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A look at North American equities heading in both directions

On the rise

Shares of Sigma Lithium Corp. (SGML-X) soared 16.4 per cent on Tuesday following a Bloomberg report that Tesla Inc. (TSLA-Q) is mulling a takeover of the Vancouver-based battery metals miner.

Sigma is finishing construction of a hard rock lithium mine in Brazil that it expects to open by April. The mine will produce spodumene concentrate, which can be used to make lithium hydroxide, a type of the metal preferred by some automakers including Tesla and BMW.

The project would use hydroelectric power, thus helping to greatly reduce its carbon footprint.

U.S. stock of Sigma Lithium, which has a market capitalization of US$3.21-billion, nearly trebled in value last year.

Chief executive Elon Musk said last year Tesla was open to buying a mining company if producing its own supply of electric vehicle metals would speed up worldwide adoption of clean energy technologies.

Tesla and other automakers routinely talk to mining companies of all sizes about potential supplies of lithium and other EV metals without necessarily signing contracts.

Last month, Tesla signed an agreement with Piedmont Lithium Inc. (PLL-Q) for supply of spodumene concentrate from Quebec, starting later this year.

Tesla also has supply contracts for nickel, lithium and a range of other EV metals from suppliers across the globe.

Suncor Energy Inc. (SU-T) gained 1.9 per cent after it said on Tuesday that former Exxon Mobil executive Rich Kruger would take over as its chief executive officer, replacing interim boss Kris Smith.

Mr. Kruger, a near 40-year veteran of Exxon Mobil Corp, served as CEO of Imperial Oil Ltd for six years before retiring in 2019. His appointment is effective April 3.

The company named Mr. Smith as its chief financial officer succeeding Alister Cowan, who plans to retire at the end of the year.

Mr. Smith replaced Mark Little as CEO in July following a worker fatality, which was the fifth incident at the company since 2019.

In a research note, ATB Capital Markets analyst Patrick O’Rourke said: “Overall, we believe that the market will view the event positively with the announcement removing the overhang of uncertainty with respect to the role following the departure of former CEO Mark Little in July, 2022. Kruger brings a wealth of experience to Suncor, having held a similar role at Imperial Oil (IMO-T) from 2013 to 2019.”

Walmart Inc. (WMT-N) struck a cautious note in its economic outlook for 2023 on Tuesday as the retail bellwether forecast full-year earnings below estimates and warned that cautious spending by consumers could pressure profit margins.

Shares of the world’s largest retailer closed up 0.6 per cent as the company continued to battle price hikes from many of its product suppliers in a high-inflation environment.

Higher U.S. consumer prices, amid loftier costs for rental housing and food, have raised fears the U.S. Federal Reserve could further lift borrowing costs to cool domestic demand, leading to an economic downturn in the second half of the year.

“There’s still a lot of trepidation and uncertainty with the economic outlook. Balance sheets are continuing to get thinner, savings rate is roughly half of what it was at a pre-pandemic level and we’ve not been in a situation like this where the Fed is raising at the rate that it does,” Chief Financial Officer John David Rainey told Reuters.

“So, that makes us cautious on the economic outlook because we simply don’t know what we don’t know.”

Walmart forecast earnings of US$5.90 to US$6.05 per share for the year through January 2024, below analysts’ estimates of US$6.50 per share, according to Refinitiv IBES data.

The forecast includes a 14-US-cent estimated impact from an accounting charge related to moderating inflation in key merchandise categories and reduced inventory levels at its Walmart U.S. and Sam’s Club business, the company said.

On a post-earnings call, Walmart’s Chief Executive Officer Doug McMillon said he expects “stubborn inflation” in dry grocery and items made for immediate consumption to have some “mixed” impact this year.

“In some years, our performance will be higher and in some years lower ... This year will likely be lower,” CFO Rainey said on the call.

Investors in Walmart, which operates more than 5,000 stores in the United States, have been keenly eyeing efforts to negotiate better prices from suppliers and ward off competition from rivals such as Target Corp (TGT-N), whose products are relatively pricier.

Mr. Rainey said the company recognized that suppliers were dealing with elevated costs. However, the company is using data and leveraging metrics, including best-performing merchandise and best-performing categories, in negotiations with suppliers to pass on lower prices to consumers, he said.

Inflation-squeezed consumers are increasingly shifting toward buying more food and consumables from general merchandise, which Mr. Rainey said he expects to continue this year and be a drag on margins. Toys, electronics, home and apparel remain soft spots, the company said.

This hit Walmart’s consolidated gross profit rate, which fell 83 basis points.

Still, Walmart reported strong demand in the holiday quarter ended Jan. 31, posting total revenue of US$164.05-billion, a 7.3-per-cent increase from last year. Analysts had estimated revenues of US$159.76-billion. Comparable sales in the United States rose 8.3 per cent, excluding fuel, helped in part by higher prices and e-commerce sales.

Adjusted earnings per share came in at US$1.71 for the quarter, handily beating the US$1.51 average expectation.

CFRA Research analyst Arun Sundaram said he expects low-, middle- and high-income consumers to increase their visits to Walmart this year as they seek out cheaper alternatives.

“We see the consumer increasingly under pressure ... that should bode really well for Walmart,” he said.

General Mills Inc. (GIS-N) increased 4.4 per cent after it raised its annual organic sales and profit forecast, betting on price hikes and strong demand for its popular snack bars and breakfast cereals amid a cost-of-living crisis.

The Cheerios-maker now expects annual organic net sales growth of about 10 per cent, compared to prior forecast of a 8-per-cent to 9-per-cent rise, it said in a statement ahead of an industry conference.

Global packaged food manufacturers like General Mills and Procter & Gamble Co. (PG-N) have raised prices of their products in recent months to guard profit margins from spiraling costs of labor, raw materials, supply chain and transportation.

General Mills also expects full-year adjusted profit per share to rise between 7 per cent and 8 per cent on a constant-currency basis, compared to previous expectation of an increase of 4 per cent to 6 per cent.

The company, which has seen relatively little push-back from inflation-hit consumers, had in December warned of another round of price increases coming through at the beginning of 2023, especially for its pet care business.

Molson Coors Beverage Co. (TAP-N) increased 3.1 per cent despite reporting a net loss US$590.5-million in its latest quarter, down from a profit of US$80-million in the same period a year ago.

The brewer says its results amounted to a loss of US$2.73 per diluted share in the fourth quarter, compared with a profit of 37 US cents a share in the same quarter last year.

The Colorado and Montreal-based company says the loss was due to a non-cash US$845-million partial goodwill impairment charge during the three months ended Dec. 31.

Molson Coors says its underlying net income was US$281.9-million or US$1.30 per diluted share during the quarter, compared with US$176.2-million or 81 US cents a share in the same period of 2021.

Net sales were US$2.63-billion in the company’s latest quarter, up 0.4 per cent from US$2.62-billion a year ago.

The company also declared a quarterly dividend of 41 US cents per share to be paid on March 17 compared with the quarterly payments of 38 US cents per share it made in 2022.

Molson Coors CEO Gavin Hattersley say the company is healthier than it has been in many years and has a strong trajectory.

“We have delivered our seventh consecutive quarter of top-line growth on a constant currency basis, driven by the strength of our core brands and growth in our above premium portfolio,” he said in a statement on Tuesday.

On the decline

Teck Resources Ltd. (TECK.B-T) turned lower in afternoon trading and closed down 1.3 per cent after it said on Tuesday it would be spinning off its steelmaking coal unit as the Canadian miner focuses on industrial metals such as copper, which are crucial to the global energy transition.

After the separation, Teck will re-brand itself as Teck Metals Corp while the new divested unit will be listed in Toronto as Elk Valley Resources Ltd (EVR).

Chief executive Jonathan Price said the divestiture would help simplify the company’s portfolio, making it more appealing to investors and help the company focus on critical metals including copper.

“This transaction will unlock the full potential of our...copper growth portfolio, which is significantly undervalued” added Mr. Price.

Andrew Willis: Resource firms’ spinoffs may attract pension fund interest

Teck’s steelmaking coal unit has been plagued by several snags in the past three years, including supply-chain disruptions, adverse weather events, labor shortages and an outage at Elkview plant.

The company said its shareholders would receive both EVR shares as well as cash for an aggregate of $200-million.

Teck will receive an 87.5-per-cent interest in gross revenue royalty from the steelmaking coal business through the transition period. The miner expects the transaction to be completed in the second quarter of 2023.

“We view Teck’s announcements as positive, however, it will take several years and anyone expecting a more immediate change (growing the copper business and diversifying away from coal) may be disappointed,” RBC Capital Markets wrote in a note to investors.

Japan’s top steelmaker Nippon Steel Corp, which holds a 2.5-per-cent interest in Teck’s Elkview operations, has sought to exchange its minority interest for a stake in EVR by paying the Canadian miner $1-billion in cash, which gives the new coke coalmaking unit an enterprise value of $11.5-billion.

After closing, Nippon Steel will have the right to buy additional EVR common shares up to a maximum of 17.5 per cent.

The Canadian miner also posted lower-than-estimated fourth-quarter profit, partly dented by its overall steelmaking coal business that slumped more than 40% in the reported period.

Canopy Growth Corp. (WEED-T) dropped 3.9 per cent as the cannabis producer said it has entered into agreement with an institutional investor to sell up to $150-million of 5.0-per-cent convertible bonds due 2028.

Per the agreement, the investor purchased initial the $100-million of CBs and has the right to buy an additional $50-million if certain conditions are met.

Canopy plans to to use the net proceeds for working capital and general corporate purposes.

Canopy Growth’s downsizing leaves Smiths Falls, a once-booming Ontario town, in limbo

Home Depot Inc. (HD-N) forecast annual profit below Wall Street expectations on Tuesday as soaring prices weigh on demand for home improvement products, while it grapples with higher costs and labor shortages.

The No. 1 U.S. home improvement chain posted a surprise drop in fourth-quarter comparable sales, sending its shares down over 7 per cent. Shares of smaller rival Lowe’s Cos Inc. (LOW-N) also slipped.

Following an exponential surge in remodeling activity during the pandemic, demand for home improvement tools such as paint and flooring is now cooling as consumers cut back spending, setting the company up for a challenging 2023.

“The macro environment seemingly has caught up with Home Depot,” said D.A. Davidson analyst Michael Baker as it now braces for the impact of higher borrowing costs and declining home prices.

Home Depot is also seeing elevated input costs despite taking cost control measures, while a tight U.S. labor market has prompted it to invest more in employee wages and benefits.

The company said it would spend US$1-billion more in annualized compensation for its frontline, hourly associates, a move that Wells Fargo analysts said could raise doubts around the profitability of Home Depot.

Rising wages and a weak consumer sentiment also led retail bellwether Walmart Inc to take a cautious stance for 2023 as it forecast annual profit below estimates on Tuesday.

Home Depot’s comparable sales fell 0.3 per cent in the fourth quarter, driven by a 6-per-cent drop in customer transactions. Analysts on average expected a 0.6-per-cent increase.

The company expects earnings per share to decline in the mid-single digits percentage range for 2023, while analysts were expecting a 0.4-per-cent increase to US$16.72, according to Refinitiv data.

It also projected 2023 sales growth to be flat compared to fiscal 2022.

Meta Platforms Inc.’s (META-Q) shares slipped in late trading after it said on Sunday it was testing a subscription service, called Meta Verified, which will let users verify their Facebook and Instagram accounts using a government ID and secure a blue badge

The service will be US$11.99 per month if signed up through a web browser and US$14.99 per month for a subscription through Apple’s iOS or Google’s Android. It is expected to increase security and help creators build their presence faster

The move follows Twitter’s launch of its US$11-per-month Blue checkmark service and comes as internet companies look to move deeper into subscription offerings to boost revenue

Meanwhile, the Wall Street Journal reported Chinese internet giant Tencent Holdings is in talks to sell Meta’s Quest 2 virtual reality headsets in China, days after Reuters said it was abandoning plans to create its own VR offerings.

With files from staff and wires

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