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A look at North American equities heading in both directions

On the rise

Canadian luxury jet maker Bombardier Inc. (BBD-B-T) surged 2.8 per cent after boosting its financial targets as it sets a new course towards consistent profitability after years of strife.

The Montreal-based manufacturer said Thursday a five-year turnaround strategy launched in March 2021 is yielding results that are either meeting or exceeding its initial plans. Jet sales are holding strong and other revenue streams like servicing planes are helping fuel the bottom line, prompting the company to hike its financial objectives on several key metrics.

Bombardier is now aiming to generate at least US$900-million in annual free cash flow by 2025, up 80 per cent from the US$500-million initially projected. Revenue should top US$9-billion, up 20 per cent from its initial target of US$7.5-billion while adjusted earnings before interest, taxes, depreciation and amortization should hit a minimum of US$1.625-billion, up from the previous US$1.5-billion target, according to the company.

“We are confidently raising the bar,” Bombardier Chief Executive Officer Eric Martel said in a statement released Thursday morning ahead of an exchange with equity analysts for its investor day. “While we are carefully monitoring the current market situation, we know that we have all the ingredients in place to remain a driving force in the industry.”

Mr. Martel took over as Bombardier CEO in the spring of 2020, inheriting a heavily-indebted company still in the throes of crisis as it tried to complete the sale of its train unit to France’s Alstom SA and reinvent itself as a single-business manufacturer of private jets. At the time, its share price had fallen to lows not seen in a quarter century and its business prospects were clouded by the fallout from the Covid-19 pandemic.

- Nicolas Van Praet

General Mills Inc. (GIS-N) gained 2.8 per cent after it raised its fiscal 2023 forecasts for a fourth time after beating estimates for quarterly results, helped by price increases and steady demand for its packaged-food products.

Multinational packaged food companies have been bumping up their product prices to shield their profit margins from spiraling costs and have faced low resistance as Americans cut down on dining out amid growing fears of a recession.

General Mills’ organic sales in the third quarter rose 16 per cent, helped mainly by higher prices, while volumes remained flat..

General Mills had most recently lifted its annual organic sales and profit expectations in February.

The company said on Thursday it now expects organic net sales to rise 10 per cent to 11 per cent in fiscal 2023, compared to its earlier forecast of about 10-per-cent growth.

It forecast fiscal 2023 adjusted profit per share to rise between 8 per cent and 9 per cent on a constant-currency basis, compared with its prior range of a 7-per-cent to 8-per-cent rise.

The company’s net sales in the third quarter ending Feb. 26 rose 13 per cent to about US$5.13-billion, while analysts had expected US$4.97-billion, according to Refinitiv data.

Excluding one-off charges, General Mills earned 97 US cents per share, compared with estimates of 93 US cents.

Accenture Plc (ACN-N) rose 7.3 per cent despite lowering its annual revenue and profit forecasts and said on Thursday it would cut about 2.5 per cent of its workforce, the latest sign that the worsening global economic outlook was sapping corporate spending on IT services.

More than half of the 19,000 jobs to be cut will be in its non-billable corporate functions, Accenture said, sending its shares up more than 4% before the bell.

Since late last year, the tech sector has laid off hundreds of thousands employees due to a demand downturn caused by high inflation and rising interest rates.

Rival Cognizant Technology Solutions (CTSH-Q) last month pointed to “muted” growth in bookings, or the deals IT services firms have in the pipeline, in 2022 and forecast quarterly revenue below expectations.

IBM Corp and India’s top IT services firm Tata Consultancy Services have also flagged weakness in Europe, where the Ukraine war has affected client spending.

Accenture now expects annual revenue growth to be between 8 per cent and 10 per cent, compared with its previous projection of a 8-per-cent to 11-per-cent increase. Earnings per share is expected in the range of US$10.84 to US$11.06 compared with US$11.20 to US$11.52 previously.

“Companies remain focused on executing compressed transformations,” Chief Executive Julie Sweet said in a post-earnings call referring to how businesses were trying to become leaner in the turbulent economy.

A survey of more than 1,000 IT decision makers by U.S.-based Enterprise Technology Research said they plan to reduce their 2023 budget growth. The growth expectations are now 3.4 per cent, down from 5.6-per-cent increase captured in October 2022.

“Our forward-looking technology spending intentions data for both sectors (IT Consulting and Outsourced IT) are approaching zero!” said Erik Bradley, chief engagement strategist at the technology market research firm.

“In short, the data indicates a very difficult environment ahead for consulting firms.”

On the decline

Shares of Valcourt, Que.-based recreational vehicle manufacturer BRP Inc. (DOO-T) turned negative and slid 4.6 per cent despite the premarket release of better-than-anticipated fourth-quarter results.

It reported revenues of $3.076-million, up 31 per cent year-over-year and ahead of the Street’s expectation of $2.981-million as it gained market share in each of its operating segments. That beat led to earnings per share of $3.85, an increase of 28 per cent from a year ago and also ahead of the consensus projection of $3.76.

In its outlook, the company says it expects revenue for its 2024 financial year to grow in a range of nine to 12 per cent compared with its 2023 financial year. Normalized diluted earnings per share for the 2024 financial year are expected to fall within a range of $12.25 to $12.75, an increase of two to six per cent.

BRP also raised its quarterly dividend to 18 cents per share compared with its previous rate of 16 cents per share.

“The company has reached its highest market share ever in FY23 at 35 per cent in North America, up 5 percentage points year-over-year,” said Stifel analyst Martin Landry in a note. “BRP introduced its FY24 guidance, which came-in in-line with our expectations calling for EPS to range between $12.25 to $12.75, up 2-6 per cent year-over-year and in-line with our expectations of $12.52 and consensus of $12.42. This guidance compares favorably to industry peer Polaris’ guidance, which calls for flat EPS in 2023. Overall, we believe these results should be viewed positively. We believe BRP offers compelling value trading at 8 times the company’s CY24 EPS guidance.”

Capstone Copper Corp. (CS-T) dropped 7.6 per cent following the late Wednesday announcement of a $285-million secondary bought deal offering of common shares.

Ford Motor Co. (F-N) erased early gains and closed down 1 per cent after saying it expects its electric vehicle business unit to lose US$3-billion this year, but remains on track to achieve a pretax margin of 8 per cent by late 2026, the company said.

The projected loss was revealed ahead of a mid-morning briefing for investors and analysts on Thursday to discuss details of the automaker’s new financial reporting format.

Starting with first-quarter results, which will be announced on May 2, Ford will begin reporting by business unit for Model e (electric vehicles), Blue (combustion vehicles) and Pro (commercial vehicles and services).

Ford projects Model e’s cumulative three-year loss from 2021-2023 at US$6-billion, including a pro-forma loss last year of US$2.1-billion, but expects the unit to be profitable on a pretax basis before the end of 2026.

Chief Financial Officer John Lawler said Ford no longer will break out financial results by region, only by business unit, because “that’s how we’re running the company now.”

He said Ford will provide quarterly and annual sales and market share for the company’s top five global markets, but no longer will report by region.

Last year, Ford had a pretax loss of US$600-million in China, broke even in Europe and posted a modest US$400-million profit in South America, with most of its earnings before interest and taxes - US$9.2-billion - coming from North America.

The company expects its Ford Pro commercial vehicle business to nearly double pretax profit this year to US$6-billion, while the traditional Ford Blue business should see a modest increase to US$7-billion.

Mr. Lawler reaffirmed the company’s target of a 10-per-cent adjusted EBIT margin by late 2026.

He said the automaker will have the global capacity to build 600,000 electric vehicles by the end of 2023 and 2 million by late 2026 - “and we intend to fully use that capacity.”

Coinbase Global Inc. (COIN-Q) dropped just over 14 per cent after the U.S. Securities and Exchange Commission threatened to sue the crypto exchange over certain products.

Global regulators are keeping a close watch on the crypto world after a string of high-profile collapses wiped out more than a trillion dollars from the digital assets industry’s market capitalization last year.

“This news illustrates the regulatory headwinds and uncertainty facing the crypto industry in the U.S. under the current administration,” said analysts at BofA Global Research.

Brokerage KBW’s analysts said in a note that the SEC serving Coinbase with a Wells notice was expected, and that the move will likely create an overhang on the crypto exchange’s stock.

The company’s shares were battered last year in a sector-wide rout, losing about 86% of their value. The potential enforcement action by the SEC is likely to be tied to aspects of Coinbase’s spot market as well as its staking service Earn, Prime and Wallet products, the company said.

Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain. These products often offer customers eye-popping yields.

“We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so,” Coinbase said.

Meanwhile, analysts at TD Cowen said the only way to get clarity on how the law applies to crypto solutions is through litigation.

Last month, Coinbase swung to a fourth-quarter loss as trading volumes at the crypto exchange came under pressure from an industry-wide downturn. It slashed 20% of its workforce, or about 950 jobs, as part of a restructuring plan earlier this year.

Block Inc. (SQ-N) plummeted almost 15 per cent after Hindenburg Research said on Thursday it held short positions in the Jack Dorsey-led payments firm, alleging it overstated its user counts and understated its customer acquisition costs.

The U.S. short seller, behind a market rout of over US$100-billion in India’s Adani Group, said in its report that former Block employees estimated that 40 per cent to 75 per cent of accounts they reviewed were fake, involved in fraud, or were additional accounts tied to a single individual.

The company said the short seller’s report on its Cash App business was “factually inaccurate and misleading report” and it intended to work with the U.S. Securities and Exchange Commission to explore legal action.

After reviewing the full report, Block said it was “designed to deceive and confuse investors.”

The move is seen as a challenge to Mr. Dorsey, who co-founded Block in 2009 in his San Francisco apartment with the goal to shake up the credit card industry, and is the company’s largest shareholder with a stake of around 8 percent.

The NYU dropout was just until two years ago splitting his time between the payments firm and Twitter, his other venture that went private in 2022 in a US$44-billion buyout by Elon Musk that Dorsey supported.

“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping,” Hindenburg said in a note published on its website.

The report comes at a time when the outlook for the payments industry has been clouded by worries over the strength of consumer spending in the face stubbornly high inflation and expectations of an economic downturn.

Those concerns triggered a more than 60-per-cent slump in Block’s shares last year.

Hindenburg said that Block “obfuscates” how many individuals are on the Cash App platform by reporting misleading “transacting active” metrics filled with fake and duplicate accounts.

Cash App allows users to transfer money through a mobile application and is touted by the company as an alternative to traditional banking services.

The app had 51 million monthly transacting actives, a 16-per-cent year-over-year increase during December 2022, Block said in fourth-quarter earnings letter.

The short seller added that co-founders Jack Dorsey and James McKelvey collectively sold over $1 billion of stock during the pandemic as the company’s share price soared.

With files from staff and wires

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