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A look at North American equities heading in both directions

On the rise

SNC-Lavalin Group Inc. (SNC-T) surged 10.1 per cent in Thursday trading after it raised its financial forecast for the year on the heels of healthy organic revenue growth, as the company looks to wrap up a strategic review — complete with selloffs — and keep chipping away at a costly backlog of big, over-budget rail contracts.

On Thursday, the engineering firm projected organic revenue growth of between 12 and 15 per cent in 2023, more than doubling its previous prediction of between five and seven per cent.

The second-quarter figures underwrite SNC’s confidence — as well as investors’, whose enthusiasm boosted the company’s share price. Its engineering services saw 25 per cent organic growth year over year to $1.47 billion in revenue, accounting for more than two-thirds of the company’s total revenue.

SNC hit organic revenue growth “out of the park,” said Desjardins analyst Benoit Poirier in a note to investors.

Overall services bookings climbed nine per cent year over year to a record-high backlog of $12.- billion, fuelled by demand for SNC’s engineering services in the United States.

“In the U.S., we continue to reap the benefits of our increased foothold in the market and the government’s commitment to infrastructure spending,” CEO Ian Edwards told analysts on a conference call, describing the opportunities south of the border as “plentiful.”

Mr. Edwards pointed to the massive funding injection from the U.S. government via the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. He also cited “key wins this quarter” related to electric vehicle battery plants.

The ongoing demand has prompted SNC to hire 2,400 employees since the start of the year, Mr. Edwards said.

The company’s nuclear segment offers another area for growth. Edwards highlighted the Ontario government’s announcement last month to build three more small modular reactors at the site of the Darlington nuclear power plant — one is already built — as well as a large new plant at Bruce Power on the shores of Lake Huron.

Mr. Edwards said SNC hopes to wind down a strategic review this year that it launched in March as it eyes more asset selloffs and tries to sharpen its game as a pure-play engineering firm in green energy and infrastructure.

The company announced a deal last month to sell its Scandinavian engineering business, Systra Group, to a French consulting firm for 80 million pounds — about $136-million — the first big move under the revamp.

As another possible divestiture, Mr. Edwards again pointed to Linxon, a joint venture with Hitachi Energy that focuses on electrical substations.

“We are acutely aware that in parts of the business, we are we are below (target profit margins),” he said.

Meanwhile, the company’s challenges with so-called lump-sum turnkey (LSTK) projects took less of a toll on its finances than in previous years, as the segment posted a loss of $13-million before interest and taxation versus $37-million a year earlier and consensus forecasts of $19-million in losses.

SNC knocked another $96-million off its LSTK backlog from three months earlier, reducing it to a still-hefty $422-million — but down from $828-million a year prior.

On Thursday, SNC reported net income grew to $63.8-million for the three months ended June 30, towering over profits of $1.6-million from the same period the year before.

Revenues rose 14 per cent to $2.13-billion in the second quarter versus $1.87-billion a year earlier.

On an adjusted basis, diluted earnings notched 41 cents per share compared with 31 cents per share the year before.

The outcome beat analyst expectations of 30 cents per share, according to financial markets firm Refinitiv.

Aside from organic revenue growth, SNC’s forecasted figures for the year remained the same.

“Momentum in the core ES business has been impressive over the last few years .. and the most recent quarter once again came in above expectations and led to an increase in guidance in the top line,” said National Bank Financial analyst Maxim Sytchev. “The U.S., UK and Middle East saw higher project volumes and overall ES results were buoyed by strength in the Mining and Metallurgy vertical. Nuclear also saw an 11-per-cent year-over-year revenue increase and a 38-per-cent year-over-year jump in the backlog as sentiment towards the technology improves among governments and the public alike (EBIT, however, is flat year-over-year).”

“Investment thesis can change materially for the ‘last bad quarter’ or ‘the first good quarter’ (we have seen a similar inflection point with GE (NYSE: GE; Not Rated) in the U.S. recently). The only thing(s) missing for the structural re-rate is consistent FCF generation (company reiterated positive OCF in H2/23E) and exit from Linxon (at least it generated positive EBIT). With pure engineering consulting valuation into a historically premium territory, we feel investors are itching for a potential switch into SNC even though as we have stated in the past, some margin conversion needs to happen for the company’s engineering valuation to re-rate (while nuclear growth would also need to accelerate). Overall, however, this is a very solid print, especially on the back of Aecon’s results (TSX: ARE; Sector Perform, $11.00 PT) that spooked the market about a potential negative spillover into LSTK. Upped organic engineering guidance as we thought would be the case, is a nice addition on top of organic hiring to execute the growing backlog. We reiterate our Outperform rating on SNC shares; $39.00 price target.”

Canadian Natural Resources Ltd. (CNQ-T) erased an early decline and closed up 1.2 per cent after it posted a second-quarter profit that more than halved, as lower energy prices and drop in oil production squeezed the country’s largest oil and gas producer.

The Calgary-based company also said Thursday the Trans Mountain Expansion (TMX) project is expected to call on oil producers to start filling the pipeline as soon as this month.

The expanded pipeline will require up to 5 million barrels to fill the line before it can start shipping, Canadian Natural President Tim McKay said, a move that is expected to boost the Canadian heavy benchmark crude Western Canada Select (WCS).

“From all indications, TMX will be making a call for line fill here in the fall, August, September, October,” Mr. McKay told analysts on a quarterly earnings call. “From that aspect I look at it as very positive and very constructive for Canada’s oil.”

Canadian Natural has committed to shipping 94,000 bpd on TMX, which is meant to start operating in the first quarter of 2024.

Once complete, TMX will ship an extra 590,000 barrels per day of Alberta oil to Canada’s Pacific Coast, adding to the 300,000 bpd of existing capacity. But the project has been dogged by years of regulatory delays and a quadrupling of its budget to $30.9-billion, and was bought by the Canadian government in 2018 to ensure it got built.

The TMX update came as Canadian Natural, the country’s biggest oil and gas producer, posted a second-quarter profit that more than halved due to lower energy prices and drop in oil production.

Profits for oil and gas companies have declined from last year’s bumper levels after crude prices eased from multi-year highs when Russia’s invasion of Ukraine upended markets.

Canadian Natural’s production in the quarter ended June 30 stood at 1.19 million barrels of oil equivalent per day (boepd), below last year’s 1.21 million boepd, affected by wildfires in Western Canada and continued unplanned third-party pipeline outage, the company said.

The company reported a net income of $1.5-billion, or $1.32 per share, for the quarter, down from $3.5-billion, or $3 per share, a year earlier.

Spin Master Corp. (TOY-T) rose 7.5 per cent after announcing better-than-expected second-quarter earnings after the bell on Wednesday.

The Toronto-based toy and entertainment company reported revenue of $421-million, down 17 per cent year-over-year and below the Street’s expectation of $431-million due largely to elevated inventory levels. However, adjusted EBITDA of $88-million was better than the consensus forecast of $74-million despite falling 22 per cent from the same period a year ago.

“Management maintained the 2023 financial guidance, a positive in our view, given the challenging economic environment,” said Stifel analyst Martin Landry in a note. “This should be well received by investors. On the negative side, Spin Master’s point-of-sale (POS) metrics were weak, down 22 per cent year-over-year in the U.S., underperforming the industry and a weaker performance sequentially as U.S. POS was down 9 per cent year-over-year in Q1/23. We expect the shares to react well based on the above although the weak POS metrics are likely to be a focus.”

Lightspeed Commerce Inc. (LSPD-T) increased 7.7 per cent after it beat market expectations for revenue and earnings, as chief executive Jean Paul Chauvet says the latest quarter is paving the way for the Montreal-based company to reach its long-standing goal of becoming profitable.

On Thursday, Lightspeed reported total revenue of US$209.1-million for the quarter ended June 30, 2023, its first financial results for a new fiscal year. That’s up by nearly 20 per cent since last year, when the company posted a revenue of US$173.8-million in the same quarter, and exceeded analysts’ average estimate of around $197.7-million.

Still, Lightspeed also saw a US$48.7-million net loss in the new quarter, which amounts to about 32 US cents per basic and diluted share. But a year ago, that loss was US$100.8-million or nearly 68 US cents per share.

“These numbers are a testament to how far we’ve come and where we want to go,” Mr. Chauvet said in an interview. He expects an upward trajectory to propel Lightspeed forward, telling investors on Thursday that the company is on track to break even on its earnings before interest, taxes, depreciation and amortization by the end of the fiscal year, likely even turning that measure of financial health positive.

Over the last year, shares of Lightspeed have fallen by more than 25 per cent amid a broader slump for the technology sector, but gradually the stock price has been regaining value.

- Temur Durrani

Maple Leaf Foods Inc. (MFI-T) closed up 5.2 per cent after it said it lost $53.7-million in its most recent quarter as it grappled with inflation and other market headwinds.

“While these temporary market conditions are certainly painful, we remain certain that markets will return to equilibrium as they always do,” said CEO Curtis Frank, who took the helm earlier this year.

There are some signs that pressures are easing, said Mr. Frank on a Thursday call with investors. In July, for the first time in eight months, the value of pork moved above the cost of raising a hog, he said.

“We certainly hope this is a sign of things to come.”

The Mississauga, Ont.- based food company’s net loss for the second quarter amounted to 44 cents per basic share compared with a net loss of $54.6-million or 44 cents per basic share a year earlier.

Adjusted operating earnings for the period ended June 30 were $45.9-million compared with $23.6-million in the second quarter of last year.

Higher interest expenses also weighed on Maple Leaf’s earnings, the company said, as rates increased and it spend more on strategic capital expenditures.

Sales in the quarter totalled $1.26-billion, up from $1.19-billion a year prior. Higher volumes and prices helped boost sales in the second quarter, the company said.

Its meat business alone contributed the bulk of those sales, though gross profit for meat protein was slimmer due to headwinds in the pork market and higher costs, partially offset by higher prices.

“We’re singularly focused over the next couple of quarters to get through these rough waters from the pork markets,” said chief financial officer Geert Verellen on the conference call.

The company will continue to be disciplined in its capital spending, said Mr. Verellen: “We’re taking this quarter by quarter.”

The company expects mid-to-high single-digit sales growth for meat protein products in 2023, helped by growth in the U.S. market and sustainable meat.

Despite the broad range of headwinds affecting Maple Leaf’s meat protein business, “the green shoots of improvement are growing,” wrote RBC analyst Irene Nattel in a note. She said the plant protein appears well on its way to break even in the second half of 2023.

Maple Leaf said its plant protein division made $36.-million in sales during the quarter, down from $40.8-million last year. The division saw lower sales volumes that were partially offset by pricing action in earlier quarters to mitigate inflation, the company said.

The company announced in late 2021 that it was launching a comprehensive review of its strategy for the plant protein division after seeing a slowdown in growth rates for the category. It found that the very high growth rates for plant protein products predicted by many industry experts likely won’t come to pass, Maple Leaf said.

It now expects more modest growth for plant protein, with a new goal to deliver neutral or better adjusted earnings before taxes, interest, depreciation and amortization in the second half of 2023.

Maple Leaf is approaching an inflection point in late 2023 and into 2023, said Ms. Nattel, “but as always ... the road from here to there is always bumpy.”

The financial results come a day after the company’s board approved a quarterly dividend of 21 cents per share and 84 cents per share on an annual basis.

Maple Leaf is also ready to realize the benefits of multi-year capital investments in two facilities, said Mr. Frank, one at London Poultry and one at the Bacon Centre of Excellence in Winnipeg.

The ramp-up of these two facilities is expected to be fully complete by the end of this year, he said, contributing $130-million in incremental adjusted earnings before taxes, interest, amortization and depreciation on an annualized basis.

On the decline

Shares of Ottawa-based Shopify Inc. (SHOP-T) were lower by 5.4 per cent on Thursday after it forecast strong revenue growth and delivered better-than-expected results for the second quarter, helped by new signups and price increases across its services.

Merchants and businesses are turning to Shopify, which offers tools to create and manage online store-fronts, as retail spending picks up on signs of stabilizing macroeconomic conditions.

Full reaction from the Street: Thursday's analyst upgrades and downrgades

“We’re not just shipping products faster, but we are also expanding our global merchant base,” said Harley Finkelstein, president at Shopify.

In the third quarter, the company expects revenue growth at “low-twenties” percentage and “mid-twenties” when adjusted for changes related to the divestiture of its logistics business. Analysts expected a growth of 17.2 per cent.

The 80-per-cent surge in Shopify’s share price so far this year comes amid a rejig in its business as a result of revenue growth slowing to about 20 per cent in 2023 from an average of 60 per cent in 2017-21, according to Refinitiv data.

The company had in May decided to lay off 20 per cent of its workforce and divest its logistics arm to freight forwarder Flexport, sharpening its focus on costs.

Shopify had raised the prices of some of its plans, which went into effect in January and April.

In the second quarter, total revenue grew 31 per cent to US$1.69-billion and beat analysts’ average estimate of $1.62 billion.

However, a US$1.7-billion charge related to the divestiture and recent staff cuts resulted in an operating loss on US$1.6-billion. Excluding the one-time item, Shopify earned 14 US cents per share, beating expectations of 5 US cents.

“This could be a turnaround quarter for Shopify,” said Michael Schulman, chief investment officer at Running Point Capital Advisors.

“But the market will still question whether its actions are enough to counter stiff competition from established rivals as well as any mild economic cyclicality.”

Bombardier Inc. (BBD.B-T) was down 8.5 per cent on Thursday in the wake of reporting a better-than-expected quarterly profit and a higher revenue, helped by demand for pricier business jets despite supply chain pressures.

The Montreal-headquartered business jet maker reported a second-quarter profit of $10-million from continuing operations, compared with a loss of $109-million.

Results of corporate jet makers have been powered by strong demand from the wealthy for private flying over the last few quarters but companies are wrestling with supply chain challenges that make it harder to deliver planes.

Last month, Cessna business jet maker Textron Inc. (TXT-N) raised its full-year profit forecast on strong jet pricing.

However, there are early signs that demand may be flattening. Bombardier said on Thursday backlog at the end of June was up just 0.7 per cent at $14.9-billion compared to the end of March.

On a per share basis, quarterly adjusted profit was 72 cents, compared with a loss of 48 cents a year earlier. Analysts polled by Refinitiv had expected a profit of 28 cents per share.

Revenue rose 8 per cent to $1.68-billion, in line with expectations.

Bombardier reported a cash burn of $222-million compared with a free cash flow of $341-million a year ago, due to capital expenditures and a build up in working capital to support higher jet deliveries in the second half of 2023.

In a research note, Citi analyst Stephen Trent said: ”Overall, the results look very encouraging, with adj EPS significantly above Citi, adj FCF [free cash flow] usage less than we had anticipated and a book to bill that improved sequentially from 1 time to 1.1 times. Assuming risk-neutral market conditions, these results should modestly support Buy-rated Bombardier’s shares on Thursday morning.”

“Bombardier’s services segment appeared to provide a solid margin boost during the quarter. Going forward, it is possible that the market is underestimating this positive mix shift.”

Canada Goose Holdings (GOOS-T) forecast current-quarter sales below Wall Street estimates on Thursday due to choppy U.S. demand, taking the shine off of upbeat first-quarter results driven by a rebound in China and sending its shares down just over 3 per cent.

Demand for luxury goods in China has recovered sharply after the country lifted its COVID-19 restrictions.

Revenue from Canada Goose’s Asia Pacific segment jumped 52.2 per cent to $24.5-million in the first quarter ended July 2, building on a 65.4-per-cent surge seen in the previous quarter. This was boosted by the return of tourism in China, leading to strong growth in key areas like Macau and Hong Kong.

However, even as Canada Goose expects the momentum in Asia to continue, finance chief Jonathan Sinclair said the outlook reflected a “more challenged consumer backdrop” in the U.S.

Luxury firms have seen their sales taper in the U.S. over the past few months, as a post-pandemic splurging spree by wealthy shoppers - which had led to stellar results in prior quarters - starts to sag amid still-high inflation, rising interest rates and worsening credit conditions.

That has knocked results at many sector players, including luxury powerhouse LVMH and Ray-Ban sunglasses maker EssilorLuxottica.

Canada Goose forecast second-quarter revenue of $270-million to $290-million, below estimates of about $298.5-million. It sees an adjusted net loss per share of between 24 cents and 17 cents, compared with estimates for a profit of 6 cents.

“I think (the forecast) is conservative and it makes sense ... because of the volatility that we still have going on in the market, particularly in the U.S.,” Jessica Ramírez, senior research analyst at Jane Hali & Associates, said.

First-quarter revenue rose 21 per cent to $84.8-million, beating Refinitiv estimates of $75.4-million. Adjusted loss of 70 cents per share was also smaller than a loss of 86 cents expected by analysts.

BCE Inc. (BCE-T) declined 1.2 per cent after it boosted its second-quarter revenue as it added new wireless and internet customers but saw its profit fall due to higher expenses.

BCE, the parent company of Bell Canada, had $6.07-billion in revenue for the three-month period ended June 30, up 3.5 per cent from a year ago when it reported $5.86-billion of revenue.

Its profit fell sharply to $397-million, down 39 per cent from $654-million during the same quarter last year. That amounted to 37 cents per share, down from 66 cents per share.

The company attributed the decline to higher expenses, including a $377-million non-cash loss on its share of an obligation to repurchase at fair value a minority stake in one of its joint venture equity investments, as well as higher interest expenses, increased depreciation and amortization expense and higher income taxes.

The Montreal-based company also saw higher costs related to its workforce reduction initiative. BCE announced back in June that it was eliminating roughly 1,300 positions as part of a significant reorganization.

After adjusting for severance, acquisition and other costs, net equity losses on investments and other items, BCE had $722-million in profit, down 8.7 per cent from $791-million a year earlier.

The adjusted earnings amounted to 79 cents per share, down from 87 cents per share during the same period last year.

Analysts had been expecting 80 cents per share of adjusted earnings and $6.06-billion of revenue, according to the consensus estimate from S&P Capital IQ.

- Alexandra Posadzki

Nutrien (NTR-T) shares fell 4 per cent as CEO Ken Seitz said it is not looking to sell assets to raise capital, even as falling fertilizer prices have caused it to scrap projects and trim costs.

Nutrien said on Wednesday it would halt plans to expand potash production in Saskatchewan and end work on a clean ammonia project in Louisiana, as it cut its earnings forecast.

“We’re not in a situation where we feel we need to focus on selling assets and will only do something like that opportunistically,” Mr. Seitz said in an interview on Thursday.

Potash prices have fallen as offshore markets worked through inventories in spring and due to a delay in settling annual supply contracts for Chinese buyers, which typically set a global price floor.

Nutrien also faces logistics problems. A strike last month of dockworkers at Port of Vancouver and mechanical problems at a terminal in Portland, Oregon have backed up potash exports by Canpotex, a company owned by Nutrien and Mosaic, to move fertilizer offshore.

Mr. Seitz said the companies are not considering steps to reduce their reliance on Vancouver and Portland, noting that they can already move some potash through Saint John, New Brunswick, Churchill, Manitoba and Morehead City, North Carolina.

“We’re in a bit of a unique situation here with Portland and Neptune being down at the same time. I don’t think that’s ever happened before,” he said. Neptune is the terminal that Canpotex ships from in Vancouver.

Nutrien officials told analysts on a conference call that it may take weeks to clear the Vancouver potash backlog, and it sees its Portland terminal back in service by the end of 2023.

Nutrien reported adjusted earnings of US$2.53 per share for the three months ended June 30, missing expectations of US$2.77, according to Refinitiv data.

Montreal-based Gildan Activewear Inc. (GIL-T) was down 1.6 per cent after its management reduced its full-year earnings expectations alongside the release of stronger-than-anticipated second-quarter results.

Before the bell, the clothing manufacturer reported earnings per share of 63 US cents, exceeding the consensus forecast on the Street of 61 US cents. However, it now expects 2023 EPS to come in at US$2.55-$2.65, down from US$3.11 previously and below analysts’ projection of US$3.11.

“The 2H guidance cut is consistent with our expectations, as we have been more cautious on 2H,” said Citi analyst Paul Lejuez.

“Activewear POS were positive in the quarter driven by NAM, partially offset by int’l markets, which were weaker than management had expected and softened sequentially. Hosiery and underwear grew 8 per cent in 2Q driven by expansion of private label offering and the roll-out of new programs, however, men’s underwear demand remains weak. We expect shares to face some pressure today given management reduction in guidance below what the market might have been expecting.”

With files from staff and wires

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

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