A look at North American equities heading in both directions
On the rise
Shares of Cineplex Inc. (CGX-T) rose after it said it saw its highest July box office of all time as Barbie and Oppenheimer sent droves to theatres last month.
The Toronto-based cinema chain says the record month surpassed $86 million in net box office revenues.
July also delivered the company its second highest month on record, trailing December 2015, when Star Wars: Episode VII — The Force Awakens was released.
Cineplex attributed much of the month’s lift to Barbie, which generated the highest July attendance at its theatres, followed by Oppenheimer” and Mission: Impossible — Dead Reckoning Part One.
Altogether the company says 6.8 million moviegoers visited its theatres last month and Cineplex also scored its second highest monthly premium box office revenue of all time.
Athabasca Oil Corp. (ATH-T) turned positive and closed up 0.9 per cent with the late Monday announcement of an agreement to sell non-core Light Oil assets for total cash proceeds of $160-million.
Under the deal with an undisclosed private company, the Calgary-based company will see its 70-per-cent working interest in Placid Montney and 30-per-cent interests in Saxon and Simonette Duvernay.
In a research note, ATB Capital Markets analyst Patrick O’Rourke said: Overall, we view the event as a clear positive. Following the transaction, ATH has not materially changed its growth ambitions and currently will maintain its 2023 guidance and three-year $1-billion FCF plan that is supported by the Company’s $3.1-billion in tax pools. The transaction is expected to close in late Q3/23, and with transaction close, ATH will subsequently provide a formal guidance update. The assets produced 3,000boe/d on 45 per cent liquids during H1/23, and sold at a very respectable value of 7.9 times net operating income, $54,700 per flowing barrel, and $6.93/boe of 1P reserves, reflecting roughly $20.3-million of net operating income, 2,925boe/d of production, and 23.1mmboe of 1P reserves, respectively. Additionally, following the closing of the transaction, the Company will see a strong net cash position of $90mm, providing significant optionality with respect to accelerated/increased share repurchases, note repayment, or a potential acceleration of the development of its top tier Leismer and Duvernay plays with significantly de-risked inventories that is currently forecast at 5-7 per cent of annual production growth rates.”
Canadian lithium miner Patriot Battery Metals Inc. (PMET-X) was up almost 5 per cent after it said on Tuesday Albemarle Corp. (ALB-N) would invest $109-million in the company for a 5-per-cent stake.
Albemarle will subscribe around 7.1 million Patriot shares at an issue price of $15.29 per common share under a subscription agreement. The issue price represents a 7-per-cent premium to the stock’s July 31 closing price on the TSX Venture Exchange.
Patriot will use the proceeds to accelerate development activities at the Corvette lithium project in Quebec, Canada and for general corporate purposes.
Upon closing of the investment, Patriot will enter into a non-binding pact with Albemarle to study the viability of a downstream lithium hydroxide plant integrated with Corvette.
The battery metals miner expects the investment to close by Aug. 4.
In a research note, Desjardins Securities analyst Frederic Tremblay said: “Important validation—with Albemarle on board, Corvette looks to be on the road to success. We mentioned in prior reports, including our Express Pulse on the CV5 resource, that Corvette could attract significant interest. Admittedly, we did not think that a positive development would unfold so rapidly. Welcoming Albemarle as a shareholder and potential downstream partner is a major endorsement for Patriot and its Corvette project. It could also fuel speculation about a potential takeout (after the 12- month investor rights agreement) given Albemarle’s acquisition of Western Lithium and failed attempt to acquire Liontown Resources Limited.”
Caterpillar Inc. (CAT-N) jumped 8.8 per cent despite warning of a fall in third-quarter sales and margins on Tuesday as dealer inventories rose again, stoking worries that demand for its heavy machinery used in everything from construction to mining may have peaked.
Cost controls and price increases have protected profits amid persistent supply-chain disruptions and inflationary pressures, but analysts have flagged that a slowing economy is starting to depress order activity from commercial businesses, which account for 75 per cent of the company’s customer base.
Caterpillar, seen as a proxy for global economic activity, said on Tuesday it was expecting third-quarter sales and operating profit margin to be higher than in the previous year, but lower compared to the second quarter.
The manufacturer reported a US$600-million increase in dealer inventory in the second quarter from a year earlier, primarily in its energy and transportation business, as drilling at North American rigs shows signs of weakening.
Backlog at quarter-end increased by US$300-million, compared with the prior three months.
Executives have said inventory levels are nearly back to normal. The company’s ramp-up in production is being driven by its strategy to make up for lost sales due to a constrained supply chain, analysts said.
“Our experts believe that if dealer inventory continues to spike and new sales come down, that can indicate the beginning of a near-term downcycle despite the long-term tailwind of infrastructure spending,” said Ryan Keeney, an analyst at research firm Third Bridge.
Meanwhile, Caterpillar reported an adjusted profit of US$5.55 per share in the second quarter, beating analysts’ expectations of US$4.58 per share.
Sales rose 21.6 per cent to US$17.32-billion, above Wall Street estimates of US$16.49-billion.
Montreal-based TFI International Inc. (TFII-T) was higher by 3 per cent despite releasing weaker-than-anticipated second-quarter results after the bell on Monday.
The Montreal-based trucking company reported total revenue of US$1.791-billion, missing the consensus forecast of US$1.912-billion. Adjusted EBITDA of US$300-million (including the impact of IFRS 16) and adjusted filly diluted earnings per share of US$1.59 also missed the Street’s expectations (US$308-million and US$1.71).
The company says its lower income is partly due to overall lower revenues and volumes associated with freight, as well as several other costs.
President and CEO Alain Bedard says in a press release that the company’s results come despite a difficult freight market and reduced volumes across the industry.
He says TFI’s strong financial foundation has helped the company allocate capital strategically, noting it’s completed seven acquisitions so far this year.
“We expect additional details on TFII’s guidance during the conference call but the market is largely pricing in a downward revision. Last quarter, management was comfortable with adjusted EPS guidance of US$7.00–7.25 for 2023, but consensus is now down to US$6.79 (we forecast US$6.52),” he said. “From a trading standpoint, we do not expect an overly negative reaction to the backward-looking weak results as all eyes will be on the updated guidance and management commentary on the Yellow bankruptcy opportunity (LTL peer ARCB signalled a 10-per-cent increase in shipments and SAIA approximately 5 per cent).”
On the decline
National Bank of Canada (NA-T) closed narrowly lower following the premarket announcement that it has entered into an agreement to acquire the commercial loan portfolio of Silicon Valley Bank’s (SIVB-Q) Canadian branch.
The Bank will acquire a portfolio in the Technology, Life Science and Global Fund Banking sectors. It Includes $1-billion in loan commitments of which around $325-million are outstanding and will be integrated into its Technology and Innovation Banking Group.
The bank says the deal is subject to closing conditions and must be approved by the Ontario Superior Court, which is supervising the wind up of Silicon Valley Bank in Canada.
National Bank says the deal will likely close in the coming weeks and is not expected to have a material impact on its results.
Silicon Valley Bank, a U.S. financial firm favoured by startups, failed earlier this year, when its clients rushed to withdraw billions of dollars as they feared for the organization’s solvency.
Shares of Pipestone Energy Corp. (PIPE-T) declined 9.9 per cent on Tuesday with the premarket announcement it will be acquired by Strathcona Resources in an all-stock deal that will value the combined business at $8.6-billion, creating the country’s fifth largest oil producer.
Strathcona said the two companies will form a new corporation that will retain its name and be led by current Strathcona chief executive officer Rob Morgan. It did not say when the combined company will start trading.
Pipestone Energy has a market capitalization of $756.83-million, according to Refinitiv Eikon data.
Pipestone shareholders will receive about 9.05 per cent of the pro forma equity in the amalgamated company, with existing Strathcona shareholders owning the rest.
Including debt, the combined company will have a market capitalization of $11.5-billion.
Calgary-based Strathcona was formed in 2020 by the merger of two Waterous Energy Fund-backed companies, Strath and Cona. It bought private equity-backed Serafina Energy for $2.3-billion last year.
George Weston Ltd. (WN-T) slipped 0.3 per cent after announcing its latest quarter delivered a profit attributable to common shareholders of $498-million.
The company, which holds large stakes in Loblaw Companies Ltd. (L-T) and Choice Properties Real Estate Investment Trust (CHP.UN-T), says the second-quarter profit was almost 22 per cent lower than the earnings it reported a year earlier.
The company says the decrease was primarily driven by unfavourable liabilities linked to Choice Properties.
George Weston says its adjusted net earnings available to common shareholders totalled $377-million for the period ended June 30, up from $328-million a year before.
On an adjusted basis, George Weston says it earned $2.68 per diluted share, up from an adjusted profit of $2.23 per diluted share a year earlier.
Revenue for the quarter totalled $13.88-billion, up from $12.97-billion in the same quarter last year.
George Weston says its results were buoyed by increased sales at Loblaw and Choice Properties’ plans to open 1.6 million square feet of industrial space and two residential projects this year.
Uber Technologies (UBER-N) on Tuesday forecast third-quarter operating profit above Wall Street expectations as it sees growing demand for ride hailing due to strong leisure travel trends and gradual return to in-office work.
The San Francisco-based company’s shares fell 5.8 per cent while rival Lyft’s (LYFT-Q) shares also decreased, as Uber also reported a surprise second-quarter profit.
Uber’s cost controls ranging from layoffs to lower transaction costs and maintaining a steady headcount have helped the company maintain its target to post operating income profitability this year. At the same time, the number of rides after the pandemic is growing.
“Robust demand, new growth initiatives, and continued cost discipline resulted in an excellent quarter, with trips up 22 per cent and a GAAP operating profit, for the first time in Uber’s history,” CEO Dara Khosrowshahi said.
However, Uber reported second-quarter revenue of US$9.23-billion, missing analysts’ estimates of US$9.33-billion, according to Refinitiv IBES data, as a weak freight market pinches.
The ride-sharing company forecast third-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) — a profitability metric keenly watched by investors — between US$975-million and US$1.025-billion. Analysts are expecting US$925.9-million.
Meanwhile, adjusted EBITDA margin as a percentage of gross bookings hit a record high of 2.7 per cent in the second quarter, the company said.
Separately, the company said its CFO Nelson Chai will leave Uber on Jan. 5, next year.
“Over the next few quarters, we will evaluate returning excess capital to shareholders as our cash flows ramp, and with any potential further monetization of our equity stakes over the long term,” Uber added.
Sales in the company’s freight brokerage segment slumped 30 per cent from a year earlier, hurt by an tough economy in which shipping prices and volumes fell from highs during the pandemic.
“Uber Freight continued to be pressured by category-wide headwinds with industry spot rates seasonally weak - a trend we expect to continue in the near term,” the CEO said.
Economic uncertainty and high levels of inflation have forced many to seek driving opportunities with Uber and rival Lyft to supplement their regular income. Drivers for Uber’s ride-share segment grew by 33% from a year earlier.
The gradual return to working in offices across the United States has also helped boost demand for ride-hailing services.
Mr. Khosrowshahi said trips in the U.S. and Canada have returned to pre-pandemic levels when compared with the same period in 2019. Trips across Uber’s markets during the quarter grew 22 per cent to 2.3 billion, representing an average of 25 million trips per day.
Uber reported a profit of 18 US cents per share in the second quarter, while analysts were expecting a loss of 1 US cent per share.
Pfizer Inc. (PFE-N) gave back early gains and slid 1.3 per cent as it said it will launch a cost-cutting program if demand for its COVID-19 products keeps underperforming expectations this fall after quarterly sales for the vaccine and pill fell short of Wall Street targets.
The company has said it expects 2023 to be a low point for COVID product sales following strong demand at the peak of the pandemic before a potential return to growth in 2024.
“Clearly, there is a higher level of uncertainty regarding the demand projections for our COVID-19 products than for the rest of the business,” CEO Albert Bourla said.
Comirnaty sales declined 83 per cent to US$1.49-billion in the second quarter and antiviral treatment Paxlovid revenue tumbled 98 per cent to US$143-million.
That compared with analysts’ estimates of US$1.40-billion for the vaccine and US$1.08-billion for the pill.
However, the company maintained its forecast for annual COVID revenues at about US$21.5-billion.
Pfizer also trimmed the upper end of its annual revenue forecast by US$1-billion to US$70-billion while retaining the low end at US$67-billion. It left its profit forecast range unchanged at US$3.25 to US$3.45 per share.
Pfizer is also preparing for declining revenues in coming years as some of its top-selling drugs are soon set to face competition from cheaper generic treatments.
Excluding items, Pfizer reported a profit of 67 US cents per share, while analysts had expected 57 US cents.
Merck & Co. (MRK-N) posted better-than-expected second-quarter sales on Tuesday on strong demand for its two top-selling products, cancer immunotherapy Keytruda and human papillomavirus (HPV) vaccine Gardasil.
Shares of Merck turned lower in late morning trading and lost 1.3 per cent on the day after the company also raised its full-year revenue forecast.
Merck said Keytruda sales for the quarter jumped 19 per cent to US$6.- billion, surpassing analysts’ average estimate of $5.9 billion. Sales of Gardasil, which prevents cancers caused by HPV, surged 47 per cent to US$2.5-billion, also well above Wall Street estimates of US$2.1-billion.
Merck CEO Rob Davis said Keytruda’s strength is coming from within the United States and internationally, and the drug is increasingly being used ahead of other treatments.
“It’s really driven by very strong uptake as we’re continuing to move into earlier lines of cancer,” Davis said in an interview. He added that Keytruda was being used more often against a particularly aggressive form of cancer known as triple negative breast cancer, contributing to its sales strength.
Use of Gardasil in China was the biggest driver of growth for the vaccine, Mr. Davis said. There is room for further Gardasil growth as its use expands into treating males and moves into smaller cities, he added.
The strength of Merck’s underlying business, as well as multiple potential products in its pipeline should support strong earnings beyond the end of the decade, by when Keytruda is seen losing exclusivity, Cantor Fitzgerald analyst Louise Chen said in a note.
Sales in the quarter stood at US$15.0-billion, up from US$14.6-billion a year ago, despite a sharp drop in demand for Merck’s COVID-19 therapeutic Lagevrio.
Analysts, on average, had expected sales of US$14.4-billion, according to Refinitiv data.
The company posted an adjusted loss of US$5.2-billion, or US$2.06 a share, primarily due to a US$10.2-billion charge related to its acquisition of Prometheus Biosciences. Analysts had expected a loss of US$2.18.
Merck said it now expects full-year sales of US$58.6- to US$59.6-billion, up from its prior view of US$57.7-billion to US$58.9-billion. Analysts had forecast sales of US$58.7-billion.
The U.S. drugmaker now expects to earn US$2.95 to US$3.05 a share for 2023.
Molson Coors Beverage Co. (TAP-N) was down 4.7 per cent on Tuesday despite raising its annual sales and profit forecasts, boosted by strong demand for its core brands Miller Lite and Coors Light.
The brewer joins rivals Anheuser-Busch InBev (BUD-N), Brown-Forman (BF.A-N, BF.B-N) and Constellation Brands (STZ-N) that have recently posted upbeat results, supported by higher pricing and steady demand for alcoholic beverages.
For the Americas segment, Molson Coors’ net sales rose 10.7 per cent in the second quarter as it shipped more premium beers.
“The increase in U.S. volume was impacted by a shift in consumer purchasing behavior largely within the premium segment,” the company said.
A conservative backlash in the U.S. against AB InBev’s Bud Light over a social media promotion with transgender influencer Dylan Mulvaney has weighed on the brand’s sales, causing the beer to lose its top spot in the domestic market since May.
“We believe the market share shift away from Bud Light and towards Miller Lite and Coors Light will be sticky and likely very profitable,” Roth analyst Bill Kirk said.
Molson Coors now expects full-year 2023 sales to grow in high single-digit percentage, on a constant currency basis. The company had previously forecast a low single-digit percentage rise.
Annual underlying income before income taxes is expected to increase between 23 per cent and 26 per cent, on a constant-currency basis, compared with a low single-digit percentage increase forecast earlier.
However, Molson Coors posted second-quarter sales of US$3.27-billion, missing estimates of US$3.29-billion, according to Refinitiv data.
Citi analyst Filippo Falorni said: “TAP reported 2Q’23 underlying EPS of $1.78 (above our $1.62 estimate and consensus’ $1.69). Net sales slightly missed consensus, with gross margin slightly above the Street, and the beat driven by lower SG&A and interest offset by a higher tax rate and share count. As anticipated, TAP raised 2023 guidance following the 2Q’23 EPS beat and the benefits from the Bud Light controversy. On the earnings call, we’ll be looking for more color on the potential upside from stronger Coors Light/Miller Lite trends in the balance of the year.”
U.S.-listed shares of BP (BP-N) were lower by 0.9 per cent its second-quarter profit slumping 70 per cent from a year earlier to US$2.6-billion, missing forecasts, as refining margins and oil trading income fell, but still allowing the energy giant to boost its dividend by 10 per cent.
Rivals Chevron, Exxon Mobil, Shell and TotalEnergies have also reported sharp drops in quarterly earnings, hurt by a drop in energy prices from highs hit following Russia’s invasion of Ukraine a year and a half ago.
“Our underlying performance was resilient with good cash delivery - during a period of significant turnaround activity and weaker margins in our refining business,” Chief Executive Officer Bernard Looney said in a statement.
BP’s underlying replacement cost profit, its definition of net income, missed expectations of US$3.5-billion in a company-provided survey of analysts.
It fell from US$8.5-billion a year earlier and from US$5-billion in the first quarter.
BP increased its dividend by 10 per cent to 7.27 US cents per share, the fourth hike since halving it in the wake of the coronavirus pandemic three years ago. It will repurchase US$1.5-billion of its shares over the next three months.
In May, BP slowed down the pace of its quarterly buyback program to US$1.75-billion from US$2.75-billion in the previous three months, prompting its largest daily share drop in more than three years.
Mr. Looney told Reuters that the buyback program allowed BP to reduce its share count by 9 per cent over the last 4 quarters.
“That means that we can raise the dividend by 10 per cent and not increase the dividend burden on the company,” he said.
With files from staff and wires
David Leeder