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A look at North American equities heading in both directions

On the rise

Shares of TC Energy Corp. (TRP-T) were up 1.4 per cent after it beat estimates for fourth-quarter profit on Tuesday as sustained energy demand helped soften the impact of a $650-million charge for an oil spill on its Keystone pipeline and cost overruns on its Coastal GasLink project.

Regulators have ordered the 622,000 barrel-per-day Keystone pipeline to run at lower pressure as investigations into the 12,937-barrel leak in rural Kansas continue.

TC said the pipeline is running at 94 per cent capacity. The company is able to deliver all its contracted volumes, but it is not offering spot shipments of crude.

The company expects insurance will cover the $650-million environmental remediation charge, but additional costs may accrue as clean-up continues. TC has more than 800 people still in the field in Kansas, and said 90 per cent of the oil has been recovered.

A preliminary investigation released last week said a combination of factors including bending stress on the pipe and a weld flaw may have led to the leak.

“The evidence is suggesting this is a localized issue but we’re still taking a systematic approach to assessing our risk and our engineers are actively evaluating across the Keystone system where similar circumstances could potentially occur,” Richard Prior, TC’s president of liquids pipelines, said during an earnings call.

Calgary-based TC also recorded a $3-billion impairment on its equity investment in the Coastal GasLink pipeline due to cost overruns. The pipeline will serve Canada’s first liquefied natural gas project, Shell-led LNG Canada in northwest British Columbia.

Earlier this month, TC hiked cost estimates for the 670-km (416-mile) pipeline project by 30 per cent, citing a number of factors including labor shortages, contractor underperformance and drought conditions.

With results coming in close to estimates and “the fireworks out of the way” after the Coastal GasLink cost update, RBC Capital Markets analyst Robert Kwan said in a note he expected no major share price reaction.

The company reported comparable earnings of $1.11 per share for the three months ended Dec. 31, while analysts had expected earnings of $1.10 per share, according to Refinitiv data.

TC hiked its dividend to 93 cents per common share.

Earnings were boosted by global demand for oil and gas surging last year following Russia’s invasion of Ukraine, as sanctions against Moscow left Europe scrambling to find alternate supplies and fortify its long-term energy security.

TC CEO Francois Poirier said the company is confident in its ability to achieve a planned $5-billion asset divestiture program this year, and could “upsize” that program if valuations are attractive.

Algoma Steel Group Inc. (ASTL-T) increased over 2 per cent after it reported a net loss of $69.8-million in its latest financial quarter compared with earnings of $123-million during the same period a year earlier.

Earnings per diluted share were 64 cents, down from 92 cents a year earlier.

The Sault Ste. Marie, Ont.-based steel producer says revenue for the third quarter ended Dec. 31 was $567.8-million, down from $1.06-billion a year earlier, a decrease of almost 47 per cent.

This is the second quarter in a row that Algoma has reported significant decreases in earnings and revenue.

Steel prices fell in 2022 as a result of lower demand, weighing on the sector.

CEO Michael Garcia said he was disappointed in production and shipment levels over the past two quarters, but said the company is now returning to normal production levels.

In a research note released before the bell, Stifel analyst Ian Gillies said: “Algoma’s operations have returned to normal with repair work from the fire largely complete and PMM Phase 1 completed. The company expects C2023E production to be in line with historical levels of 2.2-2.4 mmspta versus our forecast at 2.2 mmstpa. We believe this commentary will be a positive catalyst for the stock and will put a further bid into it in the weeks ahead. Recall, ASTL is trading at 2.3 times calendar 2023 estimated EV/EBITDA compared to the steel producer average of 5.2 times.

“The quarterly results contained little surprises as the results were pre-released and EBITDA came in at negative $35-million, which fell in the higher range of its pre-released guidance of negative $35-million to $45-million.”

Shares of CAE Inc. (CAE-T) gained 5.1 per cent after its third-quarter revenue result largely fell in line with the Street’s expectation.

Before the bell, the Montreal-based aircraft simulator maker reported revenue of $1.02-billion, up from $848.7-million a year ago but below the consensus forecast of $1.03-billion. Earnings per share of 25 cents jumped from 8 US cents a year ago and matched the Street’s estimate.

CAE also reiterated its fiscal 2023 outlook for mid-20-per-cent consolidated adjusted segment operating income growth and announced it is targeting three-year EPS compound growth in the mid-20-per-cent range.

Hydro One Ltd. (H-T) turned positive in afternoon trading after it reported its fourth-quarter profit rose more than 10 per cent compared with a year ago.

The power utility says it earned a profit attributable to shareholders of $178-million or 30 cents per diluted share for the quarter ended Dec. 31.

The result compared with a profit of $159-million or 26 cents per diluted share in the last three months of 2021.

Revenue totalled $1.86-billion for the quarter, up from $1.78-billion a year earlier, while revenue, net of purchased power, was $967-million, up from $865-million.

For the full year, Hydro One says it earned a profit attributable to shareholders of $1.05-billion or $1.75 per diluted share, up from $965-million or $1.61 per diluted share in 2021.

Revenue for 2022 totalled $7.78-billion, up from $7.23-billion in 2021, while revenue, net of purchased power, was $4.06-billion in 2022, up from $3.65-billion a year earlier.

H2O Innovation Inc. (HEO-T) increased 4.2 per cent with the premarket release of stronger-than-anticipated second-quarter results.

The Quebec City-based company announced revenue rose 52 per cent year-over-year, to $63.9-million, exceeding the Street’s forecast of $56.6-million.

“Organically, revenue rose a spectacular 26.8 per cent thanks to high demand for specialty chemicals and parts, new and expanded O&M mandates, robust demand from capital equipment projects and the gradual implementation of price increases,” said Desjardins Securities analyst Frederic Tremblay in a note. “This was HEO’s fifth consecutive quarter of double-digit organic growth. In addition, the $8.3million contribution from acquisitions (JCO, EC, Leader) was in line with our forecast of $8.0-million.

“Adjusted EBITDA of $6.5-million beat our forecast of $5.2-million and consensus of $5.1-million. The beat was primarily driven by HEO’s significant top-line strength, and adjusted EBITDA margin of 10.2 per cent was above our estimate of 8.9 per cent. Margin was above that last year and last quarter as pricing and cost-related actions mitigated the effects of inflation (eg wages, raw materials).”

Shares of Hamilton-based radiopharmaceutical-focused biotech company Fusion Pharmaceuticals Inc. (FUSN-Q) soared 20.1 per cent after announcing the acquisition of a drug candidate targeting certain types of prostate cancers from RadioMedix Inc.

Following the closing, the alpha-emitting drug candidate will be known as FPI-2265. Fusion plans to expand the mid-stage program to additional sites, expects to report data on 20 to 30 patients in Q1 2024

Concurrently, it announced a plan to raise US$60-million by the private placement of 17.6 million common shares to use in the acquisition of the drug.

Palantir Technologies Inc. (PLTR-N) forecast its first profitable year and said it had slowed hiring, cut stock-based payouts and reduced cloud computing investments in response to lower spending from recession-wary businesses.

The forecast, coming on the back of better-than-expected fourth-quarter results, sent the data analytics software maker’s shares higher by 20.5 per cent.

“As we look ahead to 2023, we will continue to exercise spend discipline ... pace hiring while continuing to invest in high priority areas, including in our product offerings, building out our go-to-market strategy and technical roles,” said finance chief David Glazer.

The comments on cost discipline echo those from tech giants including Meta Platforms and Alphabet Inc, which have shed thousands of jobs in the past months.

Palantir executives also enthused over AI on an interview, saying the rise of ChatGPT was proving to be a bright spot for the sector and would help its business in 2023.

“There are many different ways we can integrate with technologies like ChatGPT and apply those technologies to our customers data,” Chief Revenue Officer Ryan Taylor told Reuters. He did not elaborate on how Palantir would do that.

Still, Palantir’s stock was up too much considering fourth-quarter profitability was driven by “below the line” adjustments like interest income and the quarter itself was in-line with expectations, RBC analyst Rishi Jaluria said.

The company forecast 2023 revenue between IUS$2.18-billion and US$2.23-billion, below the US$2.29-billion estimated by analysts, according to Refinitiv.

Revenue from newly public firms that use Palantir’s services has taken a hit as economic uncertainty torpedoes the market for U.S. stock listings. That revenue is expected to nearly halve in the first quarter to US$16-million from a year earlier.

Still, a jump in defence contracts following Russia’s invasion of Ukraine helped fourth-quarter revenue beat estimates with a rise of 18 per cent to US$509-million. Palantir signed deals with defence contractor Lockheed Martin and the UK military in the period.

Excluding items, Palantir earned 4 US cents per share, compared to estimates of 3 US cents per share.

Marriott International Inc. (MAR-Q) rose 3.9 per cent after forecasting first-quarter adjusted profit above Wall Street estimate after the U.S.-based hotel operator benefited from strong travel demand even as the prospects of a global economic recession persist.

Pent-up desire to travel coupled with a strong U.S. dollar and flexible work arrangements have enabled hotel operators to boost their margins through the key holiday season.

The company expects its adjusted profit in the current quarter to come in between US$1.82 and US$1.88 per share, compared with US$1.66 per share, as per Refinitiv data.

“While concerns about the macroeconomic environment persist around the world, booking trends to date remain robust and we have significant momentum in our business,” said Chief Executive Officer Anthony Capuano.

Marriott, which owns hotels such as Sheraton, Westin and St. Regis, posted a 28.8-per-cent rise in its revenue per available room (RevPAR), a key measure for a hotel’s top-line performance, in the fourth quarter on a constant-currency basis.

Excluding special items, the company earned US$1.96 per share, ahead of average analysts’ expectations of US$1.83 per share.

Its quarterly revenue rose about 33 per cent to US$5.92-billion, compared with an estimate of US$5.47-billion.

Tesla Inc. (TSLA-Q) was up 7.5 per cent after it changed prices for one version of each of its Model 3 sedan and Model Y crossover, the fourth price adjustment by the electric vehicle maker since the start of the year.

Tesla increased the price of its Model Y performance crossover by US$1,000 to US$58,990, its website showed. It cut the price of the rear-wheel drive Model 3 sedan, its cheapest model, by US$500 to US$42,990, the website showed.

Tesla rolled out sweeping price cuts in January across its line-up and in all of its major markets.

The company has been adjusting prices online since with a cadence that is unusual in an industry where the benchmark is still described as a “sticker prices” on the window of a vehicle in inventory.

On Tuesday, Tesla workers in New York said on Tuesday they will launch a campaign to form a union, setting stage for the latest labour challenge for Chief Executive Elon Musk.

In a letter to Tesla management, the employees announced their plan to unionize with the Workers United Upstate New York.

The union, if formed, would be the first for Tesla, which up until now has managed to avoid unionization at its U.S. facilities unlike some other major automakers.

Mr. Musk has in the past been vocal about his opposition to unions and faced the ire of the U.S. National Labor Relations Board when they directed him to delete a 2018 tweet saying employees would lose their stock options if they formed a union.

On the decline

Toronto-based Restaurant Brands International Inc. (QSR-T) dropped 2.8 per cent after announcing it is replacing its CEO, the second major leadership change in a matter of months as the fast-food chain seeks to boost its performance and as it faces a looming battle with some disgruntled franchisees.

The parent company of Tim Hortons, which also owns Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, announced on Tuesday that chief operating officer Joshua Kobza will take on the top job on March 1, replacing chief executive officer José Cil. Mr. Cil will remain with the company as an advisor for one year.

RBI’s board has made the change just a few months after it hired Patrick Doyle, who is known for leading a turnaround at Domino’s Pizza Inc., as its new executive chair. Mr. Doyle was tasked with accelerating the company’s growth, and with advising its leadership team as it invests US$400-million in turning around Burger King’s lagging U.S. business.

The company announced the change on Tuesday as it reported a 28-per-cent jump in profits in the fourth quarter. The growth was largely driven by an income tax benefit in the period compared to an expense the year before, as well as growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at both Tim Hortons and Popeyes. RBI’s net income grew to US$336-million or 74 cents per share in the three months ended Dec. 31, 2022 compared to US$262-million or 57 cents per share in the same period the prior year.

Mr. Kobza, 36, has been with the company for 11 years, first joining Burger King in 2012 before Brazilian private-equity firm 3G Capital acquired Tim Hortons in late 2014, and merged the two companies to create RBI. Mr. Kobza then spent five years as chief financial officer of the parent company, before being appointed to a newly created role in 2018 overseeing digital initiatives across its restaurant chains. He was promoted to COO in 2019.

- Susan Krashinsky Robertson

See also: Tensions ramp up at Tim Hortons as franchisees voice concerns about profitability amid inflation

Coca-Cola Co. (KO-N) slid 1.7 per cent after it forecast 2023 profit growth above Wall Street expectations after edging past fourth-quarter revenue estimates, as demand for its sodas remains resilient in the face of multiple price hikes to tackle higher costs.

Coca-Cola’s near duopoly in the global carbonated drinks market along with PepsiCo. (PEP-Q) has made it easier for the company to raise prices over the last few quarters to counter higher freight, commodity and labor costs.

“The outsized pricing is driving outsized revenues,” said Wedbush Securities analyst Gerald Pascarelli.

The soda giant also saw an increase in operating margin for the first time in three quarters. It posted operating margins of 20.5 per cent in the December quarter compared to 17.7 per cent, a year earlier.

Coca-Cola in October warned signs were emerging of inflation taking a bigger bite out of consumer spending power, especially in Europe with categories like juices and bottled water in the region seeing a shift towards cheaper private label brands.

Mr. Pascarelli said while easing energy and natural gas costs in Europe are encouraging for 2023, demand in the region is still feeling the biggest pinch from Coca-Cola’s price increases.

Average selling prices rose 12 per cent in the fourth quarter, the maker of Sprite and Fanta said, while unit case volumes slipped 1 per cent.

Last week, PepsiCo said it would not raise prices of its sodas and snacks further after multiple rounds of price hikes last year.

Coca-Cola forecast full-year adjusted earnings per share to rise between 4 per cent and 5 per cent, compared to the average analyst estimate of 2.96-per-cent growth, according to IBES data from Refinitiv.

The company sees 2023 organic revenue growth of 7 per cent to 8 per cent.

The beverage maker’s fourth-quarter net revenue rose 7 per cent to about US$10.1-billion compared with estimates of about US$10-billion.

Adjusted profit came in line at 45 US cents per share, the first time in three years the company failed to beat expectations.

Ford Motor Co. (F-N) was down 1 per cent after it said on Tuesday that it had stopped production and shipments of its F-150 Lightning electric pickup after discovering a potential battery issue during pre-delivery checks.

“We are not aware of any incidences of this issue in the field,” Ford spokesperson Emma Bergg said in an email. She said the production stop was issued at the start of last week.

Ford added it was investigating the matter, which was earlier reported by CNBC and first reported by Motor Authority.

It did not provide a timeline for restart.

Earlier this month, Ford posted disappointing quarterly results and flagged uncertainty around semiconductor chip supply.

The automaker last year added a third work crew for the electric pickup truck to capitalize on the strong demand for EV adoption.

With files from staff and wires

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