A look at North American equities heading in both directions
On the rise
Shares of Loblaw Cos Ltd. (L-T) finished higher by 1.8 per cent on Thursday as it forecast annual earnings above analysts’ expectations, after the Canadian retailer’s fourth-quarter results beat estimates, helped by strength in its pharmacy business and as demand held up for groceries.
Retailers are leaning on sales of food and medicines as rising prices are forcing consumers to prioritize spending on essentials and trade down to cheaper private-label alternatives from higher-priced brands.
Loblaw posted a 9.7-per-cent rise in retail segment sales, reflecting strong growth in its food and drug businesses, with steady demand for cough and cold medicines, high-margin beauty and cosmetics products.
Retail bellwether Walmart Inc. (WMT-N), however, forecast its full-year earnings below estimates on Tuesday, and warned that tight spending by consumers could pressure profit margins.
Loblaw, on the other hand, expects its full-year 2023 adjusted earnings per common share to grow in the low double-digits compared with the average analyst estimate of 9.64 per cent, according to Refinitiv IBES data.
The company’s fourth-quarter revenue rose about 10 per cent to $14.01-billion, topping estimates of $13.75-billion.
On an adjusted basis, Loblaw earned $1.76 per share, beating analysts’ expectations of $1.71 per share.
““As expected, L reported another solid quarter and provided a 2023 earnings growth outlook which is slightly ahead of consensus,” said Desjardins Securities analyst Chris Li in a research note. “4Q adjusted EPS of $1.76 was ahead of our $1.73 and consensus of $1.71, with the outperformance mainly from stronger-than-expected same-store sales growth in food and front store, and SG&A expense leverage, partly offset by slightly weaker gross margin. For full-year 2023, management expects adjusted EPS to grow in the low double digits vs our 11 per cent and consensus of 9 per cent. The Retail business is expected to grow earnings faster than sales. Growth will be partly driven by continuing execution of its Retail Excellence initiatives, including strategic procurement opportunities, loyalty program, increased promotional effectiveness through enhanced personalization and retail network optimization. In 4Q22, L finalized network optimization plans which will result in banner conversions and right-sizing of an additional 34 underperforming retail locations across a range of banners and formats.”
“Overall, we expect a positive share price reaction today to the solid results and outlook. We expect share price appreciation to track EPS growth this year.”
First Quantum Minerals Ltd. (FM-T) reversed course and gained ground in afternoon trading after it said on Thursday its unit had suspended ore processing operations at the Cobre Panama mine.
The company and Panama’s government have been locked in a prolonged contract dispute with tax and royalties at the heart of the stalemate.
First Quantum’s unit, Minera Panama S.A., will begin a partial demobilization of its workforce of over 8,000 employees and contractors, and expects the impact to increase significantly in the coming weeks if concentrate shipments do not resume, the company said.
Panama’s trade and industry ministry said “using pressure tactics do not contribute to bettering understanding” between the state and First Quantum as negotiations are ongoing.
It also urged First Quantum to reach an agreement “representing the best interests of the Panamanian people.”
The Cobre Panama mine’s union on Wednesday called for workers to strike against the halting of operations, arguing it would negatively impact workers.
Panama’s maritime authority last month ordered Minera Panama to suspend loading operations at a major port, blocking exports from the copper mine.
First Quantum said the suspension of port operations was due to allegations its scale was improperly calibrated, which it denied.
“Should permission from the (maritime authority) allow it, (First Quantum) could begin shipping concentrate and resume operations at the mine within hours,” the company said on Thursday.
Panama’s mining association expressed concern on Wednesday over the closure’s impact on the country’s reputation among international investors.
Edmonton-based Stantec Inc. (STN-T) jumped 9.3 per cent following the late Wednesday release of better-than-expected fourth-quarter results and 2023 guidance.
The engineering firm reported revenue and adjusted fully diluted earnings per share of $1.130-billion and 82 cents, both exceeding the Street’s projections of $1.108-billion and 70 cents.
“Stantec’s results exceed our expectations, with strong year-over-year revenue and EBITDA growth driven by a mix of organic (up 10.6 per cent y/y) and M&A growth (up 9.8 per cent), reflecting healthy demand conditions across its three regions and the impact of the Cardno acquisition,” said ATB Capital Markets analyst Chris Murray.
“Management issued 2023 guidance calling for mid to high single-digit net revenue organic growth for net revenue and Adjusted EBITDA margins in the 16-per-cent to 17-per-cent range, which are in line with ATB estimates, consensus and the Company’s three-year strategic targets. Organic growth is expected to favour the U.S. region (i.e., high single to low double digit growth), reflecting the Company’s recent backlog growth, though management expects Canada and Global to maintain positive growth rates in 2023.”
Calling the guidance “constructive,” Mr. Murray added: “We expect the stock to respond favourably.”
Bausch Health Companies Inc. (BHC-T) soared 13.8 per cent after reporting better-than-expected fourth-quarter results and 2023 guidance before the bell, despite swinging to an operating loss due to a US$622-million impairment charge in its Neurology business.
The Quebec-based pharmaceutical company reported total revenue, including its Bausch + Lomb (BLCO-T) segment, of US$2.2-billion, flat from the previous quarter but above the Street’s forecast of US$2.14-billion.
“2022 was a transformative year for Bausch Health, as we executed on our strategic priorities,” said CEO Thomas Appio. “Since completing the initial public offering of Bausch + Lomb last May, we have made significant progress in de-levering our balance sheet, reducing our debt principal net of unrestricted cash by $3.2 billion. We are encouraged by our second-half performance and look to build on this momentum. We will invest in sustainable growth drivers across our products and pipeline to position us for long-term success.”
Mosaic Co. (MOS-N) turned higher and gained 2.6 per cent after chief executive James O’Rourke said he expects its fertilizer shipments to reach 46 million tons in 2023, an increase of more than 10 per cent from last year.
Prices of fertilizers such as phosphates and potash rose last year as a result of a supply crisis caused by sanctions on Russia and Belarus, the second and third largest exporters of potash, curbing demand as farmers waited for pricing trends to stabilize.
Speaking at a post-earnings conference call, Mr. O’Rourke said potash demand was expected to rebound globally, but not to 2021 levels as supply still remains constrained. He added Belarus is likely to export only half the potash volume compared with pre-sanctions.
Additionally, O’Rourke sees margins normalizing after the first quarter and phosphate production in the range of 7.5 million tons to 8 million tons in 2023.
On Wednesday after the bell, it despite becoming the latest fertilizer maker to miss fourth-quarter profit estimates amid lower demand for potash and other crop fertilizers.
Although prices of fertilizers such as phosphates and potash decreased towards the end of last year, it did not boost demand as farmers waited for pricing trends to stabilize. Higher prices had curbed demand in early second half of 2022.
Mosaic, the world’s largest producer of finished phosphate products, saw a 11-per-cent fall in sales volume for the fertilizer due to unplanned operational outages.
The fertilizer maker had in December temporarily curtailed potash production at its Colonsay, Saskatchewan mine, citing lower-than-expected demand.
Rivals Nutrien Ltd (NTR-T) and CF Industries Holdings Inc (CF-N) also missed quarterly profit estimates last week, with Nutrien also forecasting lower-than-expected full-year 2023 earnings.
The company forecast 2023 total capital expenditures in the range of US$1.3-billion to US$1.4-billion.
Excluding items, the Tampa, Florida-based company reported earnings of US$1.74 per share for the three months ended Dec. 31, compared with the average analyst estimate of US$2.26 per share, according to Refinitiv data.
Chip designer Nvidia Corp. (NVDA-Q) forecast first-quarter revenue above Wall Street estimates on Wednesday as its CEO said use of its chips to power artificial intelligence (AI) services like chatbots had “gone through the roof in the last 60 days.”
The sales outlook drove Nvidia’s shares up 14.1 per cent in Thursday trading. The world’s largest supplier of chips used in data centers for training AI has become a key hardware supplier for large tech companies such as Microsoft Corp that are building services like chat-powered search engines.
AI is one of the few areas where tech companies are still spending even as the sector slashes jobs. Microsoft (MSFT-Q) and Alphabet Inc. (GOOGL-Q), for example, are both laying off thousands of employees but are also locked in a race to imbue their search engines with chatbot technology - despite the fact that doing so is likely to add billions of dollars to their operating costs.
Analysts believe that Nvidia, more than any other company, is best positioned to benefit from such increased costs as it dominates roughly 80 PER CENT of the market for graphics processing units, or GPUs, used to speed up AI work.
On a conference call with investors, Nvidia Chief Executive Jensen Huang announced a new service in which Nvidia will directly offer its cloud computing service for companies to rent all of its technologies to develop their own “generative” AI services that can create text, images and other forms of data.
AI is still “not deployed in enterprises broadly, but we believe that by hosting everything in the cloud, from the infrastructure through the operating system software, all the way through pre-trained models, we can accelerate the adoption of generative AI in enterprises,” Mr. Huang said.
The company forecast current-quarter revenue of US$6.5-billion, plus or minus 2 per cent. Analysts on average expect US$6.33-billion in revenue, according to Refinitiv data.
Revenue in the quarter ended Jan. 29 was US$6.05-billion, compared with analysts’ average estimate of US$6.01-billion.
“The launch of generative AI models and the AI arms race taking place should drive accelerated adoption of the company’s new H100 products,” said Logan Purk, an analyst with Edward Jones.
Nvidia’s outlook also helped boost the share prices of competitors such as Advanced Micro Devices (AMD-Q), whose stocks were also up.
The Santa Clara, California, company got its start in the graphics chip business for PCs by helping video games look more realistic. While its revenue beat Wall Street expectations, Nvidia’s sales were still down overall year-on-year as the company weathers a downturn in the PC market.
But growth has remained brisk in the market for data center chips. Analysts at Bank of America Global research believe the boom in so-called generative AI like chatbot and image creation services could add US$14-billion more to Nvidia’s revenue by 2027.
Adjusted profit was 88 US cents per share for the fourth quarter, beating analyst estimates of 81 US cents.
On the decline
Quebecor Inc. (QBR.B-T) slid 0.3 per cent with the premarket release of weaker-than-anticipated fourth-quarter 2022 results.
The Montreal-based telecom reported revenue of $1.19-billion, falling in line with the Street’s $1.18-billion estimate. However, adjusted EBIYDA of $483-million was lower than projected ($499-million) as media results weighed.
“QBR reported 4Q22 results which were slightly below expectations, adjusting for last week’s results from TVA,” said Desjardins Securities analyst Jerome Dubreuil. “As opposed to the last few years, QBR did not increase its dividend. However, we believe this signals that management is confident the Freedom deal will close. QBR still has a 3.7-per-cent dividend yield, in the middle of the Canadian telecom pack, adjusting for T’s DRIP. While the results were below expectations, we would use share price weakness as an opportunity to add relative exposure to QBR as the benefits from the Freedom acquisition are not yet reflected in the share price, based on our calculation.”
Newmont Corp. (NGT-T) was lower by 0.3 per cent after it said it believes a buyout of Newcrest Mining Ltd would create “significant value” for shareholders and that it is in talks with its Australian rival’s board of directors about closing a deal.
Newmont is the world’s largest gold producer by market value and ounces produced, but it would produce nearly twice as much of the precious metal as closest rival Barrick Gold Corp (ABX-T) should it prevail in its bid for Newcrest.
Details of the Denver-based company’s US$16.9-billion bid for Newcrest leaked out earlier this month. Newcrest, which was spun out of Newmont in the 1990s, rejected the offer last week as too low.
Newmont Chief Executive Officer Tom Palmer said on Thursday he was “disappointed” that Newcrest rejected the latest offer, but added that he is in active talks with Newcrest’s board of directors. Newmont has been open to sweetening the bid, a source told Reuters earlier this month.
“Given the challenges in the mining industry, there has never been a better time for two friends to come together,” Mr. Palmer told investors on a conference call after the company posted lower-than-expected quarterly results.
“If we can reach an agreement, this combination of industry-leading talents, decades of collective experience would create significant value across the global business with an ideal mix of gold and copper.”
Newcrest’s operations include its top-class Cadia asset in Australia, an expanding footprint in North America and Papua New Guinea, and growth potential in the mining of copper, highly prized as key to the world’s energy transition.
Beyond the mines themselves, Newmont’s argument for a tie-up centers on cost controls and other efficiencies of scale. Newmont struggled during the quarter with inflation as well as lower bullion prices.
Some Newcrest shareholders have called for an offer that would be a 30-per-cent premium to the company’s stock price before details of the previous bid emerged. But one of Newmont’s largest shareholders told Reuters it would not want the company overpaying for its rival.
“If someone pays 30 per cent above market price, there needs to be a very good explanation for why they are doing it,” said Simon Jager, portfolio manager at Flossbach von Storch, which is one of the ten largest investors in Newmont.
Several gold rivals have said in recent weeks they are not interested in large acquisitions, including Barrick, Gold Fields Ltd and Sibanye Stillwater Ltd.
Mr. Palmer said that regardless of the outcome of the Newcrest bid, Newmont will develop its 16 billion pounds of copper reserves.
On an adjusted basis, Newmont posted a net income of 44 US cents per share for the October-December period, compared with the average analyst estimate of 46 US cents. Revenue for the quarter fell 6 per cent to US$3.2-billion compared to the year before.
Newmont said attributable gold production for the fourth quarter edged up to 1.63 million ounces from 1.62 million ounces in the comparable period a year ago.
The company said it expects costs for labuor and supplies to remain high through at least 2025.
For 2023, Newmont has given a production guidance between 5.7 million and 6.3 million ounces of gold and guided for an all-in sustaining cost between US$1,150 and US$1,250 per ounce.
TransAlta Corp. (TA-T) closed down 3.2 per cent following the release of its fourth-quarter results, featuring a 25-per-cent EBITDA beat,
Before the bell, it reported adjusted EBITDA of $541-million, up 123 per cent year-over-year and blowing past the Street’s expectation of $472-million. The variance was largely due to better-than-anticipated contributions from its gas and marketing divisions.
“While the Alberta power pool prices and strong fundamentals supported the quarterly results, we have also seen an improvement for the 2023 outlook with changes to TA’s Alberta hedging position,” said ATB Capital Markets analyst Nate Heywood. “With the initial release of its 2023 guidance, including 2023 Adjusted EBITDA of $1.20-$1.32-billion (ATB estimate: $1.3-billion/consensus: $1.33-billion), management pointed towards a 2023 Alberta hedge position of 5,200 GWh and a hedged price of $74/MWh; however, the Alberta portfolio now includes hedged production of 6,874 GWh at a price of $98/MWh. Offsetting to the strong print, we would note TA missed EPS expectations as a result of higher depreciation, interest and tax expenses.”
Alibaba Group Holding Ltd. (BABA-N) gave back early gains and dipped 0.6 per cent after it reported better-than-expected quarterly revenue on Thursday, as the Chinese e-commerce giant benefited from the country easing COVID-19 curbs.
The company has weathered a weak economy in China, which only last December lifted its zero-COVID policy after three years.
Revenue rose 2 per cent to 247.76 billion yuan (US$35.92-billion) for its fiscal third quarter to Dec. 31, compared with a Refinitiv consensus estimate of 245.18 billion yuan drawn from 23 analysts.
China’s total retail sales contracted 1.8 per cent in December, while its economy grew 3 per cent in the full year 2022, one of its worst growth rates in nearly half a century.
Net income attributable to ordinary shareholders rose 69 per cent to 46.82 billion yuan from 27.69 billion a year earlier.
Retail spending in China is expected to remain weak for the first part of the year, though analysts expect that stimulus policies and eventual release of consumer savings will occur around springtime.
Alibaba’s customer management revenue, which tracks payments from vendors and is the company’s largest sales segment, fell 9% year on year.
The key metric, which makes up the bulk of Alibaba’s total revenue, has been stalling. On top of a sluggish economy, the company is also looking upward from a regulatory crackdown that began in late 2020.
Founder Jack Ma, who has receded from the public spotlight since the start of the crackdown, has been spending much of his time outside China in places such as Japan and Australia, according to media reports.
In January, Mr. Ma relinquished control of Ant Group, the fintech affiliate of Alibaba and a key target for Beijing regulators.
Ant, which is 33-per-cent owned by Alibaba, logged a profit of 3.05 billion yuan for the quarter ending in late September, down 82.7 per cent year on year. Alibaba reports its profit from Ant Group one quarter in arrears.
Chinese authorities, who have been seeking to restore private sector confidence and spur economic activity, have said that they will step up support for private firms and ease the crackdown.
Moderna Inc. (MRNA-Q) reported fourth-quarter profit that missed Wall Street expectations by almost 23 per cent in part due to a newly-disclosed royalty payment to the U.S. National Institutes of Health (NIH) related to development of the company’s COVID-19 vaccine, and higher costs.
Moderna shares were down 6.7 per cent after the company posted a profit of US$3.61 per share, well below analysts’ estimates of US$4.68, according to Refinitiv data.
The U.S. biotech company reaffirmed its 2023 COVID vaccine sales forecast of US$5-billion, but said it would need to start making low-single digit royalty payments to one of the NIH divisions.
Moderna also said it had paid a catch-up royalty of around US$400-million to the NIH related to a long-standing patent rights dispute over the COVID-19 vaccine, its lone marketed product.
Moderna’s quarterly profit also took a hit from over US$950-million in write-downs and charges related to surplus inventory, cancellations and a shift to Omicron-targeting bivalent boosters in many countries.
The company now foresees around US$6-billion in expenses this year, including planned investments of US$4.5-billion on research and development.
Sales of the vaccine were expected to fall sharply this year from US$18.4-billion in 2022 as much global demand for initial shots and boosters has been met, while governments and other agencies cut purchases.
The sales forecast implies a “possible EPS net loss” this year compared to the huge profit its COVID vaccines drove during its peak, Jefferies analyst Michael Yee said in a note.
However, there is a potential for positive cash flow this year if Moderna is able to get more advanced purchase agreements for its COVID shots, Yee said.
Moderna expects additional sales from markets including the United States, Europe and Japan.
Rival Pfizer Inc. (PFE-N) had also forecast a bigger-than-expected drop in sales of its COVID-19 products, saying it sees 2023 as a transition year for the products before potentially returning to growth in 2024.
Domino’s Pizza Inc. (DPZ-N) missed quarterly sales estimates on Thursday, in a sign that price hikes were eating into demand for its pizzas and chicken wings amidst decades-high inflation, sending its shares down.
The world’s largest pizza chain, like other fast food companies, has raised prices of its menu items over the past year as it wrestles with elevated costs of transportation, labor and raw materials, a move analysts say could weigh on orders.
Even with Domino’s recent promotional offers, such as the 50-per-cent discounts on its pizzas for a limited time, its U.S. same-store sales climbed just 0.9 per cent in the fourth quarter, missing expectations for a 3.69-per-cent rise in Refinitiv IBES data.
The Michigan-based company has also been facing acute staffing shortages, especially of delivery drivers at its U.S. stores, which has lengthened delivery times and further dented sales.
Domino’s dismal report comes in contrast to other fast food majors, such as McDonald’s Corp. (MCD-N) and Taco Bell owner Yum Brands Inc. (YUM-N), who saw more customers turn to their stores in search of wallet-friendly meals.
Prolonged weakness in its U.S. delivery business, coupled with broader economic pressures, also prompted Domino’s to trim its expectations for global retail sales growth, excluding foreign currency impact, to between 4 per cent and 8 per cent over a two- to three-year period. It had previously expected growth of 6% to 10%.
Still, hiking menu prices by about 7 per cent as estimated by the company in October, helped Domino’s adjusted earnings of US$3.97 per share top estimates of US$3.94 per share.
BTIG analyst Peter Saleh has estimated Domino’s currently has the highest level of menu pricing in more than a decade.
Total revenue rose to US$1.39-billion in the three months ended Jan. 1 from US$1.34-billion a year earlier, below estimate of US$1.44-billion.
Electric-truck maker Lordstown Motors Corp. (RIDE-Q) dropped 11.8 per cent after said on Thursday it would temporarily stop production and deliveries of its pickup truck Endurance due to performance and quality issues with some components.
Lordstown also said it would voluntarily recall 19 vehicles delivered to customers or being used internally.
The company started commercial production of Endurance trucks in September, with a target to deliver 50 vehicles in 2022 and more in 2023 out of the planned first batch of 500 units.
Nikola Corp. (NKLA-Q) missed fourth-quarter revenue targets by a wide margin on Thursday as it delivered far fewer electric trucks than it produced, dragging the company’s shares lower by 5.6 per cent.
The automaker produced 133 trucks and delivered just 20 vehicles to dealerships during the quarter. Chief Executive Michael Lohscheller attributed the gap to improvements made to trucks in dealer inventory before being sent to customers.
In a spot of optimism, however, Nikola outlined plans to boost deliveries and reduce costs in 2023.
It expects to deliver between 250 and 350 Tre battery electric trucks this year, compared with 131 deliveries in 2022, and forecast at least 125 fuel-cell electric truck deliveries in the fourth quarter.
The company also plans to start installation of an automated battery pack assembly line, which it expects will deliver about US$105,000 in cost savings in battery modules and packs for each Tre BEV truck by the fourth quarter of the year.
Loss-making U.S. startups such as Nikola and Lordstown Motors Corp have been battling costs associated with ramping up production as they seek to grab a share in the commercial vehicles market.
Nikola also said it expects a negative gross margin of 75 per cent to 95 per ent for 2023. At its investor day presentation early last year, the company had forecast a positive gross margin on its Tre battery electric truck this year.
It reported cash and cash equivalents of $233.4 million at the end of the fourth quarter, down from $497.2 mln a year earlier.
Revenue of US$6.6-million for the quarter ended Dec. 31 came in below analysts’ estimates of US$32.1-million, according to IBES data from Refinitiv.
Net loss widened to US$222.1-million from US$158.9-million a year earlier.
With files from staff and wires
David Leeder