debt financing, said Vice Chairman Peter Kern has been named chief executive officer.
Patterson-UTI Energy Inc. (PTEN-Q) jumped over 26 per cent despite warning it would see a 60-per-cent decline in activity this year as shale companies slash spending and halt activity amid an unprecedented decline in oil prices.
The company said it expects to exit the current quarter with about 70 rigs in operation, down from an average of 123 rigs at the end of last year.
The Houston-based drilling contractor, which also has a hydraulic fracturing unit, said it expects four frack fleets to run in the second quarter, down from an estimate of around 10 earlier this year.
“I think the term ‘frack holiday’ may be overstating what’s going on,” Patterson-UTI Chief Executive Andy Hendricks told investors on a call. “I don’t see completions making a bounce back, certainly not in the third quarter.”
On the decline
Gilead Sciences Inc. (GILD-Q) stock dropped 4.6 per cent after the Financial Times reported its experimental coronavirus drug failed its first randomized clinical trial, citing draft documents published accidentally by the World Health Organization.
The Chinese trial showed the antiviral remdesivir did not improve patients’ condition or reduce the pathogen’s presence in the bloodstream, the report said.
Target Corp. (TGT-N) lost 2.8 per cent after it said before the bell a surge in online sales for in March and April offset the bulk of damage done by coronavirus lockdowns to in-store sales, but its margins continue to suffer along with profit from higher costs.
The big box retailer said digital comparable sales had surged over 275 per cent so far in April, with several days in the month recording more online sales than Cyber Monday, traditionally the busiest day for e-commerce companies.
However, the company expects margins to drop by 5-percentage points in the first quarter due to temporary wage increases of US$2 an hour for store and distribution center workers as well as higher sales of low-margin products such as groceries. The company now plans to pay higher wages until May 30.
Other players in retail, especially apparel chains and department stores, have taken a big hit from the pandemic, with some of them on the verge of filing for bankruptcy.
“Watching the retail industry decline is not something I enjoy, but I think going forward we’re going to seesignificant market share opportunities, across our apparel business,” Target Chief Executive Officer Brian Cornell said on a media call.
Gap Inc. (GPS-N) dipped 0.1 per cent higher in the wake of warning on Thursday it may not have enough funds to run its operations in the next 12 months as it weathers the impact of the coronavirus pandemic, and said it would need to cut costs and raise money by issuing debt.
The apparel retailer, which like many others in the industry has closed its stores and furloughed employees, said it had also suspended rent payments of about US$115-million per month in North America.
The company said it was in talks with landlords to defer payments, change lease agreements or in some cases terminate the leases and permanently close some of the stores.
Gap said it expects to have US$750-$850 million of cash and cash equivalents inclusive of short-term investments at the end of the fiscal quarter ending May 2.
In order to have sufficient liquidity for the next 12 months, the company said it would need to tap the debt market, cut jobs, defer capital expenditures and cut back on orders from vendors.
Houston-based pipeline operator Kinder Morgan Inc. (KMI-N) lost 3.2 per cent in the wake of reporting a smaller-than-expected quarterly profit and cut its adjusted core earnings forecast for the year, following a coronavirus-induced decline in fuel demand and a crash in crude prices.
The company now expects an 8-per-cent fall in annual adjusted earnings before interest, taxes, depreciation and amortization from previous estimates of about US$7.6-billion.
Kinder Morgan also took a non-cash impairment charge of US$950-million in the first quarter related to certain oil and gas producing assets in its CO2 unit.
The company cut its 2020 capital expenditure by about US$700-million, or nearly 30 per cent from its previous estimate.
RBC Dominion Securities analyst Elvira Scotto said: “KMI’s 1Q20 results missed expectations and the company lowered its 2020 outlook to below our recently revised estimates. KMI lowered its growth capex 30 per cent and increased its dividend only 5 per cent versus its previous guidance of 25 per cent, which we view as prudent. Importantly, we believe KMI has ample liquidity to weather through the challenging environment. We maintain our Sector Perform rating.”
Domino’s Pizza Inc. (DPZ-N) declined 3.6 per cent as it forecast a 7.1-per-cent rise in U.S. comparable store sales in the first four weeks of the current quarter, benefiting from home-delivery orders from diners put under lockdown to curb the spread of the coronavirus.
The world’s largest pizza chain, however, withdrew its two- to three-year outlook, citing uncertainty surrounding the global economy due to the health crisis.
Domino’s expects international same-store sales to fall 3.2 per cent, excluding the impact of foreign exchange, in the four weeks from March 23 April 19.
Lam Research Corp. (LRCX-Q) slipped 3.5 per cent after it reported third-quarter revenue on Wednesday that missed analysts’ estimates.
Along with several other chip industry peers who reported earnings in recent weeks, Lam also refrained from providing a forecast for the current quarter, citing the uncertainty caused by the coronavirus outbreak.
The impact from the globally spreading virus began to materialize in the company’s manufacturing and supply chain operations in the latter part of the March quarter as shelter-in-place orders went into effect across many regions, Chief Executive Officer Tim Archer said.
The pandemic has wreaked havoc in the chip industry, as strict lockdown rules globally to curb the spread of the virus have disrupted operations and supply chains, even though many plants were eventually allowed to remain open.
Lam was impacted earlier as some operations in the San Francisco Bay Area and supply chain activities in Malaysia were hit due to lockdown orders.
“If our current assessment of our output capability turns out to be correct, revenue in the June quarter should be higher than March. There is obviously uncertainty around that statement,” Chief Financial Officer Douglas Bettinger said.
Its net loss was $10.4-million or 3 cents per share versus a loss of $3-million or a penny per share a year ago.
Echelon Wealth Partners analyst Rob Goff said: “FQ220 results highlighted further gains for initial betting traction, continued strong momentum of social/esports viewership, and notably positive media (legacy app) user growth with impressive engagement gains. However, results are now taken as a recovery target as we await a return to sports activities, betting, and in turn advertising. The timing and the form of a return to sports events currently remains uncertain. The economic impact on betting and advertising may see a prolonged recovery.”
With files from staff and wires