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A look at North American equities heading in both directions

On the decline

Shares of Organigram Holdings Inc. (OGI-T) jumped 9.1 per cent on Thursday after the cannabis producer forecast a revenue increase for 2023.

The Moncton-based company expects revenue to be higher than fiscal 2022, citing “ongoing sales momentum, stronger forecasted market growth, the company’s expanded product line in multiple segments, greater capacity to meet demand at the Moncton Campus, increased throughput at the Winnipeg facility and contributions from the Lac-Supérieur facility.”

Net revenue for what was the first quarter of the company’s 2023 financial year totaled $43.3-million, up from $30.4-million a year earlier. Analysts had expected $43.43-million.

Net income rose to $5.3-million from a loss of $1.3-million during the same period a year ago, which it attributed to a higher gross margin from increased revenue and lower per-unit production cost.

It anticipates the continuation of shipments to Canndoc in Israel and Cannatrek and Medcan in Australia will generate higher sequential revenue in fiscal 2023.

In a research note released before the bell, Raymond James analyst Michael Freeman said: “During OGI’s 1Q23, it appears the company rose to #2 market share position by adult-use sales, sailing past Hexo (HEXO-Nasdaq, #4 as at Nov. 22), and very nearly closing the gap betweenit and #1-positioned Tilray (TLRY-Nasdaq). OGI’s recent capacity expansion, yield improvements, and ongoing efficiency improvements at its Moncton campus have enabled the company to increase the throughput of its high-quality, indoor-grown flower while materially reducing cost of cultivation; OGI indicated during its 4Q22 earnings call in late Nov.22 that it had reduced its cost of cultivation by more than 20 per cent year-over-year, which, given 75 per cent of OGI’s Rev., historically, has been in the flower category, could have a material positive impact on the company’s gross margins. During FY23, the company expects to see superior EBITDA vs. FY22and hit cash-flow positivity during at least one quarter as a result of these economies of scale and operational improvements.”

Nelson Peltz on Thursday launched a battle for a board seat at Walt Disney Co. (DIS-N) to rescue the entertainment giant from what he called a “crisis” of overspending on the streaming business, the purchase of 21st Century Fox and failed succession planning.

The billionaire’s move is a serious challenge to Disney Chief Executive Bob Iger, who recently returned from retirement to lead the company for a second time. The battle would pit the activist investor known for his work at consumer firms against Mr. Iger, one of the most popular executives in Hollywood.

Disney’s shares rose more than 3.5 per cent, with some analysts pointing to Mr. Peltz’s past successes in bringing changes at firms. The stock has tumbled 39 per cent in the past year.

The tussle with Disney could be Mr. Peltz’s biggest proxy battle since an acrimonious fight to bag a seat on the board of Tide detergent-maker P&G (PG-N). During his more than three-year tenure on P&G’s board, the firm’s stock price rose nearly 80 per cent.

Mr. Peltz’s Trian Fund Management on Thursday filed documents with the U.S. securities regulator for his election as a director after Disney denied him a board seat.

“Investors would appreciate additional assurance that past problems won’t repeat,” Rosenblatt Securities said. “Peltz -- with a change-maker history at targets including P&G, (Kraft) Heinz and Wendy’s -- could provide a measure of that.”

Mr. Peltz - whose fund owns a 0.5 per cent, or roughly US$900-million, stake in Disney - said on Thursday the media company should buy the rest of Hulu from Comcast Corp. (CCZ-N) or exit the streaming business.

Disney also needs to boost capital expenditure at its parks business, where it probably raised ticket prices “too hard,” he said in a CNBC interview. It “is more than a media company and is a consumer company,” he said.

Investors will vote later this year on whether Mr. Peltz should sit on the company’s board. Last year, the annual shareholder meeting was held on March 9.

American Airlines Group Inc. (AAL-Q) on Thursday forecast a higher fourth-quarter profit on strong demand for travel during the key holiday season, sending its shares up 9.8 per cent.

The upbeat forecast comes at a time when a worsening economic outlook coupled with high inflation has sparked concerns about consumer demand.

Shares of other airlines including Delta Air Lines Inc. (DAL-N), Southwest Airlines Co. (LUV-N) and United Airlines Holdings Inc. (UAL-Q) were also higher.

The fourth quarter was difficult for several U.S. carriers as an industry-wide pilot shortage made it tougher for carriers to ramp up capacity and capitalize on a booming travel demand.

During the fourth quarter, American Airlines’ capacity was down 6.1 per cent versus the fourth quarter of 2019, and near the mid-point of its prior guidance of a 5-per-cent to 7-per-cent fall.

American Airlines expects to report fourth-quarter adjusted earnings per diluted share between US$1.12 and US$1.17, compared with its prior guidance of 50 US cents to 70 US cents. Analysts had expected a profit of 60 US cents, according to Refinitiv data.

The company also forecast a rise between 16 per cent and 17 per cent in revenue from the fourth quarter of 2019. It had earlier forecast revenue growth of 11 per cent to 13 per cent.

It expects costs, excluding fuel, to be up for the fourth-quarter about 10 per cent at the higher end of its previous forecast of 8 per cent and 10 per cent.

Taiwanese chipmaker TSMC (TSM-N) rose over 6 per cent despite warning on Thursday that first-quarter revenue would drop as much as 5 per cent and it would slash annual investment as the major Apple Inc supplier expects softer demand due to a slowing global economy.

The bearish outlook follows a forecast-beating 78-per-cent jump in fourth-quarter profit, underscoring the depth of a sharp slowdown in a global technology sector that is grappling with worsening consumer demand brought about by decades-high inflation rates, rising interest rates and an economic downturn.

Still, Taiwan Semiconductor Manufacturing Co Ltd (TSMC) , the world’s most valuable chipmaker, forecast growth would return in the second half of this year.

“We forecast the semiconductor cycle to bottom sometime in first half and see a recovery in second half 2023,” CEO C.C. Wei said, adding the rebound would be boosted by new product launches such as artificial intelligence-enabled goods.

The world’s largest contract chipmaker said its capital expenditure in 2023 would decrease to US$32-36-billion from US$36.3-billion in 2022.

First-half revenue is seen posting a mid to high single-digit percent decline. First-quarter revenue is expected in a range of US$16.7-billion to US$17.5-billion, compared with US$17.57-billion a year earlier.

TSMC’s dominance in making some of the most advanced chips for high-end customers such as Apple has shielded it from downturn. But the company is likely to fall victim to the deepening slowdown, with the current quarter likely to mark its first sales drop in four years.

The fourth quarter “was dampened by end-market demand softness and customers’ inventory adjustment,” Chief Financial Officer Wendell Huang told a briefing, adding such conditions will carry into the first quarter.

“Given the near-term uncertainties, we continue to manage our business prudently and tighten up our capital spending where appropriate,” Huang said. “Our disciplined capex and capacity planning remain based on the long-term market demand profile.”

Electric carmaker Tesla Inc. (TSLA-Q) closed higher after Bloomberg reported it has delayed plans to expand its Shanghai factory.

Tesla had planned to start work on expanding the plant as part of a strategy to more than double its production capacity in China to meet growing demand for its cars in the country and export markets, Reuters reported in February.

That would have helped Tesla produce up to 2 million cars per year at the Shanghai plant.

Bloomberg also said Tesla is nearing a preliminary deal to build production facilities in Indonesia with a capacity of one million units.

Chief Executive Elon Musk tweeted on Wednesday, “Please be cautious about writing articles citing ‘unnamed sources’, as they are frequently false,” in a comment on a tweet referencing the report.

Indonesia’s senior cabinet minister Luhut Pandjaitan, who has been leading the talks with Tesla, said negotiations were still ongoing, but declined to say more citing a non-disclosure agreement.

On the decline

Algonquin Power and Utilities Corp. (AQN-T) fell 4.2 per cent after it slashed its quarterly dividend by about 40 per cent amid what the company called challenging headwinds related to rising borrowing costs and a determination to maintain its investment grade credit rating.

The dividend reduction, which follows disappointing quarterly financial results in November and a soaring dividend yield above 10 per cent as the share price slumped, means that the payout will fall to US10.85 cents per share from about US18 cents previously.

Arun Banskota, Algonquin’s chief executive officer, called the action one of the decisive steps the company is taking in response to an economic backdrop that that driven up interest rates to multiyear highs. The company expects it can save US$1-billion over five years.

Algonquin said it is committed to completing the acquisition of Kentucky Power, which a U.S. regulator blocked last month. It also said it will reduce its capital expenditures by about 15 per cent, end new common equity issuance for the next two years and suspend its dividend reinvestment plan.

- David Berman

Interfor Corp. (IFP-T) dipped after announcing it will reduce lumber production by at least eight per cent of capacity in the first quarter as market uncertainty affects demand.

The Burnaby, B.C.-based forestry company says the move amounts to at least 100 million board feet.

It says it expects to resume its normal production schedule starting in April but will monitor market conditions and adjust plans accordingly.

The company says the production cuts are likely to come from areas other than its U.S. South operations.

The news comes a day after West Fraser Timber Co. Ltd. (WFG-T) said it would indefinitely curtail its Perry Sawmill in Florida later in January due to high fibre costs and softening lumber markets.

The lumber market has gone through unprecedented volatility in prices in recent years as the industry went through supply and demand shocks brought on in part by the COVID-19 pandemic.

Shares of Aritzia Inc. (ATZ-T) plummeted 9.9 per cent despite recording quarterly revenue in its third quarter, seeing gains company-wide including notable growth south of the border and online..

The Vancouver-based clothing retailer says net revenue of $624.6-million for the quarter ending Nov. 27 was an increase of 38 per cent from a year earlier.

Net income of $70.7-million for the third quarter of fiscal 2023 was an increase of 8.9 per cent from a year earlier.

Aritzia says revenue in the U.S. was up 58 per cent, while total e-commerce sales were up 36 per cent.

Inventory at the end of the third quarter totalled $508-million, up 188 per cent from a year earlier, as the company had made earlier orders to build up supplies amid uncertain supply chains.

The retailer says it is comfortable with its inventory position, and expects markdowns in the fourth quarter to be no greater than pre-pandemic levels.

In a research note, Stifel analyst Martin Landry said: “Aritzia reported better than expected Q3FY23 results with a revenue and EPS beat. The company has had a strong November with the best Black Friday week in its history. The proportion of items sold on discount did not increase and customers continued to respond and purchase most products at full price. Management does not see any changes in customer shopping behavior despite the economic slowdown. It is difficult to assess if and when customer demand could abate, but near-term all indications point to sustained growth. FY23 guidance suggests margin pressure in Q4FY23 more than offsetting higher revenue guidance and bringing Q4FY23 EPS potentially lower than previous consensus. This dynamic may continue into H1FY24 given the persistent inflationary pressures and higher logistics costs until the new distribution center is up and running this summer. This may weigh on investor sentiment tomorrow. We maintain our BUY rating and $62 target price.”

Canfor Pulp Products Inc. (CFX-T) dropped after saying an estimated 300 jobs in British Columbia will likely be gone by the end of the year as its closes the pulp line at its Prince George pulp and paper mill.

The Vancouver-based company made the announcement about the permanent closure Wednesday, blaming a lack of fibre for its pulp operations.

The Canfor statement says the specialty paper facility at the mill will stay open.

Canfor Pulp president and CEO Kevin Edgson says the company will begin an “orderly wind down process” over the next few months and expects to close the pulp line by the first quarter of 2023.

He says Canfor will be working to support affected employees through the transition.

The shut down will result in a reduction of 280,000 tonnes of market kraft pulp annually.

With files from staff and wires