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A roundup of some of the North American equities that made moves in both directions

On the rise

Canadian National Railway Co. (CNR-T) rose 1.3 per cent on Tuesday after it announced it has suspended issuing financial guidance to markets and will continue parking trains and laying off employees amid the COVID-19 pandemic that has closed factories and stores across North America, and killed more than 2,700 Canadians.

CN announced Monday that it has laid off 16 per cent of its work force, reduced its train schedule by 23 per cent, parked 500 locomotives and idled four train yards – steps it began last fall – as freight volumes plunge.

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“The COVID-19 pandemic is having an unprecedented and extraordinary impact on the economy,” CN said in a statement accompanying its first quarter-financial results, released after markets closed on Monday. “The economic outlook, and therefore overall demand for transportation services, are highly correlated with the duration of containment measures and the impacts on businesses and consumers, which at this point remain uncertain.”

- Eric Atkins

PepsiCo Inc. (PEP-Q) increased 1.5 per cent after it warned on Tuesday organic revenue and operating profits would suffer in the second quarter as major buyers of its sodas, such as restaurants, theaters and stadiums, were forced to shut down to help control the spread of the coronavirus.

The group beat first quarter revenue estimates helped by a late spike in demand from consumers stocking up on the company’s chips, snacks and cereals to make it through lockdowns, but said it expected second-quarter organic sales to decline at a low single digit rate.

The warning mirrored that of rival Coca-Cola Co’s, last week, which said volumes had fallen 25 per cent globally since the beginning of April, largely stemming from the loss of sales other than at retail stores.

Still, the snack and beverage maker said it expected for business at grocery stores to make up for a large chunk of those lost sales, with shoppers expected to keep stockpiling food and drinks due to uncertainty how long stay-at-home orders would last.

Analysts said Pepsi’s more diversified snacks business, which includes Lay’s and Doritos, makes it better placed to benefit from sales at retail outlets than rival Coca-Cola Co .

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“With consumers spending more time at home, we’ve seen a increase in eating breakfast and a tendency to snack more during the day,” said PepsiCo’s Chief Executive Officer Ramon Laguarta.

“Our Frito-Lay and Quaker Food businesses are well positioned to capitalize on these changes.”

Calfrac Well Services Ltd. (CFW-T) erased early gains and sat flat after it announced a further reduction of staff cuts to 70 per cent of its workforce in North America.

Calfrac also said its Argentinean operations have been significantly impacted by stay-at-home orders and said a warmer than usual start to the year that prevented the use of ice bridges in Russia negatively impacted quarterly results.

AltaCorp Capital analyst Waqar Syed said: “With a further reduction in its active NAM fleets to five and negative operational updates for its international operations, we think there is even more heightened risk surrounding CFW’s liquidity. The current consensus 2020 EBITDA estimate is $27.9-million (we see downside risk to the figure) is below the low-$80-million per year in interest expenses, and with $55-million of capital spending planned for 2020e, the cash burn could be significant (AltaCorp estimates $103-million of cash burn in 2020).”

U.S. manufacturer 3M Co. (MMM-N) jumped 2.6 per cent after it suspended its 2020 financial forecast on Tuesday due to the economic uncertainties caused by the coronavirus pandemic, while reporting better-than-expected quarterly profit as it doubled production of N95 respiratory masks.

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The company is the world’s biggest maker of the masks and has seen demand spiral as the outbreak spread to a host of major economies, putting 3M at the heart of a tug-of-war over supplies for doctors, nurses and other exposed workers.

In January the company said it was doubling its global output of N95 respirator masks, designed to filter 95 per cent of airborne particles, to 1.1 billion annually.

Under White House pressure, Minnesota-headquartered 3M also reached an agreement earlier this month to import 166.5 million N95 respirators to the United States from China and allow it to continue exporting its US-made respirators.

The worldwide lockdowns, however, are hammering other parts of its business, and it reported falls in revenue at all units except healthcare, which sells everything from surgical tape to sterilization products and accounted for about 29 per cent of total sales.

Secure Energy Services Inc. (SES-T) rose 5.7 per cent despite reporting first-quarter results after the bell on Monday that fell short of expectations on the Street.

Adjusted earnings before interest, taxes, depreciation and amortization of $42-million fell $6-million short of the consensus projection and represented a 24-per-cent drop from the same period a year ago.

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Industrial Alliance Securities analyst Elias Foscolos said: “Analysts will likely view the Q1/20 EBITDA miss as negative and reduce target prices, as Q1/20 was generally projected to be somewhat of a ‘calm-before-the-storm’ quarter. There is a good chance that this has already been priced into the stock, and we may not necessarily see significant downward price movement today. Nonetheless, we classify the results as negative.”

Harley-Davidson Inc. (HOG-N) was up over 15 per cent after it cut its quarterly dividend to just 2 US cents and suspended share buybacks on Tuesday to boost its cash reserves even as it reported a smaller-than-expected decline in quarterly profit.

The company said it has US$1.47-billion in cash and was in talks with big U.S. banks to get an additional US$1.3-billion in loan to deal with the drop in motorcycle sales due to lockdowns. Harley has already furloughed employees and cut salaries in a bid to lower its costs.

While Harley has been trying to woo the next generation of younger riders with electric and more nimbler bikes, that has done little to boost sales. To make matters worse, the coronavirus pandemic has crushed demand as Americans are forced to stay at home.

Harley’s total motorcycle shipments to dealers fell 10 per cent to 52,973 units in the first-quarter ended March 29, while retail sales at its dealers declined nearly 18 per cent to 40,439 units.

Boeing Co. (BA-N) sat 2.2 per cent higher in the wake of saying it will resume production of 787 aircraft at its facilities in South Carolina, with most of the staff returning by May 4.

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Operations at South Carolina were temporarily suspended on April 8 following the COVID-19 pandemic. Boeing said it will institute a series of safeguards including signage to create physical distance and face coverings for employees.

Earlier on Monday, Boeing told shareholders it will need to borrow more money over the next six months and does not expect to pay dividends again for years, as it wrestles with industry fallout from the virus outbreak and the grounding of its 737 MAX jet.

The largest U.S. planemaker, which reports first-quarter earnings on Wednesday, last month drew down its entire US$13.8-billion credit line and suspended its dividend.

Caterpillar Inc. (CAT-N) on Tuesday reported a steeper-than-expected decline in first-quarter earnings, with sales falling across all regions and all primary business segments as the coronavirus pandemic devastated economies around the world. The Deerfield, Illinois-based heavy equipment manufacturer, considered a bellwether for economic activity, said the financial fallout of the health crisis in the quarter through June will be worse than the previous quarter.

Chief Executive Officer Jim Umpleby said the impact has been “significantly more severe and chaotic” than any cyclical downturn. Caterpillar did not provide a 2020 financial outlook after rescinding the previous forecast last month.

“The ultimate impact of the pandemic on our 2020 results remains uncertain and will be based on the duration of the virus and the magnitude of the economic impact on global demand for our products,” Umpleby said.

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The company’s shares rose 0.2 per cent, trading at US$115.75 on the New York Stock Exchange.

Southwest Airlines Co. (LUV-N) increased 2 per cent after it posted a US$94-million quarterly net loss, its first in nine years, and warned of drastic revenue drops ahead as it sought to raise another US$2.6-billion to help weather the coronavirus pandemic.

Its shares were down 2.3% after it announced a public stock offering of 55 million shares, worth around US$1.6-billion at Monday’s closing price of US$29.11, and US$1-billion worth of convertible debt.

The COVID-19 crisis has decimated travel demand, with an unprecedented number of flight cancellations in the second half of March, forcing airlines to preserve and raise cash.

Dallas-based Southwest swung to a net loss of US$94-million for the quarter ended March 31, compared to a profit of US$387-million a year earlier. Excluding special items, the loss was US$77-million, or a 15 US cents loss per share. Total operating revenue fell 17.8 per cent to US$4.2-billion. It sees operating revenue falling by 90-95 per cent in both April and May, when it does not expect load factors to surpass 10 per cent.

While the airline has more bookings for June and July - albeit in a drastically reduced flight schedule - it said it cannot reasonably estimate any revenue trends beyond May.

On the decline

First Quantum Minerals Ltd. (FM-T) slid 1.4 per cent in the wake of the release of its first-quarter results after the bell on Monday.

The Vancouver-based miner reported revenue of $1.182-billion and earnings per share of a loss of 11 cents. Both fell narrowly below expectations on the Street ($1.25-billion and a 9-cent loss).

RBC Dominion Securities analyst Sam Crittenden said: “Q1 results were slightly below estimates; however, the focus in our view remains on balance sheet management and the Cobre Panama ramp up and when it can resume production. Cobre Panama remains on care and maintenance due to the COVID-19 outbreak, and management provided updated guidance under the assumption that the mine is granted approval to restart operations by the end of May (to 210-235kt from 285-310kt - we lowered our estimate to 228kt following the shutdown). In Q1 CP produced 56.2Kt of copper (RBCe 63Kt, Q4 production 60.3Kt), which was impacted by ‘unplanned downtime of the crusher circuit’ although management noted this was resolved in the quarter.”

Merck & Co Inc. (MRK-N) said on Tuesday it expects the coronavirus pandemic to reduce 2020 sales by more than $2 billion, and the U.S. drugmaker lowered its profit forecast as a big drop in doctors’ office visits during the outbreak will take a hefty toll, sending its shares down more than 3 per cent.

Many of Merck’s top-selling products, including blockbuster cancer drug Keytruda, are administered by physicians.

Rival drugmakers Pfizer Inc on Tuesday stuck to its forecasts, and Eli Lilly and Co raised the top end of its 2020 profit outlook last week.

But Merck is particularly vulnerable to stay-at-home efforts to curb the spread of the coronavirus and people avoiding doctors and hospitals over fear of becoming infected.

“Two-thirds of our products are physician administered, and that is probably somewhat unique and is causing the impact,” Chief Financial Officer Robert Davis said on a conference call.

Davis said he expected most of the hit to Merck’s business in the second quarter, with a potential for recovery by the end of the year as restrictions imposed due to the pandemic abate.

Excluding items, Merck earned US$1.50 per share, beating estimates of US$1.34 per share, according to IBES data from Refinitiv.

Pfizer Inc. (PFE-N) slid 0.9 per cent as it reiterated its 2020 forecast after posting a quarterly profit that exceeded estimates on higher sales of breast cancer drug Ibrance and blood thinner Eliquis.

The largest U.S. drugmaker said it saw an increase in demand for its pneumonia vaccine Prevnar, some anti-infective products as well as certain sterile injectable products used in the treatment of severely sick COVID-19 patients. Overall Prevnar sales, however, fell 2.4 per cent.

The company said it continues to see full-year earnings in the range US$2.82 to US$2.92 as it expects an improvement in disrupted business activity in the second half of the year.

With a collaboration with Germany’s BioNTech, Pfizer is among the many drugmakers in the race to develop a vaccine to end the COVID-19 pandemic. The companies’ German trial is among the four studies worldwide to begin human testing of their vaccine candidates.

The largest U.S. drugmaker, however, warned of a hit to second-quarter results as lockdowns imposed to curb the spread of the virus affects the rate of new prescriptions for its medicines and vaccinations.

Barrick Gold Corp. (ABX-T) dipped 0.2 per cent after Papua New Guinea threatened to take control of a gold mine operated by the Toronto-based miner after its local unit suspended operations at the weekend following news the mine’s lease would not be renewed.

Barrick, one of the world’s biggest gold miners, had applied for a twenty-year lease renewal with its joint venture partner, China’s Zijin Mining, of the Porgera gold mine which Papua New Guinea rejected on Friday.

It had run into opposition from Papua New Guinea landowners and residents. Critics say the Porgera mine has polluted the water supply and created other environmental and social problems, with minimal economic returns for locals.

Barrick says the lack of renewal is tantamount to nationalization. Its local unit, Barrick (Niugini) Limited, suspended operations on Saturday because the government had not given it any formal notification that it would not renew the lease, or any detail over a planned transition, it said.

Barrick and Zijin each own 47.5 per cent of the mine, with the remaining 5 per cent held by landowner group, Mineral Resources Enga.

Luckin Coffee Inc. (LK-Q) plummeted over 18 per cent after China’s top market regulator has launched an inspection into the company, joining the country’s securities watchdog in doing so as the coffee chain comes under scrutiny for fabricating millions of dollars worth of sales deals.

Dozens of officers from the State Administration for Market Regulation (SAMR) raided Luckin’s main office in Beijing on Sunday, staying there from morning to evening that day, a source with direct knowledge of the situation told Reuters.

Luckin Coffee confirmed that it was being inspected by the SAMR in a post on its official Weibo account on Monday, saying that it was “actively cooperating” with the regulator, which was trying to understand the company’s operating situation. It did not respond to requests from Reuters for further comment.

The China Securities Regulatory Commission announced earlier this month that it would investigate claims of fraud at Luckin after it announced an internal investigation had shown its chief operating officer and other employees fabricated sales deals worth about 2.2 billion yuan (US$310.77-million).

Xerox Holdings Corp. (XRX-N) slipped 0.5 per cent after it pulled its 2020 revenue and profit forecasts on Tuesday, citing economic uncertainties from the coronavirus outbreak, which had resulted in the cancellation of its US$35-billion takeover campaign for HP Inc.

Xerox has been witnessing a decline in demand for its printers and photocopiers as more businesses digitize their work. The company said lockdowns have restricted its ability to sell, install and service its equipment.

Suspension of non-essential work in certain countries and extended work-from-home are also affecting sales, the company said.

Earlier this month, Xerox had said it would mass produce ventilators and hand sanitizers to help the fight against the coronavirus, which has affected more than 3 million people worldwide.

The company’s revenue fell 14.7 per cent to US$1.86-billion on the first quarter ended March 31, but beat market expectations of US$1.78-billion, according to IBES data from Refinitiv.

Excluding items, it earned 21 US cents per share, below the analysts’ average estimate of 29 US cents per share.

United Parcel Service Inc. (UPS-N) was down after announcing it will cut capital spending this year by US$1-billion and its target for share buybacks by almost US$800-million as it adjusts to what it said were “unprecedented” changes in its business driven by the coronavirus outbreak.

Shares fell around 6 per cent as the company, like dozens of other major firms, withdrew its financial forecasts for this year after missing Wall Street estimates for profit in the first three months of the year.

“The progression of stay-at-home restrictions instituted across the country as a result of coronavirus closed businesses and disrupted supply chains, resulting in an unprecedented shift in customer and product mix in the quarter,” the company said in a statement.

Stay-at-home orders aimed at reducing the spread of potentially deadly COVID-19 infections have fueled a boom in deliveries of everything from food to home office equipment.

Average daily volume rose 8.5 PER CENT in the U.S, while UPS Next Day Air volume grew 20.5 per cent as the COVID-19 crisis crushed demand for virtually every industry but food and medical equipment.

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