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A look at North American equities heading in both directions

On the rise

Shares of Canadian Natural Resources Ltd. (CNQ-T) were higher by 1.8 per cent despite missing market expectations for fourth-quarter profit on Thursday, as the energy firm was hurt by lower liquid prices and severe winter weather that hampered its production.

Winter storm Elliott barreled through the United States and Canada in mid-December, hitting several oil production sites along the way that caused freeze-ins and equipment failures.

Canadian Natural said its production declined 1.5 per cent to 1.29 million barrels of oil equivalent per day (boepd) in the quarter ended Dec. 31.

Moreover, crude prices have turned extremely volatile in recent months amid supply fears caused by the Western sanctions on Russia and worries that the fight against inflation could weaken the global economy and affect energy demand.

Benchmark Brent crude prices have fallen more than 2 per cent in the October-December quarter.

Canadian Natural said its fourth-quarter liquids realized price fell nearly 5 per cent to $69.34 per barrel.

The Calgary-based company reported adjusted net earnings of $1.96 per share for the quarter, below analysts’ average estimate of $2.27 per share.

However, its free cash flow rose to $10.9-billion for the full-year 2022, from $8.08-billion in 2021, which helped it hike its quarterly dividend by 6 per cent to 90 cents per share.

Crescent Point Energy Corp. (CPG-T) rose 2.6 per cent after it announced a special dividend as it reported a loss in its latest quarter, weighed down by a one-time impairment charge.

The company says it will pay a special cash dividend, based on its fourth-quarter results, of 3.2 cents per share on March 17, to shareholders of record as of March 10.

The payment is in addition to the company’s regular quarterly dividend of 10 cents.

Crescent Point reported a fourth-quarter loss of $498.1-million or 90 cents per share for the quarter ended Dec. 31 compared with a profit of $121.6-million or 21 cents per share in the last three months of 2021.

The company said its adjusted profit from operations amounted to $209.8-million or 38 cents per share for its fourth quarter, up from $160.0-million or 27 cents per share a year earlier.

Average daily production for the quarter amounted to 134,124 barrels of oil equivalent per day, up from 130,407 in the fourth quarter of 2021.

Macy’s Inc. (M-N) posted better-than-expected results for the holiday quarter and forecast annual profit largely above estimates as the department store chain looks to cut back on promotions to protect margins, sending its shares up over 11 per cent.

Like many retailers, Macy’s offered steep discounts during the holiday season to get rid of excess inventory and attract inflation-weary consumers. But Chief Executive Jeff Gennette said those promotions were “competitive but measured.”

“(We) took strategic markdowns and intentionally did not chase unprofitable sales,” Gennette added.

As a result, the company took a much smaller hit to its margins, which fell 2 percentage points to 34.1 per cent, compared with peers such as Kohl’s Corp. (KSS-N), whose margins took a 10 percentage point hit.

With the extra inventory mostly gone, Macy’s is just going to be more cautious with the way they offer promotions, M Science analyst Matthew Jacob said.

Stubbornly high inflation and an uncertain economic environment have forced retailers such as Walmart Inc (WMT-N) and Target Corp. (TGT-N) to make cautious forecasts for the year.

Macy’s said it expects adjusted full-year profit per share between US$3.67 and US$4.11, while analysts on average had estimated US$3.84, according to IBES data from Refinitiv.

The department store operator, however, sees 2023 sales between US$23.7-billion and US$24.2-billion, compared with the average estimate of US$24.29-billion.

Shares of Salesforce Inc. (CRM-N) jumped 11.5 per cent on Thursday after the cloud-based software provider’s revenue forecast eased concerns about slowing growth and its move to double its share repurchase to US$20-billion appeased investors.

Salesforce has been targeted by four activist investment firms — including Elliott Management Corp which has nominated directors to its board – pushing for changes at the company that posted its slowest quarterly revenue growth since it went public in 2004.

Still, Salesforce’s first-quarter revenue forecast implied growth of 10 per cent, higher than analysts’ estimates of 9 per cent. It also expects full-year adjusted operating profit margins to increase, prompting at least 16 brokerages to raise their price target on the company’s stock.

The business software maker’s plan to integrate artificial intelligence into all of its cloud as well as Slack, data analytics platform Tableau and MuleSoft platform also gave a fillip to the stock.

Brokerage firm Barclays Salesforce’s short-term bookings, improving the productivity of sales representatives and the disbanding of the mergers and acquisition committee as signs that the business is on track for sustained profitable growth.

Elliott, which had been in talks with Salesforce leading up to the earnings statement, said “today’s announcements represent progress towards regaining investor trust.”

Other activist investors with a stake in Salesforce include Starboard Value, Inclusive Capital Partners and ValueAct Capital. They have pushed for higher growth and margins, more share buybacks and raised concerns about recent acquisitions.

Shares of Salesforce have advanced 26 per cent this year through Wednesday’s close, compared with a near 3-per-cent gain in the benchmark S&P 500 index.

Billionaire investor Daniel Loeb on Thursday told investors in his hedge fund Third Point that the firm has invested in microchip company Advanced Micro Devices Inc. (AMD-Q), according to a Reuters report.

Shares of AMD rose 2.6 per cent.

Third Point, which occasionally pursues an activist strategy and pushes for changes at companies, is not planning to press for changes at AMD and the investment can be considered a passive stake, the person familiar with the fund said.

Anheuser-Busch InBev (BUD-N), the world’s largest brewer, closed up 1.4 per cent after expressing confidence in China’s recovery and the willingness of drinkers to pay higher prices after reporting increased profit in the fourth quarter despite lower beer sales.

The maker of Budweiser, Corona and Stella Artois on Thursday registered record drinks volumes for the year, but they fell by 0.6 per cent in the final quarter of 2022, compared with a rise expected by the market.

AB InBev’s sales and earnings declined in China due to a strict zero COVID policy that was suddenly dropped in December.

The company’s Asian subsidiary, which also released results on Thursday, said the restaurants and night life venues it supplies in China had almost fully re-opened by the end of February. It said it was optimistic for a recovery in 2023 after a transitional first quarter.

In the United States, AB InBev’s largest market, profit and revenue increased, largely because of price increases, although those same increases, along with harsh winter weather in December, cut into beer sales in volume terms.

Chief Executive Michel Doukeris said many retailers, aware of upcoming price hikes in October, stocked up in September. In the first six weeks of 2023, U.S. volumes were only down about 1 per cent, with revenue some 5 per cent higher, he said.

“Beer is a very resilient category,” Mr. Doukeris said, adding the trend towards more higher priced premium beers was continuing, notably for drinking occasions in people’s homes.

Brewers have raised beer prices in response to higher energy and raw materials costs, and both Heineken and Carlsberg have warned of reduced beer consumption in Europe because of the increases.

Bernstein Research analyst Trevor Stirling described the results as a “mixed bag” and said that some investors may have hoped for less conservative outlook, although an increased dividend was a positive sign.

The company’s overall core profit - earnings before interest, tax, depreciation and amortization (EBITDA) - rose 7.6 per cent on a like-for-like basis in the fourth quarter to US$4.95-billion, above the 7.1-per-cent gain expected by analysts in a company-compiled poll.

For the whole year, core profit growth was 7.2 per cent.

The Belgium-based company forecast core profit would grow in 2023 in line with its medium-term outlook range of 4 per cent to 8 per cent, with revenue expanding at a higher rate than profit.

AB InBev also increased its full-year dividend to a proposed 0.75 euros from 0.50 euros in each of the past two years.

On the decline

Shares of Toronto-Dominion Bank (TD-T) were lower by 2.4 per cent after its quarterly profit beat estimates on Thursday, as robust growth in personal loans in Canada and the United States overshadowed weakness in its wealth management and insurance unit.

The results from Canada’s second-largest bank round up a mixed quarter for lenders in the country, as they received a boost from the Bank of Canada’s interest rate hikes but had to raise provisions for potential bad loans.

Earlier this week, data showed the Canadian economy had unexpectedly stalled in the final three months of 2022, bolstering the central bank’s case to hold off on further rate hikes if prices eased as expected.

Canada’s biggest lender Royal Bank of Canada (RY-T) too restated its forecast of a moderate recession this year.

On Thursday, TD reported adjusted earnings of $2.23 per share, higher than $2.08 a year earlier and beating analysts’ average estimate of $2.20 a share, according to Refinitiv IBES data.

Net income at its Canadian personal and commercial banking business grew 7 per cent, while its U.S. retail bank unit posted a growth of 25 per cent.

That helped soften a hit from wealth management and insurance, where the net income fell 14%.

Contributing to a 58-per-cent slump in the bank’s overall net profit was its agreement this week to pay US$1.2-billion to resolve a litigation by former Allen Stanford investors, who had accused TD of contributing to the imprisoned financier’s massive Ponzi scheme.

Separately, TD said it was not expecting to win regulatory nod for its US$13.4-billion deal for U.S.-based First Horizon Corp by May 27, which is the extended deadline the companies had set to close the deal.

“We are in discussions with First Horizon about a potential further extension beyond May 27,” TD Chief Executive Officer Bharat Masrani said.

In a research note, Credit Suisse analyst Joo Ho Kim said: “TD’s Q1 results beat on the headline and our PTPP estimate, but there were several areas in the results that underwhelmed our expectation. Net interest margins were good at the segment level, but all bank margins were up a much more modest 2 basis points quarter-over-quarter, and that deceleration in improvement should remain a key focus area for investors today. As well, the bank’s CET1 ratio ticked down 70bps, and although they were impacted mostly by previously telegraphed items (CRD, Stanford in particular), the internal capital generation (net of RWA) also looked weak. Another area of focus this quarter is expenses, which was higher than expected and on the higher end of the peer group this quarter on a year-over-year basis. Finally, loan growth was strong in U.S. Retail, but slowed down in Canada (similar to peers).”

Canadian Western Bank (CWB-T) fell 5.5 per cent in the wake of reporting its first-quarter profit rose compared with a year ago, helped by a reversal of a previously recognized impaired loan writeoff.

The Edmonton-based bank reported its common shareholders’ net income amounted to $94.4-million or 99 cents per share for the quarter ended Jan. 31, up from $87.6-million or 97 cents per share in the same period a year earlier.

Revenue totalled $272.9-million, up from $266.0-million in the same quarter last year.

CWB posted a recovery of credit losses of $8.5 million as the impaired loan reversal off more than offset net new impaired loan provisions for credit losses in the quarter. The bank had a $9.1-million provision for credit losses a year earlier.

On an adjusted basis, CWB says it earned $1.02 per share, up from an adjusted profit of 99 cents per share a year earlier.

Analysts on average had expected a profit of 90 cents per share, according to estimates compiled by financial markets data firm Refinitiv.

“Our teams delivered strategically targeted loan growth this quarter, with very strong increases in Ontario and in general commercial loans, which represent our largest opportunity to convert clients into full-service relationships,” CWB chief executive Chris Fowler said in a statement.

“Gross impaired loans are returning to more normal levels from very benign conditions last year. Our secured lending model and disciplined underwriting processes continue to support our expectation that our provision for credit losses will remain within our strong historical range.

AutoCanada Inc. (ACQ-T) plummeted 15.9 per cent with the release of weaker-than-anticipated fourth-quarter 2022 results late Wednesday as used vehicle pricing and margins weighed.

The Edmonton-based company reported revenue of $1.388-billion, up 6.7 per cent year-over-year but below the Street’s projection of $1.451-billion. Adjusted EBITDA fell 23.1 per cent to $50.7-million, also missing the consensus estimate ($62.1-million).

“Despite the North American economy being far more resilient than most economists expected over the last year, pressures on highly cyclical discretionary consumer categories have made themselves known as the Band of Canada has raised rates by 425 bps since March 2022,” said National Bank analyst Maxim Sytchev in a note. “While new car pricing remains extremely strong on low supply (hence weak volumes), used car prices have begun to turn in Canada, with AutoTrader reporting used prices pulling back six months in a row through December. While prices remain far above pre-pandemic levels, sourcing used inventory at the peak led to a $12.4-million used inventory write down in Q4/22 (in addition to the $10-million announced in Q2/22). Higher interest rates also flowed through to higher interest costs. Floorplan financing costs increased 564 per cent year-over-year to $15.7-million, while interest on long-term debt jumped 32 per cent year-over-year to $8.2-million. The latter figure was compounded by the addition of a further $96-million of net debt in the quarter, driven by the $50-million SIB and $54.6-million of further acquisitions (Kavia Auto Body, Excellence Auto Collision and Sterling Honda). While management notes that all three acquisitions were immediately accretive and leverage remains below the target range, expanding through increased leverage at this point in the macro cycle carries significant risk. As a result of the above as well as lower EBITDA, net leverage (the company’s definition) increased from 1.5 times in Q3/22 (and 1.0 times a year ago) to 2.1 times by the end of the year.”

“We believe it will take some time for the market to realize that the peak margins of 2021 are firmly in the rearview window. Consumers continue to be pressured by higher rates, impacting affordability while the same rates are also having a negative impact on floorplan financing. One can make all kinds of arguments about why ACQ today is better vs. five years ago, but the macro headwinds are too large to ignore.”

Tourmaline Oil Corp. (TOU-T) declined 4.8 per cent following the release of mixed fourth-quarter results after the bell on Wednesday.

The Calgary-based company reported better-than-anticipated funds from operations of $4.08 per share, topping the Street’s forecast of $3.90. However, production of 511,590 barrels of oil equivalent per day fell short of estimates (516,400 boe/d).

“TOU has become the go-to name for gas exposure,” said Raymond James analyst Jeremy mcCrea. “Its size also provides a number of advantages including a better cost of capital, preferential drilling/completion contracts, and the opportunity to be a logical provider of LNG gas supply. Combined with a geologic foothold in top basins through western Canada, there are very few companies that are as profitable as Tourmaline. This low-cost structure and its diversified marketing portfolio continues to allow TOU to pay attractive special dividends each quarter, while at the same time, keep leverage low, and modestly grow production. Although the share price has come under pressure lately due to lower natural gas prices, we are noticing that some investors are taking this as an opportunity to pick up the stock in anticipation that it may possibly rebound by next winter. By then, we may also have more clarity on additional LNG projects and possibly better natural gas prices. Overall, with a good beat on 4Q FFO (given higher realized pricing), unchanged guidance, and one of the best reserve reports we’ve seen this year, we maintain our Strong Buy rating.”

Vancouver-based Lithium Americas Corp. (LAC-T) slid 2.9 per cent after it said on Thursday it has begun construction at its Thacker Pass lithium project in Nevada.

The company’s announcement follows a federal court ruling from February that rejected claims that the project would cause unnecessary harm to the environment or wildlife and allowed construction to start.

The proposed mine has the potential to be North America’s largest source of lithium for electric vehicle batteries and would aid in U.S. President Joe Biden’s efforts to reduce dependence on Chinese supplies for the metal.

General Motors Co. (GM-N) said in January that it would invest US$650-million in Lithium Americas to help develop the project.

Thacker Pass is targeting 80,000 tons per annum of battery-quality lithium carbonate production capacity.

The miner said that contracts for major earthworks have been awarded, with activities expected to begin in the second half of 2023.

Tesla Inc’s (TSLA-Q) shares dropped almost 6 per cent after Chief Executive Elon Musk and team’s four-hour presentation failed to impress investors waiting for an affordable electric vehicle and a plan with a concrete timeline.

Mr. Musk and more than a dozen executives laid out fresh plans to cut assembly costs by half, invest in a new plant in Mexico and discussed the company’s innovation in managing its operations at its investor day on Wednesday.

However, the event, where Mr. Musk revealed the EV maker’s ‘Master Plan 3′, was short on details about the timeline or any new Tesla products.

“The markets were primed for a big announcement, perhaps on something like a more affordable new model,” said Russ Mould, investment director at AJ Bell.

“Tesla had been on a tear so far in 2023. Then Musk raises his head above the parapet in an investor day presentation and the shares are sputtering ... It may just have been a case of failing to live up to the hype.”

The stock, which had lost about two-thirds of its value in 2022, has climbed more than 60 per cent so far this year.

“The timeline and cost details were limited, and the event lacked a Tesla-like surprise,” Wells Fargo analyst Colin Langan said.

Tesla’s events have created a stir on the internet in the past, with Mr. Musk’s dance moves at the opening of the company’s Berlin plant in 2022 and an event in China in 2020 going viral on social media.

The company’s plan to use 75-per-cent less silicon carbide vehicles without compromising the performance or the efficiency of the car also weighed on semiconductor maker and supplier STMicroelectronics’, shares.

The reduction plan was “bad news for the whole silicon carbide production chain and in particular for STMicro,” Brokerage Equita said. It estimates that Tesla accounted for 70 per cent of 2022 semiconductor sales at STMicro.

Silvergate Capital (SI-N) shares plummeted 57.1 per cent after the cryptocurrency-focused bank warned it was delaying its annual report and said it was evaluating its ability to operate as a going concern.

Cryptocurrency exchange Coinbase Global Inc said it was no longer accepting or initiating payments to or from Silvergate after the warning.

Silvergate had been trying to ease investor concerns over its future after reporting a US$1-billion loss for the fourth quarter in the wake of crypto exchange FTX’s bankruptcy, which shook confidence in the digital asset sector.

Federal prosecutors in Washington are probing Silvergate and its dealings with FTX and Alameda Research. In January, three U.S. senators asked Silvergate for details about its risk management practices and its dealings with FTX.

“The Company is currently analyzing certain regulatory and other inquiries and investigations that are pending with respect to the Company,” Silvergate wrote in a filing to the Securities and Exchange Commission on Wednesday.

Silvergate said it sold additional debt securities in January and February and that it expects further losses related to impaired securities, adding it could be “less than well-capitalized.”

Additionally, “the Company is evaluating the impact that these subsequent events have on its ability to continue as a going concern for the twelve months following the issuance of its financial statements,” according to the filing.

Silvergate said it does not expect to file its report by an extension date of March 16.

Global cryptocurrency exchange Binance had secret access to an account at Silvergate belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, Reuters reported earlier this month.

Silvergate’s stock has plummeted about 96 per cent from its record high close in November 2021.

Top U.S. electronics retailer Best Buy Co Inc. (BBY-N) on Thursday joined peers with a cautious annual earnings forecast as uncertainty over the U.S. economic outlook tempers expectations for a recovery in demand for TVs, laptops and other electronic products.

The company’s shares gave back early gains after a beat on holiday quarter revenue and profit estimates as steep discounts attracted inflation-weary shoppers to its stores.

Best Buy and other retailers have offered bigger discounts than usual during the holiday season to stoke demand as surging costs of rent and food over the last year hammered spending on non-essentials.

The company sees no relief this year, forecasting full-year comparable sales to fall 3 per cent to 6 per cent, compared with analysts’ estimates for a 1.9-per-cent decline.

“As we enter fiscal 2024, macroeconomic headwinds will likely result in continued volatility, and we are preparing for another down year for the (consumer electronics) industry,” Chief Executive Officer Corie Barry said on an analyst call.

The company expects fiscal 2024 adjusted earnings per share of US$5.70 to US$6.50, below analysts’ estimates of US$6.71.

Walmart (WMT-N), Target Corp. (TGT-N) and other retailers have also issued conservative forecasts as still high U.S. consumer prices have raised fears that the Federal Reserve could further lift borrowing costs to cool demand.

However, Best Buy’s forecast was even more conservative than its big-box retail rivals, as it has greater exposure to discretionary categories, M Science Senior Analyst John Tomlinson said.

“Best Buy’s forecast implies things are worse than they were pre-pandemic, while trends, relative to 2019, are generally still much higher for many other companies,” Tomlinson said.

On an adjusted basis, the company earned US$2.61 per share in the fourth quarter ended Jan. 28, beating analysts’ estimates of US$2.11, according to IBES data from Refinitiv.

With files from staff and wires