A look at North American equities heading in both directions
On the rise
Shares of Restaurant Brands International Inc. (QSR-T) were higher by 1.4 per cent on Tuesday after it topped market estimates for quarterly sales and profit, as improved marketing and promotional offers drew more customers to its Burger King chain while traffic at Tim Hortons held strong.
Burger King had previously struggled to drive sales in the United States, but the brand has ramped up investments in restaurant remodels, new technology, advertising and kitchen equipment and also streamlined its menus and operations.
In the second quarter alone, the burger chain invested US$12-million as part of its turnaround plan, including US$10-million towards advertising.
The efforts seem to have paid off as Burger King gained market share in May for the first time in more than three years, data from research firm M Science showed. Limited-time launches such as the “Spider-Verse” Whopper have also helped.
“It was a very strong quarter. Frankly I was very surprised at the beat across all of their businesses...I have to give management credit for the type of execution that they’re operating on right now,” said Sante Faustini III, director of product intelligence at M Science.
Comparable sales at Burger King U.S. rose 8.3 per cent in the quarter, beating analysts’ estimate of a 4.5-per-cent increase.
Meanwhile, Tim Hortons’ comparable sales grew a better-than-expected 12.5 per cent in Canada, aided by strong demand for its hot coffees, breakfast sandwiches and bagels, as mobility continues to improve in the region.
Global comparable sales at Restaurant Brands, which also owns the Popeyes and Firehouse Subs chains, rose about 10 per cent in the quarter ended June 30, beating estimates of 5.75 per cent. Total revenue also rose a better-than-expected 8.3 per cent to US$1.78-billion.
“While investor expectations have remained elevated for (Restaurant Brands)...this morning’s results encouragingly show continued strength of the overall business amid a mixed restaurants earnings season thus far,” said Christopher Carril, analyst at RBC.
Excluding items, Restaurant Brands earned 85 US cents per share in the quarter, beating estimates of 77 US cents, according to Refinitiv data.
In a research note, Citi analyst Jon Tower said: “Investors were hungry for solid top-line results and the company delivered, with QSR providing upside to revenue (fueled by TH CAN upside) as well as adjusted EBITDA (primarily from the BK segment) to boot. Importantly, results should offer enough evidence that the BK US turnaround efforts have begun to bear fruit and that with remodels ramping in 2H23, there’s a path ahead for continued comp out-performance for the balance of ‘23. In aggregate, net unit growth still lags pre-COVID levels (approximately 4.1 per cent year-over-year), but key drivers of growth continued to demonstrate progress (e.g., NROs at TH ROW, BK ROW both ticking higher Yr/Yr) as the company continued to optimize its BK U.S. portfolio. We expect shares to move modestly higher in the near-term today.”
Tilray Brands Inc. (TLRY-T) jumped 31 per cent after announcing a deal to buy eight beer and beverage brands from Anheuser-Busch Companies LLC.
Tilray will pay US$85-million for the companies, according to documents filed Monday with the U.S. Securities and Exchange Commission.
Tilray estimated that the acquisitions will triple its beer business, from four million cases to 12 million cases annually, and bring in US$250-million in annual pro forma revenue. The company did not share the price of the acquisitions.
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In a press release Monday afternoon, Tilray said it was acquiring the eight brands, including wheat ale brewer Shock Top from Anheuser-Busch Companies, LLC (BUD-N), the U.S.’s largest beer company. The expected sales volume of the acquired brands will make Tilray the fifth-largest craft-beer business in the country, the company said.
The transaction includes current employees, breweries and brewpubs associated with these brands. The purchase price will be paid in all cash and, subject to regulatory approval, the transaction is expected to close in 2023.
Already, Tilray owns four U.S. breweries, a distillery and a CBD beverage company.
Tilray chief executive officer Irwin Simon told analysts in a call Monday evening that the acquisition marks a major step forward in the company’s diversification strategy, adding scale and geographic range to the company’s brewing portfolio.
- Irene Galea
Heroux-Devtek Inc. (HRX-T) gained 2.7 per cent after saying profits shot up more than 300 per cent amid higher demand from the aviation world following a tough pandemic period for the Quebec-based company.
The maker of aircraft landing gear notched net income of $3.97 million in the quarter ended June 30, compared with $965,000 during the same period a year earlier.
In its first quarter, sales of Heroux-Devtek gear and services rose 23 per cent year over year to $140.7 million from $114.1 million twelve months prior.
Basic and diluted earnings quadrupled to 12 cents per share from three cents per share in the first quarter of 2022, beating analysts’ expectations of 10 cents per share, according to financial markets data firm Refinitiv.
CEO Martin Brassard says the company managed a major surge in demand due to improvements put in place over the past year after supply chain challenges held back deliveries and profits in 2022.
The company says sales in both its civil and defence segments jumped largely because of a ramp-up in deliveries of Boeing 777 airliners and Embraer Praetor business jets as well as smoother supply processes.
In a premarket note, Desjardins Securities’ Benoit Poirier said: “From a trading standpoint, we expect a neutral reaction as HRX is subject to aerospace seasonality (1H is typically weaker than 2H), and management made it clear last quarter that it plans to invest and carry more inventory to enable the company to stabilize the production system (inventories were at $287-million vs $263-million last quarter and $217-million in 1Q FY23). We expect a working capital release in 2H23.”
Eli Lilly (LLY-N) surged 14.8 per cent as it raised its annual forecasts after beating estimates for quarterly profit, driven by strong demand for its new diabetes drug Mounjaro, ahead of a decision on its use as a weight-loss treatment.
The company is leaning on Mounjaro, approved last May in the U.S. for diabetes, to soften the hit from insulin price cuts and competition for cancer therapy Alimta.
Meanwhile, data from a large trial showed that a high dose of Mounjaro, or tirzepatide, helped people with type 2 diabetes who were also obese or overweight to lose nearly 16 per cent of their body weight.
An approval for Mounjaro to treat obesity could unlock a multi-billion dollar market for the drugmaker.
Earlier on Tuesday, rival Novo Nordisk (NVO-N) said its obesity drug Wegovy reduced the risk of a major cardiovascular event like a stroke by 20 per cent in overweight or obese people with a history of heart disease in a closely-watched late-stage study.
The company now expects adjusted 2023 earnings of US$9.70 to US$9.90 per share, compared with its prior forecast of US$8.65 to US$8.85.
Mounjaro, which is being used off-label as an obesity treatment, generated quarterly sales of US$979.7-million, compared with estimates of US$743-million.
Lilly has said it expects a regulatory decision on the drug’s use in obesity patients late this year.
Eli Lilly now expects annual revenue in range of US$33.4-billion to US$33.9-billion, compared with its prior range of US$31.2-billion to US$31.7-billion.
Excluding items, the U.S. drugmaker earned US$2.11 per share in the quarter ended June 30, above analysts’ average expectations of US$1.98.
New York Times Co. (NYT-N) on Tuesday forecast stronger-than-expected advertising revenue for the current quarter after second-quarter sales beat estimates, sending the publisher’s shares higher by 8.5 per cent.
The company has been bundling access to news reports and articles with a diverse portfolio of products from podcasts and games to product recommendations as it looks to boost engagement and retain users.
Demand for advertisement spots is on a rebound after economic uncertainty forced companies to trim ad spending. Hospitality, travel and retail are among the sectors boosting ad spend.
The New York Times expects total advertising revenue to be flat in the third quarter, while analysts estimate a drop of 4.1 per cent, according to Refinitiv data.
A rebound in marketing spending helped NYT’s digital advertising revenue grow 6.5 per cent in the April-June period.
The company rolled out advertising products across its bundle, including its games and sports news offering The Athletic, boosting digital ad revenue, CEO Meredith Levien said on a post-earnings call with analysts.
“The bear case ... was likely centered around potential digital advertising revenue softness and that is not playing out,” Cannonball Research analyst Vasily Karasyov said.
Analysts and industry experts expect demand for advertising to increase in the second half of the year, as inflation cools.
NYT posted revenue of US$590.9-million for the second quarter, compared with estimates of US$580.5-million.
The company reported average revenue per user (ARPU) for bundled subscriptions of US$13.40, compared with a total digital-only ARPU of US$9.15.
NYT added 180,000 digital-only subscribers in the second quarter, compared with 190,000 in the first quarter. It has a goal of 15 million subscribers by 2027.
The company reported a net income of 28 US cents per share, compared with 37 US cents per share a year earlier.
Paramount Global (PARA-Q) closed up 1.6 per cent after it said it would sell Simon & Schuster to private-equity firm KKR & Co for US$1.62-billion in cash, ending a year-long attempt to sell the marquee book publisher.
Paramount also beat estimates for second-quarter earnings, riding on strong growth in its streaming business.
Paramount has been trying to offload Simon & Schuster, the publisher of authors such as Stephen King and Hillary Clinton, since a federal judge blocked its US$2.2-billion sale to Penguin Random House last year.
“Simon Schuster is a fantastic asset, but ... it’s not core,” CEO Bob Bakish said on a post-earnings call.
Mr. Bakish did not provide an update on the sale of other company assets. The company is exploring the sale of a majority stake in BET Media Group, which includes the BET cable network.
Paramount will receive gross proceeds of US$2.2-billion from the sale of Simon & Schuster, including a US$200-million termination fee paid by Penguin Random House and the cash flow it received during the process. It expects to use the proceeds to pay down debt.
The move comes at a time when the company is striving to bolster its streaming service, Paramount+, in a fiercely competitive industry dominated by Netflix and Disney+.
Revenue in the direct-to-consumer unit, home to Paramount+ and PlutoTV, grew 39 per cent in the second quarter, helping offset a 29-per-cent decline in the filmed entertainment business
Total revenue was US$7.62-billion, above estimates of US$7.43-billion, according to Refinitiv data. Adjusted profit of 10 US cents per share was also better than expectations for the company to break even.
Finance chief Naveen Chopra promised “significant earnings improvement” in the streaming business next year and projected a 20-per-cent rise in average revenue per user on Paramount+ in 2024.
On the decline
Barrick Gold Corp. (ABX-T) was narrowly lower despite beating analysts’ expectations for second-quarter profit on Tuesday, as the miner benefited from higher prices of the precious metal.
The company also maintained its full-year production outlook for gold and copper, saying output in the second half of the year is expected to surpass the first - boosted by better performances from the Carlin complex in Nevada, the Kibali gold mine in the Democratic Republic of Congo and the Lumwana copper mine in Zambia.
Average prices of gold during the reported quarter rose 4.3 per cent compared to last year, nearly touching an all-time high in May as U.S. banking concerns accelerated a rush to the safe-haven asset.
Higher prices of the yellow metal helped raise Barrick’s average realized gold prices by 6 per cent to US$1,972 per ounce from a year earlier.
Meanwhile, all-in sustaining costs (AISC) for gold, a key industry metric that reflects total expenses associated with production, rose to US$1,355 per ounce from US$1,212 per ounce in the year-ago quarter.
Miners have been hurting from sticky inflation and high fuel prices after Russia’s invasion of Ukraine, along with labour shortages in the United States.
Gold production for second quarter ended June 30 fell 3 per cent to 1 million ounces from a year earlier, while copper production stood at 107 million pounds, also down 11 per cent from a year earlier.
Analysts, on an average, were expecting gold production of 1.09 million ounces, according to Refinitiv IBES data.
The Toronto-based miner posted quarterly adjusted earnings of 19 US cents per share, while analysts had expected 17 US cents.
Cronos Group Inc. (CRON-T) fell 4.8 per cent after announcing it plans to discontinue providing net revenue guidance and withdrew its previously announced net revenue target of US$100-million to US$110-million for full-year 2023.
“The discontinuance of providing net revenue guidance reflects turbulent market conditions beyond previous expectations in the markets in which we operate, specifically, increasing political unrest and stagnant patient growth in Israel, the decision to exit the U.S. business, and competitive activity in Canada. In addition, foreign exchange rates have had unfavorable impact on our net revenue,” he said.
The Toronto-based company also announced it plans to wind-down its fermentation facility in Winnipeg with intentions to list it for sale. It is set to continue to operate the facility with a phased reduction and planned exit by the end of 2023.
Cronos reported a loss of 2 US cents per share for its second quarter, a penny ahead of the Street’s expectation. However, revenue of US$19-million fell short of the consensus projection of US$22.7-million.
Retailer Pet Valu Holdings Ltd. (PET-T) slipped 10 per cent after the premarket release of its second-quarter results on concerns of slowing sales growth.
The Markham, Ont.-based company reported adjusted earnings per share of 36 cents, down 8 per cent year-over-year and 2 cents higher than the Street’s expectation. However, same-store sales increased just 6 per cent, falling short of the 9-per-cent projection.
“The company maintained its 2023 guidance calling for same-store-sales growth of 7-10 per cent but limited EPS growth of 2.5 per cent year-over-year due to gross margin pressure from currency headwinds,” said analyst Martin Landry of Stifel. “The rollout of Pet Valu’s new distribution center in the GTA is on plan with shipments expected to start this month. We expect PET’s shares to be up today on the back of these results although the lower than anticipated same-store-sales may be in focus. Same-store-sales will need to accelerate (vs. Q2/23 levels) in the back half for PET to meet its 2023 SSS guidance.”
United Parcel Service (UPS-N) on Tuesday cut its full-year revenue and margin forecasts and its shares fell, as the world’s largest delivery company expects a hit to volumes from a new labour contract.
The company agreed to end forced overtime for drivers and decided to limit seasonal work for part-timers to five weeks from November-December in a tentative five-year contract with the Teamsters union last month.
The contract for 340,000 U.S. workers has to be ratified by employees. It includes wage hikes, another paid holiday, end to a two-tier wage system for drivers and air conditioning to new models of the company’s trucks.
The labor deal comes against the backdrop of a global shipping downturn that has hurt margins for logistics companies struggling to balance costs and capacity.
Some analysts said a potential loss for UPS is a gain for FedEx (FDX-N).
“The implied market share loss in UPS guidance maybe a positive readthrough for FedEx, which likely benefited from the UPS labor deal related uncertainty,” BMO Capital Markets analyst Fadi Chamoun said in a note.
To shield its profit, UPS has been focusing on moving high-margin parcels, but its second-quarter sales took a hit from lower domestic and international package revenue.
UPS forecast annual consolidated revenue to be about US$93-billion compared with a prior view of about US$97-billion and said it expected 2023 adjusted operating margin of around 11.8 per cent, compared with an earlier forecast of about 12.8 per cent.
“We will stay on strategy to capture growth in the most attractive parts of the market,” CEO Carol Tomé said.
Its adjusted profit of US$2.54 per share for the second quarter beat market expectations by 4 US cents. Revenue fell about 11 per cent and missed estimates of US$23.1-billion, as per Refinitiv data.
Shares of rival FedEx were also down in Tuesday trading.
Tesla Inc. (TSLA-Q) was lower by 0.7 per cent on news finance chief Zachary Kirkhorn has stepped down, surprising analysts who considered the company veteran of 13 years as a possible successor to CEO Elon Musk.
The world’s largest electric vehicle automaker did not give a reason for the departure. Vaibhav Taneja, 45, replaced Mr. Kirkhorn as of Friday and will also retain his role as head of accounting. Mr. Kirkhorn plans to stay on at Tesla until the end of the year to support “a seamless transition,” it said.
The depth of Tesla’s executive bench and the company’s succession planning have been issues of concern for investors, especially since Mr. Musk’s 2022 purchase of Twitter, now known as X. In addition to his responsibilities at Tesla and X, Mr. Musk is also CEO of satellite firm SpaceX and owns brain-chip startup Neuralink.
Mr. Kirkhorn was seen as an effective and soft-spoken balance to the more volatile Musk and was one of the most visible executives who often spoke on calls with analysts and made presentations on strategy and products.
“He was able to be an effective liaison communicator between Elon and other executives ...that would be a skill set that is hard to come by and very valuable but hard to quantify,” said Thomas Martin, senior portfolio manager at Globalt Investments, a Tesla investor.
Shares of U.S. banks fell on Tuesday after Moody’s downgrade of 10 mid-sized lenders reignited investor concerns about challenges facing the banking industry.
The rating agency said rising funding costs, possible decline in deposit levels and weaker profitability pose risks to the banking sector, which went through a crisis earlier this year after the collapse of three lenders.
“The Moody’s announcement is a wake-up call,” Stuart Cole, chief macro economist at Equiti Capital, said.
“It is significant for U.S. growth too, as U.S. regional banks are the financing lifeblood for small and mid-size enterprises.”
Shares of Bank of America (BAC-N), Citigroup (C-N) and JPMorgan Chase (JPM-N) led declines.
Moody’s also placed ratings of six banks under review for a potential downgrade, including Bank of New York Mellon (BK-N) and U.S. Bancorp (USB-N).
“Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital,” Moody’s said in a note.
“This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline, with particular risks in some banks’ commercial real estate (CRE)portfolios.”
Beyond Meat (BYND-Q) trimmed its annual revenue forecast and missed second-quarter net sales estimates, on slowing demand for its pricier plant-based meat products, sending the company’s shares plummeting 14.5 per cent in Tuesday trading.
Bogged down by inflationary pressures, customers are altering their daily requirements and opting for lower-priced animal protein over healthier alternatives such as plant-based products.
This, coupled with increasing competition from rivals Tyson Foods (TSN-N) and privately owned Impossible Foods Inc has eroded Beyond Meat’s market share in the plant-based meat category.
Beyond Meat has also been “testing” price cuts to attract customers by offering the company’s core products at a price point that is at or below their animal protein equivalent.
The company forecast 2023 revenue between US$360-million and US$380-million, compared with its prior projection of US$375-million to US$415-million.
Its net revenue fell nearly 31 per cent to US$102.1-million in the quarter ended July 1. Analysts on average expected US$108.4-million, according to Refinitiv data.
Beyond Meat said due to greater-than-expected consumer and category headwinds, it was unlikely to meet its target of achieving cash flow positive operations within the second half of 2023.
However, easing supply chain expenses and its efforts to control costs through job cuts narrowed its quarterly loss.
The plant-based meat producer had said in October that its planned job cuts would lead to savings of about US$39-million over 12 months.
The company’s net loss narrowed to US$53.5-million, or 83 US cents per share, from US$97.1-million, or US$1.53 per share, a year earlier.
With files from staff and wires
David Leeder