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A look at North American equities heading in both directions

On the rise

Teck Resources Inc. (TECK.B-T) gained 5 per cent following a report that it is planning to separate its steel-making coal business in order to focus more on industrial metal.

The Vancouver-based company confirmed it is evaluating alternatives for its steelmaking coal business, “including the possible spin-out of an interest in that business to its shareholders.”

“Any transaction would be expected to create value for Teck’s shareholders and support continued benefits for communities and Indigenous Peoples in the areas where Teck operates,” it said in a statement.,

“No decision has been reached to proceed with a transaction and there can be no assurances that any transaction will eventuate. Teck does not intend to make any additional comments regarding this matter unless and until a formal decision has been reached.”

Shares of Canadian Tire Corp. Ltd. (CTC.A-T) were higher by 5.1 per cent after it reported its fourth-quarter profit and sales were up compared with year ago.

The retailer says it earned net income attributable to shareholders of $531.9-million or $9.09 per diluted share for the 13-week period ended Dec. 31, up from $508.5-million or $8.34 per diluted share a year earlier.

Susan Krashinsky Robertson: Canadian Tire sales flat as inflation-weary consumers spend on essentials but cut back elsewhere

Revenue totalled $5.34 billion, up from $5.14-billion in the same quarter a year earlier.

Comparable sales for the quarter at its namesake Canadian Tire stores were flat compared with a year earlier, while SportChek comparable sales were down 1.7 per cent. Mark’s comparable sales were up 4.3 per cent.

Helly Hansen revenue gained 20.6 per cent compared with a year earlier.

Canadian Tire says its normalized profit for the quarter amounted to $9.34 per diluted share, up from a normalized profit of $8.42 per diluted share a year earlier. Analysts on average had expected a profit of $7.44 per share and $5.18 billion in revenue, according to financial markets data firm Refinitiv.

In a research note, Desjardins Securities analyst Chris Li said: “Outperformance from Retail was partly offset by lower earnings contribution from Financial Services. The Retail outperformance was driven by solid sales growth across all banners (despite lapping tough year-ago comps), better gross margin and lower expenses. Overall, we believe the strong Retail results highlight the resiliency of the CTR model, supported by its multi-product assortment (essential and owned brands), strong base of Triangle loyalty members and data analytics capabilities. While the results were strong, the focus will be on the outlook for 1H23, which will be negatively impacted by destocking by the CTR dealers as they go through unsold seasonal inventory and softening discretionary spending. ... We believe the current valuation (9.8 times forward consensus P/E vs 12–13 times average) largely reflects the near-term challenges, but further share price volatility is possible until there is better macro visibility.”

Manulife Financial Corp. (MFC-T) increased 3.8 per cent after saying earnings slipped in the fourth quarter compared with a year earlier but rose for the full 2022 financial year.

The insurance giant says net income attributable to shareholders came in at $1.89-billion for the fourth quarter, compared with $2.08-billion for the same quarter a year earlier.

Net earnings attributable to shareholders for the year totalled $7.3-billion, up from $7.1-billion for a year earlier.

Analysts had expected a net income of $1.86-billion for the fourth quarter, according to financial markets data firm Refinitiv.

The company says the higher earnings for the year were related to annuity transactions in the U.S. and benefits from changes to the Canadian corporate tax rate.

It says investment-related gains in the year were driven in part by favourable fixed-income reinvestment as well as higher-than-expected returns from long-duration assets like private equity, infrastructure and timberland, partially offset by real estate.

Scotia Capital analyst Meny Grauman said: “While we would be hard-pressed to call this a perfect quarter, it continues to validate our thesis on the name. We upgraded this name to Sector Outperform ahead of Q2 earnings when the shares were trading at a 15-per-cent discount to book, and highlighted the name as a Top Pick at the end of the year on the view that tail risk here was coming down, and both the introduction of IFRS 17 and a full Asia re-opening would be important catalysts in 2023. Nothing in these numbers sways us from that conviction. Although the 9-per-cent core EPS beat was driven in part by taxes ($0.03/share) as EPIF missed us by 5 per cent, core earnings in Asia beat our forecast and was up 8 per cent quarter-over-quarter on a currency adjusted basis, while remittances in 2022 were strong — even if they boosted by MFC’s VA sale. In addition, the impact of IFRS 17 on core EPS at transition is now lower than previously communicated, and more importantly the impact on capital is a little better (as we have seen across the peer group).”

Nutrien Ltd. (NTR-T) jumped 1.8 per cent even after saying it will slightly delay the timing of its plan to ramp up potash production, due to slumping sales.

The Saskatoon-based company, which is the largest fertilizer producer in the world, announced disappointing fourth-quarter financial results Wednesday evening.

Nutrien Ltd. came in below Wall Street estimates, earning $1.1-billion in the fourth quarter of 2022, down seven per cent from the same quarter a year earlier.

On a conference call with analysts Thursday, CEO Ken Seitz said Nutrien will slightly delay its previously announced plan to increase its annual potash production capability to 18 million tons by 2025, and will instead reach that milestone by 2026 instead.

However, Mr. Seitz said long-term fundamentals for potash remain strong, and Nutrien simply wants to be flexible and adjust its plans to match the pace of demand recovery.

“The outlook for our business is strong as we expect global supply issues to persist and demand for crop inputs to increase in 2023,” Seitz said.

It has been a volatile period for Nutrien, which achieved record earnings in 2021 and then saw fertilizer prices spike in March of 2022 as the Russia-Ukraine war shook up global agricultural markets and reduced supplies of fertilizer from Eastern Europe.

To meet increased global demand, Nutrien announced its potash ramp-up plan, which represents an increase of more than five million tons, or 40 per cent, compared to 2020 production levels.

The company has said it will achieve this by investing in expansions at its existing Saskatchewan mines, including the hiring of approximately 350 more people.

However, in the second half of 2022, the company suffered what it calls a “historic” decline in the pace of its potash shipments. In North America and Brazil in particular, farmers appeared to be postponing fertilizer purchases in the face of high prices. Last year’s cool wet spring in North America also compressed the planting season and led to less fertilizer going into the ground.

Seitz said the company has seen improved potash demand so far in 2023, but added Nutrien’s estimate for global potash shipments this year is 63 to 67 million tons, which is still constrained compared to the historical trend demand of around 70 million tons.

In spite of the dramatic decline in potash demands in the second half of 2022, the first six months of the year were so strong that Nutrien’s earnings for the full financial year were US$7.7-billion, 142 per cent higher than in 2021.

Kinross Gold Corp. (K-T) turned positive in late trading and finished up 0.8 per cent after the release of better-than-anticipated fourth-quarter results after the bell on Wednesday.

The miner reported adjusted earnings per share of 9 US cents per share for the quarter, beating analysts’ estimate of 7 US cents, helped by higher production and lower costs. Revenue rose 22.4 per cent to US$1.08-billion from a year ago, exceeding the Street’s expectation of US$1.05-billion.

Its production rose to 595,683 gold equivalent ounces from 491,077 ounces a year earlier. It now sees 2023 production to rise by about 140,000 GEOs year-over-year.

However, Kinross is projecting full-year capex of US$1-billion, higher than analysts’ projection of US$917.9-million.

In a research note, Canaccord Genuity analyst Carey MacRury said: “: Overall we view Kinross’ Q4/22 release as mixed. On the positive side, Q4/22 quarterly results were the strongest of the year (as expected) and in line with our forecasts. Production increased 13-per-cent quarter-over-quarter with higher production at most of Kinross’ mines, and cash costs declined 10 per cent quarter-over-quarter. The company’s 3-year production guidance is also in line with our forecasts. That said, the company’s 2023 cash cost guidance is 6 per cent higher than our forecast despite the Tasiast expansion and La Coipa ramping up, and largely a function of the company’s U.S. assets. The other surprise is that reserves have declined 7.5 per cent (ex-asset sales), reflecting depletion and total resources are essentially flat with the 5Moz addition at Great Bear largely offset by reductions at Fort Knox, Tasiast, and Paracatu with higher costs reducing lower-grade ounces.”

RioCan Real Estate Investment Trust (REI.UN-T) erased early losses and finished up 0.1 per cent after it raised its payment to unitholders as it reported a loss of $5-million in its fourth quarter.

The real estate trust says it will now pay a monthly distribution of nine cents per unit, up from 8.5 cents.

The new payment rate came as RioCan says it lost two cents per unit for the quarter ended Dec. 31 compared with a profit of $208.8-million or 66 cents per unit in the last three months of 2021.

Revenue totalled $306.2-million, down from $336.4-million a year earlier.

RioCan says its funds from operations for the quarter amounted to 42 cents per unit, down from 46 cents per unit in the fourth quarter of 2021.

In its outlook for 2023, the trust says it expects funds from operations per unit to be within a range of $1.77 to $1.80.

Cisco Systems Inc. (CSCO-Q) closed 5.2 per cent higher as it raised its full-year earnings forecast and delivered strong second-quarter results, indicating that spending on network infrastructure was staying resilient in the face of an economic slowdown.

The maker of routers and other products that run computer networks and the internet said customers were keeping investments steady in systems related to cloud, artificial intelligence and tools for hybrid work.

The company is also benefiting from the easing of pandemic-driven supply chain constraints, which plagued its business last year and resulted in significant inventory buildup.

“Cisco is better positioned today than at any time since I became CEO almost eight years ago,” Chuck Robbins said in a post-earnings analyst call.

For fiscal 2023, Cisco said it expects revenue growth of 9 per cent to 10.5 per cent, and adjusted per share earnings between US$3.73 to US$3.78. It had previously forecast revenue growth of 4.5 per cent to 6.5 per cent and earnings per share of US$3.51 to US$3.58.

Its second-quarter adjusted earnings of 88 US cents per share and revenue of US$13.59-billion were both higher than market estimates pooled by Refinitiv.

“This is very strong growth and shows that the company may finally be exiting a difficult period related to supply-chain challenges,” said Scott Raynovich, chief analyst at Futuriom.

Cisco said it reduced backlog 6 per cent sequentially, while remaining performance obligations (RPO), a metric that denotes contractual revenue that will be recognized in the future, was US$31.8-billion as of January-end, compared to $30.9 billion in October.

Cisco’s strong performance comes at a time of cost-cutting and restructuring across the U.S. technology sector in response to economic headwinds. Cisco had announced a nearly 5-per-cent workforce reduction in November.

Hasbro Inc. (HAS-Q) rose 0.1 per cent after it forecast annual sales and profit below Wall Street estimates on Thursday, slammed by a sharp decline in demand for its toys and games from customers reeling with rising prices.

Both Hasbro and its rival Mattel Inc. (MAT-Q) had seen a steep drop in consumer spending in the crucial holiday season, putting to test the resilience of toymakers to economic slowdown as customers spend more on essentials.

Demand has also come under pressure from price hikes in the last three years as toymakers battle a pandemic-induced surge in costs of everything from freight to synthetic resin, while retailers cut back orders to keep inventories tight.

Hasbro is facing a “challenging consumer discretionary environment,” Chief Executive Chris Cocks said, adding that a stronger dollar and its exit from some licenses, brands and markets will result in a $300-million hit to annual revenue.

It lost the highly-lucrative license to make Disney Princess toys to Mattel last year.

Revenue at Hasbro’s consumer products business - its largest and home to toys such as Nerf blasters and My Little Pony figures - is expected to decline mid-single digits.

The overall revenue is projected to be down low-single digits, while Wall Street analysts were expecting a 2.5-per-cent increase to US$6-billion.

“It’s a cautious outlook...(but) what I’m most concerned about is that Hasbro doesn’t lose sight of the consumer products segment,” said James Zahn, Editor-in-Chief of trade magazine “The Toy Book.”

“Consumer products is what Hasbro is rooted in as a business.”

Hasbro expects 2023 adjusted per-share earnings in the range of US$4.45 to US$4.55 compared with estimates of US$4.88 per share.

Still, some analysts said the forecasts were in line with expectations following the toymaker’s preliminary results late in January, sending Hasbro shares up.

On the decline

Shopify Inc. (SHOP-T) dropped 15.5 per cent after it forecast slowing revenue growth for the current quarter despite price hikes and new product launches, signaling that macroeconomic challenges were weighing on its merchants’ online businesses.

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

“Our perspectives on outlook assume that inflation remains elevated, pushing consumers to discounted and non-discretionary purchases,” Chief Financial Officer Jeff Hoffmeister said on the earnings call.

“We are mindful of the environment in which we are operating now.”

Shopify executives said the company would focus on efficiency.

Expectations were high after the e-commerce company, which offers tools and services for businesses to set up their online stores, roughly doubled annual subscription prices while taking measures such as workforce reduction to cut costs, bracing for a rough period as recession looms and shoppers tighten their purses.

It expects revenue growth in the “high-teen” percentages, while analysts had forecast a rise of nearly 20 per cent, according to Refinitiv data.

Still, Shopify added known brands and luxury labels from Swiss fashion designer Bally to chocolate maker Mars to a list of clients paying a premium price for its services.

The company, which traditionally catered to small businesses, has been focusing on adding big brands to its clients list as they look to sell directly to consumers and use some of Shopify’s website creation and payment tools to set up their stores.

“Investors were hoping that the headcount reductions and the price increases would translate to operating leverage and higher profitability, not a return to losses in the first quarter as is implied by guidance,” said Gil Luria, analyst at D.A. Davidson.

Fourth-quarter revenue rose 26 per cent to US$1.7-billion, compared with analysts’ average estimate of $1.64 billion.

On an adjusted basis, Shopify earned 7 US cents per share, beating the expectation of a 1-US-cent loss.

Cenovus Energy Inc. (CVE-T) fell 4.5 per cent after it named Chief Operating Officer Jon McKenzie as its next president and chief executive on Thursday, as Canada’s second-largest oil and gas producer swung to a fourth-quarter net profit from a loss last year.

Mr. McKenzie joined Cenovus as financial chief in 2018 when Cenovus acquired Husky Energy, where he held the same post for three years.

Outgoing CEO Alex Pourbaix will shift to the role of executive chair after the company’s annual general meeting on April 26, and will dedicate time to working with the Pathways Alliance, a group of oil sands producers including Cenovus that are developing a carbon capture and storage project to cut emissions.

Mr. McKenzie said Cenovus’s future strategy would look very similar to the one developed over the last five years by his predecessor. The company has focused on growing production 3-5 per cent per year, paying down debt and returning value to shareholders.

“Both Alex and I have our fingerprints all over the corporate strategy and we developed this in partnership together with the rest of our leadership team,” Mr. McKenzie said on an earnings call.

Calgary-based Cenovus reported a net profit of $784-million, or 39 cents, for the fourth quarter ended Dec. 31, compared with a loss of $408-million, or 21 cents per share, a year earlier.

Global oil prices pulled back from a multi-year high in the quarter, but traded 9 per cent higher than the year-ago level as Western sanctions against major energy producer Russia and a decision by OPEC+ to cut output tightened global supply.

Cenovus profits were also boosted by an increase in operating margins in its downstream refinery business.

Total upstream production reached 806,900 barrels of oil equivalent per day (boepd), down from 825,300 boepd a year earlier. Downstream production rose to 473,500 barrels per day (bpd) from 469,900 bpd last year.

Cenovus said it ramped up crude-by-rail operations in December after TC Energy’s Keystone pipeline was temporarily shut down after a leak in rural Kansas.

The company loaded nine unit trains from its Bruderheim, Alberta, terminal to the U.S. Gulf Coast in December and January, but said that program has since ramped back down.

MTY Food Group Inc. (MTY-T) declined 5.9 per cent after it reported a fourth-quarter profit of $7.1-million as the acquisition of BBQ Holdings helped its revenue rise 65 per cent compared with a year ago.

The company, which franchises and operates restaurants under over 80 different banners, says its profit amounted to 29 cents per diluted share for the quarter ended Nov. 30.

The result compared with a profit of $24.9-million or $1.00 per diluted share in the same quarter a year earlier.

MTY says the drop was mainly due to acquisition-related transaction costs and higher non-cash impairment charges on intangible assets.

Revenue for the quarter totalled $242.0-million, up from $146.3-million in the same quarter a year earlier.

MTY chief executive Eric Lefebvre says the acquisition of BBQ Holdings as well as more recently Wetzel’s Pretzels and Sauce Pizza and Wine are expected to help grow the company’s business for 2023.

With files from staff and wires

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