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A survey of North American equities heading in both directions

On the rise

Bank of Nova Scotia (BNS-T) rose 3.2 per cent even after it booked higher reserves for loans that could default even as a rise in first quarter profit beat analyst estimates.

In the quarter, Scotiabank set aside $962-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included just $20-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, Scotiabank set aside $638-millions in provisions.

Larger loan losses expected as big banks set to report earnings

A spike in provisions for impaired loans – loans the banks expects won’t be repaid – was driven largely by higher reserves for personal loans and mortgages as consumers grapple with tougher economic conditions.

Scotiabank chief executive officer Scott Thomson said that he expects the Canadian economy to underperform the United States and its key markets in Latin America in the near-term before expected rate cuts ease pressure later this year.

“Although the Canadian economy has shown more resilience in response to the significant monetary policy tightening over the past two years, interest rates are having the desired impact on consumer sentiment and spending which should allow for rate cuts later this year,” Mr. Thomson said during a conference call. “This quarter’s results reflect an increase in credit provisioning given the incremental financial strain that sustained higher interest rates are having on our clients.”

Scotiabank earned $2.2-billion, or $1.68 per share, in the three months that ended Jan. 31. That compared with $1.76-billion, or $1.35 per share, in the same quarter last year.

Adjusted to exclude certain items, the bank said it earned $1.69 per share. That edged out the $1.61 per share analysts expected, according to Refinitiv.

- Stefanie Marotta

Lowe’s Companies Inc. (LOW-N) joined larger rival Home Depot Inc. (HD-N) in signaling a slower recovery in the home-improvement market as consumers remain tight-fisted against the backdrop of elevated prices and uncertainty over the economy’s prospects.

Investors were betting on a more normalized U.S. home improvement environment this year after 2023 was seen as a transition year as the industry digested the outsized gains from the pandemic.

“Maybe (the forecast is) telling us that the recovery is being pushed out a little bit ... but the fourth quarter was actually really good relative to expectations. The gap did narrow ... versus Home Depot,” D.A. Davidson analyst Michael Baker said.

The No. 2 U.S. home-improvement chain’s shares were higher in Tuesday trading after a volatile premarket session.

Customers are allocating fewer dollars to large-scale home remodeling and instead taking up only necessary repair and maintenance projects.

Do-It-Yourself (DIY) customers, who make up 75 per cent of Lowe’s total sales, have especially pulled back on spending on appliances and other discretionary categories such as kitchen and flooring.

In comparison, DIY accounts for roughly half of Home Depot’s business.

Still, Lowe’s topped expectations for fourth-quarter results as demand from Pro-customers offset weakness in DIY.

Profit of US$1.77 per share beat estimates of US$1.68, while same-store sales declined 6.2 per cent for the three months ended Feb. 2, compared with expectations for a 7.06-per-cent drop.

“The implication I took away was if weather was better, (Lowe’s sales) probably would have been a little bit better even in January,” said Telsey Advisory Group analyst Joseph Feldman.

Lowe’s forecast comparable sales to be down 2 per cent to 3 per cent in fiscal 2024, while analysts on average were expecting a 1.13-per-cent drop.

It projected annual earnings per share between US$12.00 and US$12.30, compared with estimate of US$12.75, according to LSEG data.

Macy’s Inc. (M-N) forecast annual sales below market expectation on weak demand for its apparel and shoes and said it would close 150 stores through 2026 in a new turnaround plan, however its shares were higher on Tuesday.

The department store chain did not provide details on the location of stores or whether there will be more layoffs. It also plans to monetize US$600 million-US$750 million of assets over the next three years.

“It (store closures) was probably inevitable. It is still not good news, though, because it represents Macy’s inability to make those stores more productive,” said David Swartz, senior analyst at Morningstar.

The move comes as sluggish sales has landed the upscale retailer in the crosshairs of activist shareholders and attracted potential bidders.

Macy’s is facing a proxy battle from Arkhouse Management after the investment firm nominated nine director candidates last week.

The new plan is in addition to Macy’s decision in January to close five stores and cut 2,350 jobs, or 3.5 per cent of its overall workforce. The retailer had stores in 718 locations as of fourth quarter end, down from 723 locations three months ago.

It also said it would open 15 Bloomingdale’s locations and at least 30 new Bluemercury stores over the next three years to accelerate growth for its better-performing luxury brands. Its holiday quarter comparable sales declined 4.2 per cent on an owned-plus-licensed basis, better than analysts’ estimates of 5.8-per-cent drop, as steep discounts drew shoppers.

However, net credit card revenue fell 26 per cent to US$195-million, in a sign that economic pressure, particularly among its low- and middle-income customers, led to higher bad debts.

Macy’s took a US$1-billion charge in the fourth quarter related to the restructuring. Excluding items, it earned US$2.45 per share, above LSEG estimates of US$1.96.

It expects fiscal 2024 net sales between US$22.2-billion to US$22.9-billion, compared to analysts’ average estimate of US$22.95-billion.

It forecast adjusted earnings per share between US$2.45 and US$2.85, the midpoint of which is below expectations of US$2.76.

Norwegian Cruise Line Holdings Ltd. (NCLH-N) forecast a first-quarter profit on Tuesday betting on higher ticket prices and steady demand in the U.S. for cruises to the Caribbean and Europe, sending the company’s shares soaring 19.8 per cent.

Cruise operators are experiencing record levels of bookings in 2024 as travelers look to spend on novel experiences and are choosing cruises over land-based alternatives such as hotels or theme parks.

This has given companies including Carnival Corp. (CCL-N) and Royal Caribbean (RCL-N) more room to hike prices on their itineraries and offset still-high labor and fuel costs.

“We are determined to capitalize on our recent achievements and take advantage of the positive momentum and strong demand for cruise which resulted in turning the year at all-time highs in both our booked position and pricing,” Norwegian Cruise CEO Harry Sommer said.

The company’s advance ticket sales ended 2023 at a year-end record of US$3.2-billion, about 56 per cent higher when compared with the end of 2019.

Norwegian Cruise forecast an adjusted profit of 12 US cents per share for the first quarter, compared with analysts’ estimates of a loss of 20 US cents per share, according to LSEG data.

The company’s fourth-quarter revenue rose to US$1.99-billion from US$1.52-billion a year earlier. Analysts had expected US$1.97-billion.

Norwegian, which owns the Oceania Cruises and Regent Seven Seas Cruises brands, said it returned to full-year profitability for the first time since 2019.

Zoom Video Communications’ (ZM-Q) shares gained 8 per cent on Tuesday after the company delivered better-than-expected results and announced a share buyback of up to US$1.5-billion.

The video-conferencing company was a stock market darling during the pandemic when most businesses adopted virtual setups almost overnight but has struggled to build on since.

The company’s shares are down 12.2 per cent year to date compared to the 6.3-per-cent rise in benchmark S&P 500, and the “clearly washed-out levels” are proving some support to the stock, analysts at J.P. Morgan said.

Zoom shares had gained just over 6 per cent last year. Zoom posted an adjusted per-share profit of US$1.42 on US$1.15-billion revenue - both above market expectations - in its fiscal fourth quarter ended January 31.

However, its fiscal year 2025 sales forecast of about US$4.60-billion fell short of analysts’ average expectation of US$4.66-billion, according to LSEG data.

Analysts at J.P. Morgan, which lowered the brokerage’s price target by US$3 to US$80 and maintained a “neutral” rating, said the results do not convey a materially improving business.

California-based Viking Therapeutics (VKTX-Q) said on Tuesday its experimental drug to treat obesity helped patients achieve “significant” weight loss in a mid-stage study, leading its shares to soar 121 per cent.

The drugmaker is contending for a slice of the potential US$100-billion obesity treatment market that is currently dominated by powerful new weight-loss drugs such as Eli Lilly’s Zepbound and Novo Nordisk’s Wegovy.

Viking’s drug, formulated to be an under-the-skin injection, belongs to the same class of treatments as Zepbound and Wegovy known as GLP-1 agonists, which have seen strong interest from investors.

The GLP-1 agonist medicines have proved effective in treating diabetes and weight loss and may also help cut the risk of stroke or heart attack, making them potentially life-changing for people around the world.

Viking’s drug candidate, VK2735, helped patients achieve up to 14.7 per cent mean weight loss after 13 weeks of treatment, according to data from the study. The trial had enrolled 176 overweight adults with at least one weight-related comorbid condition.

The drug targets two gut hormones, gastric inhibitory polypeptide (GIP) and glucagon-like peptide-1 (GLP-1), which slows digestion and helps people feel full for longer.

Whirlpool Corp. (WHR-N) aims to expand its North America appliance business margins over the next three years, the company said on Tuesday, betting on a rebound in U.S. home sales after a tough period of lower demand due to high mortgage rates.

The Michigan-based company shares rose after saying it expects North America to make up about 30 per cent of its overall revenue by 2026, it said in a presentation ahead of its investor meet.

Whirlpool’s profit fell for a sixth straight quarter in the three months ended December as it faced rising competition and price pressures.

The company has looked to weather out the slump by selling a 24-per-cent stake in its Indian unit to pay down debt. It expects to finish divesting most of its businesses across Europe, Middle East and Africa (EMEA) by 2024.

Whirlpool has targeted a 100 basis points of annual net cost margin expansion from 2024-2026 in its North America major domestic appliance segment.

The company’s 2026 sales target of about US$11.2-billion in North America implies a compound annual growth rate of 2-3 per cent.

On the decline

Bank of Montreal (BMO-T) fell 3.6 per cent after its first quarter profit missed analysts’ estimates on a slump in capital markets profit and an uptick in reserves for loans that could default.

Adjusted to exclude certain items, the bank said it earned $2.56 per share. That fell below the $3.02 per share analysts expected, according to Refinitiv.

In the quarter, BMO set aside $627-million in provisions for credit losses — the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $154-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, BMO set aside $217-million in provisions.

“Against an uncertain economic outlook, we continued to demonstrate the strength and resilience of our diversified businesses and the benefit of strategic acquisitions,” BMO chief executive officer Darryl White said in a statement. “Although the environment has constrained revenue growth in market sensitive businesses in the near term, with the strength of our personal and commercial businesses and our sharp focus on positioning the bank effectively for long-term success by reducing expenses, optimizing our balance sheet, and growing customer relationships, we are poised to create significant value for our shareholders.”

The bank kept its quarterly dividend unchanged at $1.51 cents per share.

BMO is the second major Canadian bank to report earnings for the fiscal first quarter. Bank of Nova Scotia also released its financial results early Tuesday morning. Royal Bank of Canada and National Bank of Canada will release their results on Wednesday and Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will close out the week on Thursday.

- Stefanie Marotta

Parkland Corp. (PKI-T) was narrowly lower on news it plans to sell 157 convenience stores with fuel operations in six Canadian provinces.

NRC Realty and Capital Advisors, which are handling the sale, said the stores will offered in a sealed bid sale and are located in Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan.

Last May, Parkland executives revealed a plan to divest as much as $500-million in non-core assets within the two years to streamline operations and reduce debt.

Rogers Sugar Inc. (RSI-T) slipped 6 per cent following the late Monday announcement of a bought deal $110-million equity offering to fund a portion of its Eastern Canada capacity expansion project.

The Montreal-based company said Fonds de solidarité des travailleurs du Québec will be a cornerstone investor, agreeing to purchase approximately $50-million of common shares at $5.18 each. Longtime shareholder Belkorp Industries Inc. will purchase approximately $10-million.

The project, undertaken by wholly owned operating subsidiary Lantic Inc., is expected to increase capacity at its Montreal plant by 20 per cent, or 100,000 metric tons.

Shares of Intuitive Machines (LUNR-Q) fell further on Tuesday after the space exploration company said its Odysseus moon lander has roughly 10 to 20 hours of battery life left.

The stock briefly pared losses, following the latest update from the spacecraft’s flight controllers, but is set to lose nearly all the gains since Thursday, when the lander made the first U.S. touchdown on the lunar surface in more than half a century and the first ever by the private sector.

The company had said on Monday its lunar mission could end ahead of schedule after a sideways touchdown hindered communications and solar charging capability. The stock fell 35 per cent on Monday, its worst drop in about a year.

“The reaction to the stock ... that’s a bit of an overreaction by the market,” said Cantor Fitzgerald senior analyst Andres Sheppard, as Intuitive has collected more than 95 per cent of their target revenue of US$130-million from the mission.

Only about 18 per cent of Intuitive Machines’ outstanding shares are available to trade, according to LSEG data, making the stock that went public last year prone to high levels of volatility.

Intuitive had on Friday said Odysseus, which is carrying payloads for its main customer NASA, would have enough power to operate for nine to 10 days under a “best-case scenario.”

It is not clear yet as to how much scientific data might be lost due to the shortened length of the mission.

Some analysts said they see no impact of the issues faced over the past few days on the company’s next two missions and payloads scheduled later this year.

With files from staff and wires

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 21/05/24 4:00pm EDT.

SymbolName% changeLast
BMO-T
Bank of Montreal
-0.35%129.17
BNS-T
Bank of Nova Scotia
+0.46%66.21
LUNR-Q
Intuitive Machines Inc
-1.35%5.12
LOW-N
Lowe's Companies
-1.88%224.86
M-N
Macy's Inc
+5.13%20.08
NCLH-N
Norwegian Cruise Ord
-0.06%16.93
PKI-T
Parkland Fuel Corp
-0.18%39.37
RSI-T
Rogers Sugar Inc
-0.34%5.78
VKTX-Q
Viking Thera
-4.87%64.23
WHR-N
Whirlpool Corp
-1.21%89.52
ZM-Q
Zoom Video Communications Cl A
-0.36%63.86

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