A look at North American equities heading in both directions
On the rise
Under the terms of the original agreement, TD will pay a US$200-million break fee in cash, in addition to a US$25-million fee reimbursement.
Toronto-based TD told First Horizon it does not have a timetable for obtaining regulatory approvals “for reasons unrelated to First Horizon.” The deal deadline had already been extended from February 27 to May 27, but the banks did not expect to receive the necessary approvals by then.
Approvals for U.S. bank mergers must come from various parties, including the Federal Reserve, the Office of the Comptroller of the Currency (which is TD’s primary U.S. banking regulator) and various other regulatory, antitrust and other authorities. And there is heightened scrutiny on large mergers under U.S. President Joe Biden’s administration.
First Horizon’s share price took a sharp hit in pre-market trading, down 48.5 per cent.
Last year, TD offered to pay US$25 per share to acquire First Horizon. But after turmoil in banking markets put heavy pressure on U.S. regional lenders, First Horizon’s share price closed at US$16.19 on Wednesday. That had prompted some analysts to speculate that TD would seek to negotiate a lower price.
“This decision provides our colleagues and shareholders with clarity,” TD chief executive officer Bharat Masrani said in a news release. “Though disappointed with the outcome, we move forward with a strong, growing franchise in the United States.”
As recently as last month, Mr. Masrani told shareholders at TD’s annual general meeting that the bank remained committed to the deal, saying TD was in discussions with First Horizon and “we see the benefits of the merger.”
- James Bradshaw
Shopify Inc. (SHOP-T) posted a surprise first-quarter profit and announced plans to lay off 20 per cent of its staff while allaying investor concerns by exiting its logistics arm, sending its shares surging over 23 per cent.
The Ottawa-based e-commerce company had aggressively built out an order-fulfillment network in recent years on expectations that a pandemic-fueled demand boom would last, mirroring similar moves by rivals.
But that bet unraveled last year, sharpening investor scrutiny of the capital-intensive project that could weigh on earnings, and forcing the company to cut 10 per cent of its workforce in July.
On Thursday, Shopify offloaded the logistics arm to freight forwarder Flexport in an all-stock deal.
“They can have the best of both worlds – a logistics business that makes them competitive with Amazon without having to manage a business that is not core to Shopify and had been losing money,” said Gil Luria, analyst at D.A. Davidson & Co.
Thursday’s jump was set to add about $22-billion to the company’s market valuation, taking it to about $103-billion.
Shopify had 11,600 employees and contractors as of Dec. 31.
Meanwhile, its March quarter earnings signaled the benefits from a host of new tools that encouraged businesses from Mattel to Coty to integrate Shopify into their own sites, allowing the company to raise its subscription fees.
“We are seeing that consumers are really voting with their wallets to buy from brands they love,” President Harley Finkelstein said in an interview. “There is sort of intentionality around discretionary spending.”
Revenue of $1.51-billion topped analysts’ estimates of $1.43-billion, according to Refinitiv. Adjusted profit was 1 cent per share, compared with expectations for a 4-cent loss.
“Over the course of one earnings release, Shopify completely shifted its investor positioning to be a balanced-growth and profitable company,” William Blair analyst Matthew Pfau said.
Enbridge Inc. (ENB-T) was up 0.4 per cent after it said on Thursday it has reached a 7-1/2-year toll agreement with oil shippers for its Mainline crude pipeline system, one of North America’s biggest, after scrapping earlier plans for long-term contracts.
The agreement, which still requires Canadian regulatory approval, covers tolls charged for service on both the U.S. and Canadian portions of Enbridge’s Mainline, which moves more than 3 million barrels a day of crude oil and liquids from Western Canada to refineries in Eastern Canada and the U.S. Midwest. The agreement means that, if approved, Enbridge would continue to ration space on a monthly basis.
“This settlement is a win-win-win - customers will continue to receive competitive and responsive service; Enbridge will earn attractive risk-adjusted returns,” said Colin Gruending, president of Enbridge’s liquids pipelines segment.
Scotiabank analyst Robert Hope said the settlement removes uncertainty that has weighed on Enbridge shares.
Enbridge spent years trying to convince shippers and then the Canada Energy Regulator (CER) to sell space on the Mainline under long-term contracts. Some Canadian oil producers objected, while companies with refineries were in favor of contracts. The CER rejected the plan in 2021.
The Calgary-base company’s rival, Canadian government-owned Trans Mountain, expects to complete expansion of its pipeline from the province of Alberta to the Pacific Coast late this year and has sold 80 per cent of that space under contract, giving it security during periods of spare pipeline capacity.
Enbridge expects to submit an application for approval to the CER in the third quarter, with the expectation that the new toll settlement could be approved and implemented later this year. The new agreement covers 70 per cent of Mainline deliveries, with the remaining 30 per cent covered by a pre-existing agreement.
Parkland Corp. (PKI-T) increased 1.3 per cent with the release of better-than-expected first-quarter results, seeing earnings jump 40 per cent year-over-year $77 million.
The Calgary-based convenience store operator and fuel retailer says sales and operating revenue for the quarter ended March 31 were $8.2-billion, up 7.2 per cent from $7.6-billion during the first quarter of 2022.
Diluted earnings per share were 43 cents, up 23 per cent from 35 cents a year ago.
Adjusted earnings before interest, taxes, depreciation and amortization in Canada were down 12.6 per cent to $167-million, while international adjusted EBITDA more than doubled, to $183-million. Overall, EBITDA of $395-million topped the Street’s expectation of $358-million.
The company says unseasonably warm weather lowered commercial volumes in Canada, while the international market saw a boost from a variety of factors including additional volumes.
Parkland president and CEO Bob Espey said in a press release that he’s confident the company will achieve its goal of $2-billion in adjusted EBITDA by the end of 2025 without additional acquisitions.
In a note, Desjardins Securities analyst Chris Li said: “There is no change to our view. We believe a clear path to the company’s EBITDA target and deleveraging are key catalysts to improve valuation. In the meantime, we expect investors to continue to take a ‘wait and see’ approach.”
On the decline
BCE Inc. (BCE-T) was lower by 1.4 per cent in the wake of reporting higher first-quarter revenue while its profit slipped amid inflationary cost pressures.
The company also announced that its chief financial officer, Glen Leblanc, is retiring in September. He will be replaced by Curtis Millen, who is currently senior vice-president, corporate strategy and treasurer.
The Montreal-based telecom had $6.05-billion in revenue for the three-month period ended March 31, up 3.5 per cent from a year ago when it had $5.85-billion of revenue.
Its profit for the quarter came to $788-million, down 15.6 per cent compared to the same period last year, when it had $934-million in profit.
The company attributed the decline to higher interest, depreciation and amortization expenses, an increase in severance, acquisition and other costs and higher asset impairment charges relating to the office spaces it has stopped using as it optimized its real estate strategy for hybrid work.
After adjusting for severance and acquisition costs, asset impairments, losses or gains on investments and other items, BCE’s earnings came to $772-million, down 4.8 per cent from a year ago. The adjusted earnings amounted to 85 cents per common share, down 4.5 per cent from 89 cents per share a year ago.
That beat analyst expectations of 77 cents per share of adjusted earnings and $5.99-billion of revenue.
BCE added 43,289 net new postpaid cellphone customers and lost 16,654 prepaid customers during the quarter. Postpaid subscribers are those who are billed at the end of the month for the services they used, versus prepaid customers, who pay upfront for wireless services.
- Alexandra Posadzki
The Vancouver-based telecom had $4.96-billion of revenue for the three-month period ended March 31, up 15.9 per cent from a year ago when it reported $4.28-billion of revenue.
The company attributed the increase to growth in its health business, driven by its acquisition of human-resources firm LifeWorks Inc., a rebound in roaming revenues and new wireless and internet subscribers.
The telecom earned $224-million of profit during the quarter, down 45 per cent from the same quarter last year, when its profit amounted to $404-million.
The company attributed the lower profit to higher depreciation and amortization relating to its investments, costs related to its integration of LifeWorks and higher restructuring costs, including a lump sum payment of $67-million related to ratifying its new collective agreement with the Telecommunications Workers Union, United Steelworkers Local 1944.
After adjusting for restructuring and other costs, its profit came to $386-million, down 7 per cent from a year ago, while its adjusted basic earnings of 27 cents per share were down 10 per cent.
Analysts had been expecting adjusted earnings of 26 cents per share and revenue of $4.89-billion, according to the consensus estimate from S&P Capital IQ.
Telus added 47,000 net new cellphone customers and 35,000 internet subscribers during the quarter.
- Alexandra Posadzki
Canadian Natural Resources Ltd. (CNQ-T) slid 3 per cent after it narrowly missed analysts’ estimates for first-quarter profit on Thursday, as lower energy prices more than offset a rise in production for the country’s largest oil and gas producer.
Crude oil prices eased 20 per cent year-over-year during the January to March period, from multi-year highs in the same period last year following Russia’s invasion of Ukraine.
Moreover, the recent U.S. banking crisis and concerns over the pace of recovery in China have weighed on crude prices in the first three months of 2023.
Canadian Natural’s production rose to 1.32 million barrels of oil equivalent per day (boepd) in the reported quarter, from 1.28 million boepd last year.
However, its liquids realized price fell to $76.11 per barrel in the quarter from last year’s $94.38 per barrel.
The company earned $1.69 per share, on an adjusted basis, slightly missing estimates of $1.70, according to Refinitiv data.
Montreal-based Gildan Activewear Inc. (GIL-T) fell 7.7 per cent after saying it earned US$97.6-million in the first quarter of 2023, down 33.3 per cent from US$146.4-million a year earlier.
The Montreal-based company says net sales for the quarter ended April 2 were US$702.9-million, down 9.3 per cent from US$774.9-million in the first quarter of 2022.
Diluted earnings per share were 54 US cents, down 29.9 per cent from 77 US cents a year earlier.
Gildan president and CEO Glenn Chamandy said in a press release that the company met its sales expectations for the quarter.
He said the company remains comfortable with its full-year outlook despite an uncertain economic environment.
Gildan says the decline in sales reflects anticipated demand headwinds as well as strong comparative periods in 2022.
AutoCanada Inc. (ACQ-T) dropped over 17 per cent after the release of mixed first-quarter financial results after the bell on Wednesday.
The Edmonton-based automobile dealership group reported revenue of $1.539-billion, up 14. per cent year-over-year and above the Street’s expectation of $1.424-billion as Canadian revenue rose 18.5 per cent. However, adjusted EBITDA of $45-million fell short of the consensus expectation of $52.5-million, driven by lower margins for used cars and a limited volume recovery for its new car business.
National Bank Financial analyst Maxim Sytchev said the company’s top line has been “surprisingly resilient,” but emphasized margins “continue to contract” and sees the credit cycle tightening and higher rates “wrecking the economy.”
“We are always leery of getting overcommitted to one side of the trade as we were not quick enough during COVID to appreciate the market’s fascination with transient margins,” he said in a note released before the bell. “However, when looking forward, despite the Fed seeming unlikely to push rates higher, the elevated financing costs are showing up everywhere – affordability on the part of consumers + much higher rates for financing on the part of the companies (hence floor plan funding being much more expensive now – KAR even mentioned on its Q1/23 call that some regional banks in the U.S. are stepping away from floor plan financing). We are not convinced that we are anywhere close to the resolution of the credit cycle and hence see very little reason to be long a discretionary name at the moment as we don’t have a clear line of travel for the ultimate profitability (on top of consensus still sporting some unreasonable 2024E forecasts). We rate ACQ shares Sector Perform, $26.00 price target (using a 4.5 times EV/EBITDA multiple on 2024 forecasts).”
Apple Inc. (AAPL-Q) was down 1 per cent ahead of its earnings release after the bell.
The tech giant will likely report a more than 4-per-cent drop in revenue, its second straight quarterly decline, weighed down by consumers shunning non-essential purchases such as iPhones and Mac computers and slowing growth at its services business.
The results from the world’s most valuable company will follow better-than-expected earnings from U.S. technology peers, which had raised hopes that the worst may be over for a sector that has laid off tens of thousands this year.
Apple, an industry outlier with no mass layoffs so far, is set to post its first ever revenue declines across product lines, even as iPhone demand and production recovered in China after pandemic-driven disruptions last year.
“Apple is seeing moderate headwinds in its hardware businesses as iPhones face modest contraction in premium device demand and the iPad and Mac businesses could be weighed down by consumer and enterprise trends,” analysts at Cowen and Co said.
Hardware sales are set to decline over 7 per cent to US$71.93-billion in the second quarter, according to 23 analysts polled by Visible Alpha.
Mac sales, which account for nearly a tenth of Apple’s revenue, likely fell by a quarter, while revenue from flagship iPhone is estimated to have declined by over 3 per cent.
Global PC shipments slumped by nearly a third between January and March, according to data from research firm IDC, led by an over 40-per-cent drop in those sold by Apple. The global smartphone market, meanwhile, shrank 13 per cent for a fifth straight quarter of decline.
Paramount Global Inc. (PARA-Q) missed first-quarter revenue estimates on Thursday as it added fewer subscribers at its flagship streaming service and advertisers cut back on spending in a challenging economic environment.
Shares of the New York-based company, formerly known as ViacomCBS, plummeted 28 per cent in Thursday trading. They have gained more than 35 per cent so far this year.
Paramount faces tough competition from established players such as Netflix (NFLX-Q) and Walt Disney Co’s (DIS-N) Disney+, despite ramping up investments in original content to attract subscribers to its streaming platform.
Paramount+, the company’s flagship streaming platform, added 4.1 million subscribers during the quarter, compared with 9.9 million in the preceding quarter.
Several factors, including higher prices, softening consumer demand across products and services, and weak markets, have forced companies to pull back on advertising spending.
Sales for its TV media segment declined 8% from a year earlier, with advertising revenue down 11 per cent.
Revenue at the company was US$7.27-billion in the first quarter ended March 31, compared with analysts’ average estimate of US$7.42-billion, according to Refinitiv IBES data.
Overall, revenue in the company’s direct-to-consumer unit, which includes streaming platforms Paramount+ and PlutoTV, grew 39 per cent in the first quarter. Revenue from its filmed entertainment business, which makes and distributes movies and TV shows, fell 6per cent.
Investment in original content and expansion of its streaming platform are also driving cash burn for the owner of the CBS network.
Operating loss stood at US$1.23-billion during the quarter, compared with an operating income of $775 million a year earlier.
On an adjusted basis, the company earned 9 US cents per share, below Wall Street’s estimate of 17 US cents per share, according to Refinitiv IBES data.
Qualcomm Inc. (QCOM-Q) on Wednesday forecast third-quarter revenue and profit below Wall Street estimates, citing worries the smartphone industry would take longer to exhaust excess supply before fresh orders flow in.
Shares of the chip designer fell 5.5 per cent after it said its forecast also accounted for macroeconomic headwinds, weaker global sales of handsets and channel inventory drawdown.
While Qualcomm hopes smartphone sales will recover in China in the second half of the year, “we have not seen evidence of meaningful recovery and are not incorporating improvements into our planning assumptions,” CEO Cristiano Amon told investors during a conference call.
The company said a larger-than-normal decline in its chip revenue forecast from the prior quarter was mainly due “to the timing of purchases by a modem-only handset customer.”
Qualcomm did not name the customer, but Kinngai Chan, analyst at Summit Redstone Partners, said it was Apple, which makes its own application processor.
Apple is the largest purchaser of Qualcomm’s standalone modem chips, instead of its main flagship chip which includes a modem and an application processor.
Qualcomm forecast chips revenue of US$6.9-billion to US$7.5-billion.
The smartphones market was one of the first hit by declining demand after high inflation curbed consumer spending on discretionary goods like electronics, resulting in vendors slashing new chip orders.
Smartphone demand has remained weak despite promotions and price cuts. Global smartphone shipments fell 13% in the first quarter, according to research firm Canalys.
Easing COVID-19 curbs in China has not significantly boosted demand, with sliding first-quarter sales for Apple and its Android rivals in the world’s second largest economy.
Pervasive economic weakness has also forced device makers to limit chip orders. Qualcomm also faces stiffer competition, especially for high end smartphone chips, from Taiwan’s MediaTek .
“MediaTek is pushing hard into the high-end market,” said Runar Bjorhovde, analyst at research firm Canalys. “It is very open to working with anyone that can help it grow a bit more into the high-end where I guess Samsung is the big, the big one for Qualcomm to defend.”
Qualcomm forecast revenue of US$8.1-billion to US$8.9-billion in the third quarter. Analysts polled by Refinitiv expected revenue of US$9.14-billion.
It estimated adjusted earnings per share of US$1.70 to US$1.90, compared to analysts’ expectations of US$2.16.
Peloton Interactive Inc. (PTON-Q) reported a wider-than-expected quarterly loss and warned it expects to sign up fewer members for the year, raising concerns about the fitness equipment maker’s growth prospects.
Shares of the company fell 13.5 per cent after initially rising on stronger-than-expected forecast for fourth-quarter revenue.
Peloton said it expects 3.08 million to 3.09 million members in 2023 connected fitness subscriptions, compared with FactSet estimates of 3.095 million, and 3.11 million the company reported in the third quarter.
Although management is pointing to seasonality, Peloton guided a net decline in 4Q memberships for the first time, which stresses our concerns over a smaller total addressable market, BMO Capital Markets analyst Simeon Siegel said in a note.
The tepid subscription forecast also comes at a time consumers are cutting back on discretionary spending, as a series of interest rate hikes to bring down stubbornly high inflation has stoked fears of an economic downturn.
For the third quarter ended March, Peloton reported a net loss of 79 US cents per share, missing Refinitiv estimates of a loss of 46 US cents, due to a US$51.3-million impairment and restructuring charge.
However, Peloton forecast fourth-quarter revenue between US$630-million and US$650-million, above estimates of US$607.7-million, as it benefits from expanding its sales channels to third-party platforms.
Third-quarter revenue fell 22 per cent to US$748.9-million, but beat expectations of US$708.05-million.
With files from staff and wires