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A survey of North American equities heading in both directions

On the rise

Cannabis producer Canopy Growth Corp. (WEED-T) said on Tuesday it was fast-tracking its entry into the United States by creating a holding company for its interest in U.S. partners Acreage Holdings Inc. (ACRG-A-U-CN), Wana and Jetty.

Canopy’s TSX-listed shares jumped with the deal expected to give the Canadian company a leading market share in the United States as soon as legally possible.

Canopy will not directly benefit from the transactions right away, as Canadian companies that grow or sell marijuana cannot do so in the United States, where weed is classified a scheduled narcotic.

However, with U.S. president Joe Biden asking for a review of that classification earlier this month, a change in legislation could allow Canopy to operate in the country directly.

In anticipation of those changes, Canopy on Monday outlined a complicated holding co structure to set up Canopy USA LLC.

Canopy will own non-voting shares in Canopy USA, which in turn will begin taking over Acreage, Wana and the other brands by using Canopy shares as currency

PrairieSky Royalty Ltd. (PSK-T) soared after announcing late Monday a plan to double its quarterly dividend alongside the release of its third-quarter results.

The Calgary-based company is hiking its payout to 24 cents a share from 12 cents .

“The Board of Directors considered a number of factors in determining the increase to its dividend level, including current and projected activity levels on PrairieSky’s royalty lands, the current commodity price environment, the continued high margin and diversified cash flow from operating activities, debt levels, and the net earnings of the Company. Following the 100% dividend increase, PrairieSky expects to maintain a low payout ratio, leaving room for incremental dividend increases on an annual basis,” the company said.

In response to the release, several equity analysts on the Street raised their target prices for its shares, including iA Capital Markets Matthew Weekes, who said: ““The decision reflects strong organic production growth over the past year, strong leasing and drilling tailwinds, and an accelerated pace of debt reduction following the Heritage acquisition compared to initial expectations.”

Celestica Inc. (CLS-T), a Toronto-based electronics manufacturing services company, enjoyed significant gains as it reported third-quarter earnings ahead of expectations after the bell on Monday.

The company said revenue of US$1.92-billion was up from US$1.47-billion a year ago and ahead of expectation of US$1.73-billion.

Adjusted earnings came in at US$63.6-million or 52 US cents per share compared to US$43.2-million or 35 US cents a year ago. The result was ahead of expectations of 45 US cents per share, according to S&P Capital IQ.

In a research note, Canaccord Genuity equity analyst Robert Young said: “Celestica’s Q3 update is stronger than expected on almost every metric. Q3 results and raised 2022 guidance plus newly introduced 2023 guidance are all comfortably ahead of our and Street expectations. Adj Operating margins hit 5.1 per cent in Q3, a high-water mark, and are expected to remain high with Q4 expected to be 5.1 per cent at the midpoint and a 4.5-5.5-per-cent range anticipated for FY2023, up 50 basis points at the midpoint from the 2022 guidance range of 4.0-5.0 per cent. Both [Advanced Technology Solutions] and [Connectivity & Cloud Solutions] drove the Q3 top-line beat, with HPS [Hardware Platform Solutions] growth of 72 per cent year-over-year continuing to impress. Higher-margin elements (HPS and ATS) have accounted for 67 per cent of revenue year-to-date and likely, the bulk of operating margin. FCF [free cash flow] in the quarter was compressed by $218-million in quarter-over-quarter inventory uptick driven by a combination of demand and supply chain buffering. Celestica is targeting $75-million in annual FCF exiting Q4. Celestica continues to exceed our and Street expectations supporting our positive view. Celestica shares continue to trade at a discount at 4.8 times P/E despite strong EPS growth of 56 per cent year-to-date.”

Shares of cannabis company Cronos Group Inc. (CRON-T) were higher after it paid $1.34-million to settle Ontario Securities Commission accusations that the company failed to file accurate financial statements.

Former Cronos executive William Hilson, also a defendant in the matter, paid $70,000 and agreed not to serve as a director or officer of a Canadian public company for the next year.

The Capital Markets Tribunal, the regulator’s adjudicative wing, approved the settlements late Monday. Chair Tim Moseley said Cronos identified the problems itself, reported them to the OSC and co-operated with the investigation.

Cronos and Mr. Hilson also entered into a settlement Monday with the U.S. Securities and Exchange Commission over the allegations. Cronos, which also trades on U.S. exchanges, and Mr. Hilson were not required to pay anything to the SEC, given the Ontario settlement and their co-operation, the SEC said. Mr. Hilson agreed not to serve as a director or officer or appear before the SEC as an accountant for the next three years.

See also: OSC hits cannabis producer Cronos with sanctions for failing to file accurate financial statements

- David Milstead

Toronto-based Slate Office REIT (SOT.UN-T) rose following the premarket announcement that it has launched a comprehensive review of strategic alternatives.

“The special committee will evaluate a broad range of options with a focus on maximizing value for unitholders,” it said. “These alternatives could include acquisitions, divestments, corporate transactions, and other partnership opportunities with the potential to unlock the inherent value contained within the REIT’s portfolio of high-quality workplace real estate.”

The REIT’s Board of Trustees established the committee, which will be co-chaired by Tom Farley and Michael Fitzgerald and made up of five independent directors.

On Monday, the REIT announced the close of a $45-million bought deal offering of 7.50-per-cent convertible unsecured subordinated debenture.

Coca-Cola Co. (KO-N) joined rival PepsiCo Inc. (PEP-Q) in raising annual forecasts as the two top sugary soda makers benefit from resilient demand despite multiple price increases taken to blunt the impact of surging costs.

Shares of Coca-Cola rose on Tuesday after the soda giant also beat third-quarter revenue and profit estimates.

Average selling prices rose 12 per cent in the third quarter, the maker of Sprite and Fanta said, while unit case volumes increased 4 per cent.

Lack of major competition in the global carbonated drinks market has encouraged Coke and PepsiCo to raise prices this year on expectations that their products were among the last to feel the pinch during an economic slowdown.

PepsiCo raised its annual forecasts earlier this month after topping quarterly revenue estimates.

Consumer goods giants Nestle and Procter & Gamble also reported better-than-expected sales last week, as shoppers continued to pay more for goods like Nescafe coffee and Gillette razors.

On an adjusted basis, Coca-Cola earned 69 US cents per share on net revenue of US$11.1-billion. Analysts had expected earnings of 64 US cents per share on revenue of US$10.52-billion, according to IBES data from Refinitiv.

Investors cheered a solid third quarter at General Motors Co. (GM-N) as the automaker’s performance and confidence tamped down growing fears of a global recession.

GM shares were up on Tuesday as the company’s strong North American truck sales and prices drove a higher quarterly profit that beat analysts’ estimates.

While investors have been concerned that a U.S. economic slowdown could hurt demand for new vehicles, Chief Financial Officer Paul Jacobson said on Tuesday: “We haven’t seen any direct impact on our products. Pricing remains strong. Demand remains strong.”

“We’re still feeling very good” about the short-term environment, Mr. Jacobson added, saying GM expects U.S. industry sales next year of 15 million, compared with expectations of around 13.7 million this year.

Wedbush analyst Dan Ives in a research note called the results a “major step in the right direction for the Detroit stalwart.”

Chief Executive Mary Barra was more measured on a call with analysts Tuesday, describing the current operating environment as “challenging,” while noting a “gradual improvement” in supply chains, including semiconductor chips.

Ms. Barra said the company “completed and shipped nearly 75 per cent of the unfinished vehicles we held in the company inventory in June.”

GM reaffirmed its guidance for full-year net income of US$9.6-billion to US$11.2-billion, and full-year diluted earnings per share of US$5.76 to US$6.76.

Diluted earnings per share in the third quarter of US$2.25 topped estimates for US$1.88.

Halliburton Co. (HAL-N) saw modest gains after posting a rise in profit for the third quarter on Tuesday that beat analysts’ forecasts, the latest oilfield services firm to report better-than-expected results amid a surge in drilling activity around the globe.

Brent crude averaged US$98.96 a barrel during the quarter, up about 33 per cent from a year earlier as sanctions on major oil producer Russia for its invasion of Ukraine upended global supply routes. Meanwhile, demand has rebounded sharply from pandemic lows.

“Looking forward, we see activity increasing around the world - from the smallest to the largest countries and producers,” Halliburton Chief Executive Officer Jeff Miller said in a statement. In North America, Miller said demand for services is “stronger than I have ever seen at this point in the year.”

The Houston-based company’s net income rose to US$544-million, or 60 US cents per share, for the quarter ended Sept. 30, from US$236-million, or 26 US cents per share, a year earlier. Analysts had anticipated earnings of 56 US cents per share.

Halliburton said revenue from North America jumped 9 per cent from the second quarter to reach US$2.6-billion. International revenue rose 3 per cent sequentially to US$2.7-billion.

U.S. industrial firm 3M Co. (MMM-N) on Tuesday cut its full-year revenue and profit forecasts, expecting to take a hit from rising inflation and shrinking overseas earnings due to a stronger dollar.

Shares of the company were flat New York.

“We continue to execute our strategies and deliver for our customers in a highly uncertain environment,” 3M Chairman and Chief Executive Officer Mike Roman said in a statement.

The surging U.S. dollar is likely to weigh on overseas earnings of the company, which operates in more than 70 countries and derives about 60 per cent of its revenues from outside the United States.

Typically, a stronger dollar eats into the profits of companies that have sprawling international operations and convert foreign currencies into dollars.

3M forecast cut also comes as the U.S. central bank’s rapid pace of interest rate hikes to combat decades-high inflation risk tipping the economy into a recession.

Paypal Holdings Inc. (PYPL-Q) saw substantial gains after Amazon (AMZN-Q) said it’s rolling out a feature that allows shoppers to pay for items using their Venmo accounts.

The option to pay with Venmo, which is owned by Paypal, will be available for select customers beginning on Tuesday, the e-commerce giant said in a news release. By Black Friday — the day after Thanksgiving — it will be available nationally.

Venmo is largely known for peer-to-peer transactions, but it has been expanding its offering to allow payments to businesses.

Amazon’s move to offer more payment options comes as sluggish sales numbers have pushed the company to put brakes on its warehouse expansion plans. Retailers have also been more skittish about the holiday shopping season, and are offering more discounts to clear out their bloated inventories and lure in inflation-hit consumers.

Earlier this month, Amazon held its second major sales event this year for its Prime members, the first time the company offered such discounts twice in one year. The retail behemoth did not reveal how much revenue it pulled from the event, but some estimates showed it saw lower sales.

Shares of Microsoft Corp. (MSFT-Q) were higher ahead of the release of its quarterly results after the bell, which are expecting to offer further clues on the strength of corporate America amid higher Treasury yields and an aggressive Federal Reserve tightening cycle.

The Washington-based tech giant is set to post its slowest quarterly revenue growth in over five years on Tuesday, with some analysts casting doubts whether the company can maintain its annual outlook in the face of a PC market slowdown and a strong dollar.

A spike in inflation this year has fanned worries of a global economic slowdown and forced consumers and businesses to pull spending on computers and laptops, sapping sales of some of Microsoft’s key products including Windows and the Office suite.

Adding to the squeeze, the dollar has climbed more than 17 per cent, weighing on the earnings of companies with big global operations. Microsoft earns more than 50 per cent of its revenue outside the United States.

Other U.S. companies set to report following the end of the trading day include Google-owner Alphabet Inc. (GOOGL-Q), Texas Instruments Inc. (TXN-Q) and Visa Inc. (V-N).

Canadian companies poised to release their results late Tuesday include Canadian National Railway Co. (CNR-T), First Quantum Minerals Ltd. (FM-T) and Lundin Mining Corp. (LUN-T)

See also: Megacap earnings to test fledgling U.S. stock rebound

Further market turbulence appears inevitable as Canadian earnings season commences

On the decline

General Electric Co. (GE-N) was lower on Tuesday in the wake of trimming its full-year profit forecast after reporting a decline in third-quarter earnings, primarily due to higher warranty and related reserves at its renewable energy business.

The company, however, reported much higher-than-expected free cash flow. Its quarterly revenue also topped Wall Street’s estimates.

The company, which is in the process of breaking up into three companies, is facing challenges at its onshore wind business. The unit, which is the largest of GE’s renewable businesses, has been battling higher raw material costs due to inflation and supply-chain pressures.

In the United States, which has been GE’s most profitable onshore wind market, policy uncertainty following the expiry of renewable electricity production tax credits last year has hurt demand, contributing to a 15-per-cent year-on-year drop in renewable energy revenue in the September quarter.

Chief Executive Larry Culp said onshore wind is “the battleground” for the company as it aims to make its renewable business profitable in 2024.

The Boston-based industrial conglomerate now expects adjusted profit in 2022 in the range of US$2.40 to US$2.80 per share, compared with US$2.80 to US$3.50 estimated earlier.

It reported an adjusted profit of 35 US cents a share, lower than a profit of 53 US cents a share last year. Excluding a US$500-million warranty and related reserves at its renewable energy business, quarterly profit would have been 75 US cents a share.

United Parcel Service Inc. (UPS-N) turned negative in afternoon trading as it reported a stronger-than-expected quarterly adjusted profit and reaffirmed its full-year forecast after higher delivery prices and cost controls offset softening e-commerce demand.

Delivery firms such as UPS and FedEx Corp. (FDX-N) are pursuing higher-margin small to large business customers to support volumes and earnings as the pandemic-driven e-commerce bubble deflates and shoppers wrestle with soaring inflation.

After scrambling to keep up with surging e-commerce volume in the early days of the pandemic, UPS and other delivery providers are now saddled with excess delivery capacity and face the high-stakes task of predicting demand in a rapidly changing market. Keeping too many planes in the air and delivery trucks on the road fuels excess costs that quickly sap profits.

The company reaffirmed its full-year revenue forecast of about US$102-billion and adjusted operating margin of around 13.7 per cent.

UPS’s adjusted profit rose to US$2.99 per share, beating Wall Street’s estimate of US$2.84 per share.

With files from Brenda Bouw and wires

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