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A survey of North American equities heading in both directions

On the rise

Shares of Canadian Pacific Kansas City Ltd. (CP-T) finished higher by 0.3 per cent in volatile trading after lowering its financial forecast for the year, citing the cost of weaker consumer demand and the B.C. port workers strike.

Those reductions were largely expected by the Street.

“Coming off CP’s 3Q23 conference call and our call back we’re raising our 4Q estimate by a penny to C$1.16 and are now modeling 2023 EPS of $3.82 (up 1 per cent year-over-year),” said Citi analyst Christian Wetherbee in a note. “CP tempered its 2023 EPS guidance to flat to slightly positive year-over-year, from mid single-digit growth previously, although the implied 4Q is essentially in line with previous consensus. Consistent with CN’s message, CP expects further acceleration of volume growth to couple with operating leverage and favorable comps (8-cent 3Q fuel headwind turning slightly positive in 4Q) to drive a solid sequential earnings acceleration. As such, CP appears poised to return to rev/EBIT/EPS growth in 4Q. While we believe consensus expectations are too high next year, we think CP is likely to generate elevated earnings vs. peers. We understand concern around CP’s multiple, but following the recent sell-off we think an acceleration in EPS growth should support shares.”

Reaction to CP earnings: Thursday's analyst upgrades and downgrades

CEO Keith Creel called the quarter “challenging” in analyst conference call late Wednesday.

“Certainly not the outcome we had planned, but it’s the prudent thing to do at this point.”

Mr. Creel highlighted “economic headwinds” and the 13-day job action in July that shut down the country’s largest port. Both factors prompted the railway to predict flat to slightly positive adjusted diluted earnings this year versus last.

The revision marks a more pessimistic outlook than the one offered three months earlier, when the Calgary-based company projected adjusted diluted earnings would grow by mid-single digits in 2023.

It comes as consumers continue to reroute their spending toward services over products in a reversal of pandemic trends, with pressure from inflation and rising interest rates as an additional drag.

Chief financial officer Nadeem Velani added that come January, “we’re going to have double-digit EPS (earnings per share) growth in our sights.”

Net income fell 12 per cent year over year last quarter. Revenues slumped four per cent as demand for container shipping, crude oil and forest products dropped, the latter due to a slowing housing market. A rebounding auto sector partly repaired the fiscal dent, with the industry’s pandemic supply chain snarls in the rear-view mirror.

Operating expenses dipped slightly despite wage inflation and stricter work/rest rules for employees.

“Overall, inflation has been a challenge and it’s been a headwind,” Mr. Velani said.

In the quarter ended Sept. 30, CPKC reported that revenues fell four per cent to $3.34-billion in its third quarter from the combined $3.39-billion that Canadian Pacific and Kansas City Southern yielded a year earlier.

CPKC said net income fell to $780-million from $891-million in the same period the year before.

Diluted earnings fell to 84 cents per share from 96 cents per share, below analyst expectations of more than 90 cents per share, according to financial data firm Refinitiv.

Canaccord Genuity (CF-T) rose 1.6 per cent after Reuters reported it has explored a potential acquisition of Close Brothers Group’s wealth management operations, a move that would increase the Canadian group’s presence in the UK.

Canaccord, which offers investment banking and wealth management services, was among the final bidders in an auction process run by Goldman Sachs, one source, who spoke on condition of anonymity, said.

Reuters could not establish whether Canaccord’s interest in the business, known as Close Brothers Asset Management, is still live. There is no certainty that a transaction will materialize, the people also said.

Such a deal would be another example of consolidation in the UK’s fragmented wealth management industry, driven by both corporates and financial investors.

Last month, Canadian pension fund OTPP struck a deal to acquire British wealth manager 7IM.

Royal Bank of Canada acquired London-listed Brewin Dolphin last year in an effort to bulk up its international wealth management footprint.

Bloomberg first reported Close Brothers’ plans to offload its wealth management division in July.

The business, which provides financial planning and investment management services, increased managed assets by 7 per cent to more than 16 billion pounds ($19.3-billion) in the year to July 31 2023, reflecting net inflows, based on its latest annual report.

However, it reported a 27-per-cent drop in adjusted operating profit, driven by lower income and hiring costs.

Canaccord has sought to grow its UK wealth management arm via acquisitions. In 2021, it brought in private equity group HPS Investment Partners to support the unit’s expansion

Newmont Corp. (NGT-T) missed Wall Street estimates for third-quarter profit as the world’s largest gold miner struggled with weak production stemming from a labor strike at its Mexico mine.

The company was forced to suspend operations at the Penasquito mine in Mexico in June, but it reached a resolution with the workers union earlier this month and expects to return to full productivity in the next two to three weeks.

The strike impact sent Newmont’s quarterly attributable gold production down 13.4 per cent to 1.29 million ounces.

Shares of the miner still rose 2.1 per cent with some analysts pointing to upcoming benefits from Newmont’s deal to buy Australia’s Newcrest for A$26.2-billion.

“Newmont’s operations are poised to improve starting in the fourth quarter ... we anticipate significant synergies and per-share accretion (on the Newcrest deal),” said Matthew Miller, senior equity analyst at CFRA Research.

The miner lowered its 2023 gold production forecast to 5.3 million ounces from 5.7-6.3 million ounces in the previous quarter.

Newmont stock dropped on Wednesday, partly due to fears of a forecast cut, and with that negative catalyst out of the way, the market seems relieved, said Daniel Morgan, an analyst at Barrenjoey in Sydney.

On an adjusted basis, the company posted net income of 36 US cents per share for the July-September quarter, compared with the analysts’ average estimate of 43 US cents, according to LSEG data.

Rival Barrick Gold (ABX-T) earlier this month said it expected AISC per ounce of gold to fall about 6 per cent to 8 per cent from the previous quarter, reporting preliminary production of 1.04 million ounces of gold in the third quarter.

West Fraser Timber Co. Ltd. (WFG-T) gained 1.2 per cent with the release of third-quarter results that largely fell in line with the Street’s expectations.

The Vancouver-based company reported adjusted EBITDA of $286-million, adjusting for $39-million in duties, meeting the consensus forecast of $287-million. EBITDA from its lumber segment fell $5-million from the previous quarter to $35-million due to higher costs and lower sequential pricing.

President and CEO Ray Ferris says the third quarter saw a continuation of challenging demand, especially in lumber.

As a result, Mr. Ferris says the company executed curtailments at several locations.

He says the company continues to focus on what it can control, such as improving flexibility and lowering costs.

“Despite recent share buyback action on the ongoing 5-per-cent NCIB and capex-driven operational improvements, net cash levels came in at $663-million (up $214-million quarter-over-quarter) as strong North American OSB earnings supported FCF,” said Raymond James’ Daryl Swetlishoff. “We highlight this backdrop has offset temporary wildfire-related cost headwinds, with consolidated EBITDA rising 172 per cent quarter-over-quarter and a full 300-per-cent relative to 1Q23; our bullish earnings inflection hypothesis remains intact.

“Though lumber price momentum remains muted, we note this is in line with typical seasonal trends with the historic seasonal buy point fast approaching. In fact, our seasonality analysis underscores that from October to November, WFG shares have traded higher in 8 out of the last 10 years – recording an average 5-per-cent gain month-over-month. With earnings equally levered to structural panels, we highlight OSB markets stabilized 2 weeks ago with the bulk of producers spending time off market after extending order files until mid-November. At the same time, recent September U.S. housing stats backstop our constructive view on building materials demand fundamentals -with starts, home sales and forward-looking permits recording month-over-month improvements despite higher mortgage rates. B.C. interior harvest data running 50 per cent below the 5-year average over the summer is also bullish.”

IT software and consultancy services provider IBM (IBM-N) reported third-quarter revenue and profit above Wall Street targets on Wednesday, buoyed by stable demand for its software solutions.

Shares of the Armonk, New York-based company rose almost 5 per cent in Thursday trading.

IBM, like the rest of the IT services industry, is operating in a tough macroeconomic environment that has triggered a further tightening of client budgets.

While peers like Accenture flagged deepening weakness in consulting deals, IBM’s finance chief James Kavanaugh told Reuters the company had grabbed market share in that segment.

Clients continued to cut back on discretionary projects, a trend that has remained unchanged since the last few quarters, he said.

Mr. Kavanaugh also said IBM had “low hundreds of millions of dollars” under generative artificial intelligence (AI) sales or bookings in the third quarter, with clients including accounting firm Ernst & Young and Truist Bank.

Big Blue, which started providing AI applications to enterprises years before the generative AI hype took over, said it was seeing strong interest for its software and consulting services from “thousands of clients” who want to infuse the technology into their operations.

“The company has done a fantastic job in adapting to the market’s needs, both in the AI and cloud segments,” analyst Thomas Monteiro said.

IBM reiterated its annual target for revenue growth and free-cash-flow generation.

Revenue at its software segment, which now includes newly acquired IT budgeting software maker Apptio, rose nearly 8 per cent, excluding the impact from a strong dollar.

The 111-year-old company, which makes more than half of its revenue outside the United States, said a strong dollar during the three months ended Sept. 30 hurt its quarterly revenue by about US$250-million more than expected earlier.

IBM’s revenue in the third quarter rose about 5 per cent to US$14.8-billion, compared to an estimate of US$14.73-billion, according to LSEG data.

Adjusted quarterly profit per share of US$2.20 also beat estimates.

On the decline

While the Street now seeing it on track to achieve its annual guidance, shares of Agnico Eagle Mines Ltd. (AEM-T) were lower by 2.7 per cent following a third-quarter earnings beat and production that fell in line with expectations.

The Toronto-based miner reported adjusted earnings per share of 44 cents, topping analysts’ forecast by 3 cents, with gold production of 850,000 ounces matching projections (849,000).

Calling the results “solid,” Citi analyst Alexander Hacking added: “Gold production of 850koz (down 3 per cent quarter-over-quarter) was anchored by strong output at Canadian Malartic (flat quarter-over-quarter) and Meadowbank (up 23 per cent quarter-over-quarter), which slightly offset a temporary transformer issue at Detour Lake (down 10 per cent quarter-over-quarter) that kept the mill operating at 70 per cent of normal rates (25 days). The mill returned to normal operations in late September. Cash costs totaled $898/oz in 3Q (up 3 per cent vs Citi est. $870/oz) due to lower production volumes at key sites, higher royalties, sticky mine site cost inflation, and unfavorable FX. The decision for the pending SAC ruling for Kittila operating permit is still expected in October 2023. Guidance of 3.24-3.44Moz Au and cash cost between $840-$890/oz is certainly achievable & maintained. We expect the stock to trade inline with results.”

Aecon Group Inc. (ARE-T) plummeted 12.1 per cent after its third-quarter results disappointed the Street.

After the bell on Wednesday, the Toronto-based construction company reported revenue of $1.24-billion, falling 6 per cent year-over-year and below the consensus expectation of $1.285-billion. Consolidated adjusted EBITDA of $32-million and a 3-cent earnings per share, adjusting for the gain on sale of Bermuda and the non-cash remeasurement gain of the existing 50-per-cent stake, also fell below projections ($81.7-million and 46 cents).

The release led Raymond James analyst Frederic Bastien to downgrade his recommendation for Aecon shares, saying: “We are moving to the sidelines on Aecon Group after another disappointing quarterly print yesterday. To be clear, the company still has lots going for it. ARE’s nuclear refurbishment and utility contracting services are enjoying strong momentum just as the supply-demand pendulum has swung back in its favour. But challenges in ring-fencing the BIG 4′s losses are simply proving too hard for us to ignore in today’s increasingly volatile macro environment. With the year-end audit likely to bring more losses, and the seasonally weak first quarter unlikely to act as a catalyst, investors can revisit this stock at a later date.”

Precision Drilling Corp. (PD-T) was lower by 3.6 per cent in the wake of reporting a third-quarter profit of $19.8-million, down from $30.7-million a year earlier, as its revenue edged higher.

The company says the profit amounted to $1.45 per diluted share for the quarter ended Sept. 30, down from $2.03 per diluted share in the same quarter last year.

Revenue for the quarter totalled $446.8-million, up from $429.3-million a year earlier.

Precision Drilling says the 4.1 per cent increase in revenue compared with a year ago was due to further strengthening of drilling and service revenue rates, partially offset by lower activity.

Drilling rig utilization days in Canada were down 2.7 per compared with a year ago, while its U.S. operations saw a 27.8 per cent drop. International drilling rig utilization days were up 0.4 per cent compared with last year.

The company says its service rig operating hours for the quarter were down 10.4 per cent from a year ago.

Ford (F-N) turned lower and lost 1.3 per cent on the day as the company’s unionized workers were set to return to work following a tentative labour deal between the automaker and the United Auto Workers (UAW) union guaranteeing a record wage hike.

Rival General Motors’ (GM-N) shares also slid as analysts expected the automaker to follow Ford in reaching a deal that would end a strike at some of its most profitable plants.

The total economic loss from the autoworkers’ strike has reached US$9.3-billon, consultancy Anderson Economic Group said earlier this week.

The proposed deal between Ford and the UAW provides a 25-per-cent wage hike over the 4-1/2-year contract, starting with an initial increase of 11 per cent.

GM and Stellantis have previously offered a 23% wage increase.

Stellantis’ U.S.-listed shares (STLA-N) were down on Thursday as the automaker announced it is buying a 21-per-cent stake in EV maker Leapmotor in a US$1.6-billion deal that will give it a fresh shot in China and the smaller Chinese carmaker a European foothold.

Ford and GM shares trade 6.2 times and 4.3 times forward profit estimates, respectively.

The focus will now be on ratification by Ford’s 57,000 UAW workers.

Meta Platforms (META-Q) fell 3.9 per cent despite beating expectations for third-quarter revenue and profit on Wednesday, as advertisers banking on resilient consumer spending flocked to its digital platforms ahead of the holiday shopping season.

The Facebook and Instagram owner also trimmed its expense forecast for the year, while warning of additional spending and regulatory pressures ahead for 2024.

It forecast total 2023 expenses at between US$87-billion and $89-billion, down from its earlier forecast range of US$88-billion to $91-billion.

The social media company also said it expected 2024 total expenses in the range of US$94-billion to US$99-billion, higher than estimates, according to LSEG data.

It declined to give new information about 2024 expenditures, citing the same higher infrastructure investments, hiring plans and expected losses on its metaverse-oriented Reality Labs unit as in the previous quarter.

“The anticipated global surge in digital ad spending, poised to hit $667.6 billion next year, combined with Meta’s effective execution and cost control, puts the company on strong footing,” said Insider Intelligence principal analyst Jeremy Goldman.

Meta has been climbing back from a bruising 2022, buoyed by the hype around emerging artificial-intelligence technology, a recovery in digital advertising and an aggressive austerity drive in which it shed around 21,000 employees since last autumn.

The company’s shares have risen nearly 150 per cent so far this year.

Revenue rose 23 per cent to US$34.15-billion for the quarter ended September. Analysts were expecting revenue of US$33.56-billion, according to LSEG data.

The company also handily beat profit expectations.

Meta’s daily active people (DAP) grew by 7 per cent. The company uses the metric to track unique users who used any one of its apps such as Facebook, Instagram, Messenger or WhatsApp in a day. DAP grew 7 per cent in the preceding June quarter.

Facebook’s daily active users grew by 5 per cent, while ad impressions across Meta’s apps grew 31 per cent.

United Parcel Service (UPS-N) cut its 2023 revenue forecast due to lower e-commerce delivery demand as it fights to win back customers lost during its tumultuous labor talks, sending its shares down almost 6 per cent on Thursday.

The world’s biggest package delivery firm is caught in a profit squeeze in the wake of contract talks with its Teamsters-represented workforce.

It expects full-year revenue between US$91.3-billion and US$92.3-billion, compared with a prior forecast of about $93 billion.

“Revenue missed across all three segments with supply-chain solutions missing by the most,” TD Cowen analyst Helane Becker said in a client note.

UPS blamed the weakness to a downturn in the freight industry and said it has prioritized moving high-margin parcels for healthcare and other businesses to protect profit.

The company also cut its annual adjusted operating margin to between 10.8 per cent and 11.3 per cent compared to prior forecast of about 11.8 per cent.

The entire industry is fighting for market share as demand from e-commerce delivery weakens. Reuters reported earlier this month that UPS and its rivals for the first time in years have been using discounts and other incentives to maintain and win market share.

UPS, seen as a bellwether for the U.S. economy, and other logistics companies have been racing to match costs to global demand that has fallen to pre-pandemic levels.

UPS has been cutting jobs and leaning on technology to help offset falling e-commerce demand, weak export and industrial production and the cost hit from its new labor contract.

On Thursday, the company posted an adjusted profit per share of US$1.57 in the quarter through September compared with the analysts’ average estimate of US$1.52, as per LSEG data.

Mastercard (MA-N) dipped 5.6 per cent on Thursday as it forecast a weaker-than-expected growth in net revenue for the fourth quarter, signaling a potential moderation in spending volumes as an uncertain economic environment prompts caution among consumers.

A low double-digit percentage growth forecast for fourth-quarter net revenue, compared with LSEG estimates of more than 16-per-cent growth, sent the New York-based company’s shares down to its lowest point in nearly four months.

Hawkish signals from the U.S. Federal Reserve, which is expected to raise its benchmark interest rate at least once more before the end of this year, has fueled fears that higher rates could tip the economy into a recession.

“This was a disappointing quarter, in our view, as guidance fell just short of likely elevated expectations,” Edward Jones analyst Logan Purk said.

In the third quarter, resilient spending help Mastercard report a profit ahead of expectations. Excluding one-time costs, it earned US$3.39 per share, compared with consensus estimate of US$3.21 per share.

Its net revenue rose 14 per cent to US$6.5-billion.

With files from staff and wires

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 29/05/24 4:00pm EDT.

SymbolName% changeLast
Agnico Eagle Mines Ltd
Aecon Group Inc
Canaccord Genuity Group Inc
Canadian Pacific Kansas City Ltd
Ford Motor Company
General Motors Company
International Business Machines
Mastercard Inc
Meta Platforms Inc
Newmont Corp
Precision Drilling Corp
United Parcel Service
Stellantis N.V.
West Fraser Timber CO Ltd

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