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A look at North American equities heading in both directions

At the open

Shares of Vancouver-based Lithium Americas Corp. (LAC-T) surged 13.5 per centon Tuesday after landed a US$650-million financing and supply agreement with General Motors Co. (GM-N) that paves the way for the Canadian lithium development company to build the Thacker Pass lithium mine in Nevada.

The financing is contingent on Vancouver-based Lithium Americas winning legal approval to build the mine.

Jennifer Dowty: With a transformation year ahead, Lithium Americas is expected to rally over 70%

Once it is in production in 2026, Thacker is projected to be the biggest lithium mine in the U.S., and it should help enormously fill the need for North America-sourced lithium.

The deal also underscores how the big automakers are increasingly taking stakes in mining companies in order to guarantee access to battery metals in an industry dominated by China.

GM shares jumped 8.3 per cent after it reported higher net income for the fourth quarter, forecast stronger-than-expected earnings for 2023 and said it would cut US$2-billion in costs.

The automaker, the top in the U.S. by sales, forecast that it could hold its pre-tax margins steady between 8 per cent and 10 per cent through 2025, despite a price war that Tesla Inc has triggered in the electric vehicle segment.

GM plans to build only about 400,000 electric vehicles in North America between now and the first half of 2024. Its financial results will hinge mainly on sales of combustion-engine trucks and SUVs.

Demand for those trucks and SUVs remains strong, Chief Financial Officer Paul Jacobson told reporters on a call on Tuesday.

The company plans to cut costs in automotive operations by US$2-billion this year, including reducing employment through attrition. GM does not plan layoffs, Mr. Jacobson said. Big technology firms including Amazon, Google and Microsoft have rattled markets by announcing thousands of job cuts.

GM has 167,000 employees worldwide, including its financial subsidiary and the Cruise robotaxi unit.

GM expects consistent strength in its core auto operations in 2023, with full-year operating earnings in the range of US$10.5-billion to US$12.5-billion, or US$6.00-$7.00 a share. Analysts had expected US$5.73 a share, according to Refinitiv IBES data.

In the fourth quarter, GM earned US$2-billion, up from US$1.7-billion the previous year, as higher prices and increased sales volume in North America more than offset higher costs.

Operating earnings per share of US$2.12 in the quarter compared with US$1.99 a year earlier. Analysts had predicted $1.69.

In a note, Wedbush analyst Dan Ives said: “With this exceptional performance and guide from GM, we believe this was a strong statement to the Street expressing that demand worries and supply shortages are a thing of the past and to focus on the massive opportunity ahead as GM continues chipping away at its transformational story. We view this as a renaissance of EV growth in the 313 area code for Barra & Co. with this morning a key step in the right direction for GM.”

Imperial Oil Ltd. (IMO-T) gained 2.9 per cent after it reported higher fourth-quarter profit on Tuesday compared with a year earlier, helped by elevated energy prices and tight global supplies.

Benchmark oil prices cooled from the 14-year highs they reached in the first half of 2022, but were still 9% higher year-over-year during the quarter as Western sanctions contained Russian supply and OPEC+ made steep cuts to production.

Imperial said its upstream production for the fourth quarter averaged 441,000 gross oil-equivalent barrels per day (boepd), down from 445,000 boepd in the same quarter a year earlier.

The producer and refiner’s crude capacity utilization was 101%, its highest ever, resulting in total throughput of 433,000 barrels per day (bpd) for the fourth quarter.

Calgary-based Imperial reported net income of $1.7-billion, or $2.86 per share, for the three months ended Dec. 31, up from $813-million or $1.18 per share, a year earlier.

Imperial Oil’s majority shareholder, Exxon Mobil (XOM-N), posted an annual profit of US$59-billion earlier today, setting a record for the Western oil industry.

Exxon Mobil Corp. (XOM-N) finished up 2.2 per cent after it posted a US$56-billion profit for 2022, the company said on Tuesday, taking home about US$6.3-million per hour last year, and setting not only a company record but a historic high for the Western oil industry.

Oil majors are expected to break their own annual records on high prices and soaring demand, pushing their combined take to near $200 billion. The scale has renewed criticism of the oil industry and sparked calls for more countries to levy windfall profit taxes on the companies.

Exxon’s results far exceeded the then-record US$45.2-billion net profit it reported in 2008, when oil hit US$142 per barrel, 30 per cent above last year’s average price. Deep cost cuts during the pandemic helped supercharge last year’s earnings.

“Overall earnings and cashflow were up pretty significantly year on year,” Exxon Chief Financial Officer Kathryn Mikells told Reuters. “So that came really from a combination of strong markets, strong throughput, strong production, and really good cost control.”

Exxon said it incurred a US$1.3-billion hit to its fourth-quarter earnings from a European Union windfall tax that began in the final quarter and from asset impairments. The company is suing the EU, arguing that the levy exceeds its legal authority.

Excluding charges, profit for the full year was US$59.1-billion. Production was up by about 100,000 barrels of oil and gas per day over a year ago to 3.8 million bpd. Adjusted per share profit of US$3.40 beat consensus of US$3.29 per share, according to Refinitiv data.

Miner Teck Resources Ltd. (TECK.B-T) was higher by 4 per cent despite its 2022 production results and revisions to its 2023 guidance falling short of both its guidance and the Street’s expectations.

Late Monday, the Vancouver-based company reported full-year copper production of 270,500 tons, below its guidance of 273,000 to 290,000. It attributed the miss to a temporary pit closure at Highland Valley Copper “as a result of a localized geotechnical event in December.”

It now sees an increase in copper production for 2023 of 390-445,000 tons, down from its previous guidance of 420,000-625,000 tons. The Street had been forecasting 426,000 tons.

Teck’s zinc estimate rose to 645,000-685,000 tons from 590,000-650,000 tons, above the consensus projection of 629,000.

The company expects capital expenditures to decrease year-over-year to $4.365-billion, “primarily driven by lower spending on QB2 development capital.” However, analysts had estimated $4.072-billion.

“These results are generally worse than previous guidance and previous expectations,” said BMO analyst Jackie Przybylowski in a note.

Bellwether United Parcel Service Inc. (UPS-N) on Tuesday said it would shelter 2023 profits from expected revenue declines as decades-high inflation, rising interest rates and recession fears weigh on the bellwether global transportation industry.

The world’s biggest parcel delivery firm beat Wall Street’s profit forecast for the fourth quarter after cost controls helped offset soft holiday delivery demand and disruptions from severe weather, war in Ukraine and COVID-19 outbreaks that hobbled factory output in China.

UPS shares climbed 4.6 per cent after it also raised its quarterly dividend by 6.6 per cent and announced a new US$5-billion share repurchase plan.

Looking ahead, UPS Chief Executive Carol Tomé described the outlook for economic growth in 2023 as “cloudy, at best.”

The company’s 2023 forecast calls for revenue between US$97-billion and US$99.4-billion and operating margin of 12.8 per cent to 13.6 per cent.

The revenue and operating margin forecasts are lower than UPS’s 2022 result.

UPS has plans for managing through a variety of economic scenarios. “That will help us quickly pivot in an uncertain macro environment,” Chief Financial Officer Brian Newman said.

UPS’s “2023 outlook appears to point to a resilient outcome despite the macro challenges,” BMO Capital Markets analyst Fadi Chamoun said.

UPS has done a better job of anticipating the downturn and controlling costs than rival FedEx, which was forced to retract its full-year forecast. FedEx now plans to slash US$3.7-billion in costs this fiscal year.

Lululemon Athletica Inc. (LULU-Q) was up 1.3 per cent a day after Nike Inc. (NKE-N) said it has sued the Vancouver-based company, saying that at least four of the apparel maker’s footwear products infringe its patents.

Nike in a complaint filed in Manhattan federal court said it has suffered economic harm and irreparable injury from Lululemon’s sale of its Blissfeel, Chargefeel Low, Chargefeel Mid and Strongfeel footwear.

Nike said its three patents at issue concern textile and other elements, including one addressing how the footwear will perform when force is applied.

The Beaverton, Oregon-based company is seeking unspecified damages.

Spotify Technology SA (SPOT-N) enjoyed large gains after it told investors Tuesday it would tighten spending and work to become efficient after a year of investments in technology and content.

Chief Executive Daniel Ek said the “macro environment” changed dramatically over the course of last year, setting the stage for belt-tightening.

“In hindsight, I probably got a little carried away and over-invested relative to the uncertainty we saw shaping up in the market,” Mr. Ek said during the company’s fourth quarter investor call.

Spotify invested heavily in building up its podcast and audiobooks business in 2022, with operating expenses growing at twice the speed of its revenue. That set the stage for Spotify to lay off 600 employees this month and trim other costs.

The company said it expected gross margins to improve throughout the year, with the increased focus on efficiency and forecasts of growth in monthly active users. Spotify projected the number of listeners would reach 500 million in the current quarter.

“We always knew that 2022 would be an investment year and 2023 will be a year where we would slow down the investments and thereby operating expenditure while revenue keeps on climbing,” Chief Financial Officer Paul Vogel said in an interview.

The number of monthly active users rose to 489 million in the quarter, beating Spotify’s guidance and analysts’ forecasts of 477.9 million, helped by marketing campaigns and growth in India and Indonesia.

Premium subscribers, who account for most of the company’s revenue, increased 14% to 205 million, topping estimates of 202.3 million, according to IBES data from Refinitiv.

Apart from the forecast of half a billion users, Spotify also expects premium subscribers to reach 207 million in the current quarter and revenue of 3.1 billion euros (US$3.35-billion). Analysts were expecting 202 million subscribers and revenue of 3.05 billion euros.

Tesla Inc. (TSLA-Q) erased early losses and closed 3.8 per cent higher after it revealed it has received requests from the U.S. Department of Justice (DOJ) for documents related to its Full Self-Driving and Autopilot driver-assistance systems as regulatory scrutiny intensifies.

Chief Executive Officer Elon Musk has championed the systems as innovations that will both improve road safety and position the company as a technology leader.

But regulators are examining if Autopilot’s design and claims about its capabilities provide users a false sense of security, leading to complacency behind the wheel with possibly fatal results.

Reuters had reported in October the DOJ had launched a probe in 2021 following more than a dozen crashes involving Autopilot, which was engaged during the accidents.

The feature is designed to assist with steering, braking, speed and lane changes. Tesla also sells the $15,000 the full self-driving (FSD) software as an add-on that enables its vehicles to change lanes and park autonomously.

Both the FSD and Autopilot systems use the steering wheel monitoring function - an alert that instructs drivers to hold the wheel to confirm they are paying attention.

Meanwhile, in its filing on Tuesday, Tesla also forecast capital expenditure between US$7-billion and US$9-billion in 2024 and 2025. The midpoint of that expectation is US$1-billion higher than the US$6.00-billion to US$8.00-billion range provided for this year.

Some of the spending will go toward a US$3.6-billion expansion of its Nevada Gigafactory complex, where Tesla is building a factory to mass produce its long-delayed Semi truck and a plant for the 4680 cell that would be able to make enough batteries for 2 million light-duty vehicles annually.

Tesla also said on Tuesday it recorded an impairment loss of US$204-million on the bitcoin it holds, while booking a gain of US$64-million from converting the token into fiat currency.

Cryptocurrencies such as bitcoin were hammered last year as rising interest rates and the collapse of major industry players such as crypto exchange FTX shook investor confidence.

Pfizer Inc. (PFE-N) closed up 1.4 per cent after reporting a bigger-than-expected drop in sales of its COVID-19 vaccine and pill in 2023, intensifying investor concerns over demand for the products as governments reduce orders.

The forecast reflects a “transition year” for sales of the two best-selling Pfizer products, said Chief Executive Albert Bourla.

Pfizer’s total annual sales crossed the US$100-billion-mark for the first time in 2022, driven by the more than US$56-billion in sales of the COVID-19 vaccine and Paxlovid antiviral.

However, sales of the vaccine and pill are expected to reach their lowest levels this year before potentially returning to growth in 2024.

The U.S. drugmaker estimated annual sales of US$13.5-billion from the vaccine, below Refinitiv estimates of US$14.39-billion, and projected US$8-billion in sales of Paxlovid, short of analysts’ expectation of $10.33 billion.

Pfizer’s shares were flat. The stock has tumbled 15 per cent this month, through Monday’s close.

Citi analyst Andrew Baum said in a research note that the company is struggling to escape its dependence on COVID-19 drugs.

“We see little here to change our cautious view on Pfizer’s ex-COVID business,” Mr. Baum wrote.

Ms. Bourla said the company expects to start selling its vaccine Comirnaty through commercial channels in the United States in the second half of 2023, rather than selling the shots directly to the government.

In the United States, the company hopes to roughly quadruple the price of the COVID-19 vaccine later this year as it moves to a private market.

The drugmaker splits profit from sales of the vaccine with German partner BioNTech.

Analysts and investors have been looking for clarity on China demand for Paxlovid, where the drug is only covered by the country’s broad healthcare insurance plan until late March.

Pfizer said its current 2023 forecast for sales does not assume any revenue from China after April 1, but Bourla said the company expects to offer Paxlovid in the private market thereafter.

PayPal Holdings Inc. (PYPL-Q) rose 2.3 per cent after it said on Tuesday it is planning to cut 7 per cent of its workforce, or about 2,000 employees, the latest in a string of fintech firms to be hit by the economic slowdown.

“While we have made substantial progress in right-sizing our cost structure, and focused our resources on our core strategic priorities, we have more work to do,” said PayPal’s Chief Executive Dan Schulman in a statement.

The move to keep a tight lid on costs comes against the backdrop of decades-high inflation hitting the purchasing power of consumers who also have to contend with the threat of a looming recession.

In November, PayPal had cut its annual revenue growth forecast in anticipation of a broader economic downturn and said it did not expect much growth in its U.S. e-commerce business in the holiday quarter.

On the decline

McDonald’s Corp. (MCD-N) on Tuesday beat Wall Street estimates for quarterly profit on higher menu prices, even as it warned short-term inflationary pressures would persist in 2023.

Shares of the burger chain fell 1.3 per cent after gaining about 6 per cent in the last 12 months.

Investors are watching bellwethers like McDonald’s for any sign consumers are cutting spending to help determine whether the Federal Reserve’s monetary tightening will help cool the U.S. economy without causing a recession.

The Big Mac maker also expects its accelerated plan to build more new restaurants will boost business, contributing nearly 1.5 per cent to its 2023 systemwide sales growth in constant currencies.

Like other fast-food chains, Chicago-based McDonald’s raised prices of its burgers and fries last year to keep up with surging commodity and labor costs and it forecast margin growth this year.

Chief Executive officer Chris Kempczinski told investors those short-term inflationary pressures will persist in 2023.

Even so, traffic rose 5 per cent for full-year 2022, McDonald’s disclosed on Tuesday, as its meals remained less expensive than many competitors, drawing low-income consumers.

A Big Mac in New York City now costs about US$5.39 - less than a US$5.65 Venti Cappuccino at a nearby Starbucks.

McDonald’s fourth-quarter global same-store sales also beat estimates with a 12.6-per-cent rise, compared with the average analyst estimate of an 8.6-per-cent increase, according to IBES data from Refinitiv.

McDonald’s benefited from higher menu prices, increased restaurant traffic and sales in the UK, Germany and France rose despite fears of a recession in Europe.

The company reported profit of US$2.59 per share, an increase of 16 per cent. Analysts on an average expected profit of US$2.45.

McDonald’s also said it expect its 2023 operating margin to be about 45 per cent, versus 40.4 per cent in 2022.

McDonald’s U.S. comparable sales rose 10.3 per cent in the quarter ended Dec. 31. Global revenue dropped 1 per cent to US$5.93-billion because of the impact of the stronger U.S. dollar against foreign currencies while in constant currencies, revenue rose 5 per cent.

Caterpillar Inc.’s (CAT-N) fourth-quarter earnings slid by 29 per cent, the company reported on Tuesday, citing higher manufacturing costs and foreign currency effects that weighed on the industrial bellwether’s margins.

The machinery maker has a robust US$30-billion order backlog, but like other manufacturers it continues to grapple with supply constraints that have boosted raw material and freight costs.

The Texas-based company noted that profit was also hit by a US$925-million “goodwill impairment” charge and margin-eroding restructuring costs.

CAT’s Chief Financial Officer, Andrew Bonfield, told shareholders on a conference call that fourth quarter margins “were lower than we needed them to be” and that the company will adjust operating profit margin targets in the year ahead to account for high inflation.

The decline in the company’s adjusted earnings per share sent its share price down 3.5 per cent.

While equipment purchases from energy and mining customers have remained resilient, along with a higher volume of sales for construction machinery, analysts believe higher financing costs can potentially drag down demand.

“You’ve got benefits from the infrastructure bill, but those are all sensitive to the broader economic backdrop,” said Oppenheimer’s Kristen Owen, executive director of equity research.

Currency exchange rates had a negative impact on sales at Caterpillar’s machinery, energy and transportation (ME&T) division, with a strong dollar making products less competitive abroad.

A strong dollar also hurts multinationals that need to convert foreign profits back into the U.S. currency.

An uptick in dealer inventories was a bright spot for the manufacturer with equipment levels returning to a typical range of three to four months, executives said.

Sales were up across Caterpillar’s three primary business segments. Strong pricing that the company implemented over the past two years in an effort mitigate rising manufacturing costs have sustained top-line growth. The industrial giant’s pricing has risen 14 per cent, a decade high, Bank of America research analyst, Michael Feniger, said in a report.

Caterpillar’s sales and revenue for the quarter rose 20 per cent to US$16.6-billion despite weaker sales in the Asia Pacific region.

“We talked about the fact that China is slow and we continue to expect it to be slow -- below 2022 levels,” said Chief Executive Jim Umpleby.

Marathon Petroleum Corp. (MPC-N) turned lower in afternoon trading after it beat Wall Street expectations for quarterly profit as its margins soared amid tight supplies and high demand for refined products.

The top U.S. refiner also approved an additional US$5-billion in stock repurchase, while rival Phillips 66 (PSX-N) raised its quarterly dividend by 5 per cent to 97 US cents per share.

U.S. President Joe Biden’s administration has criticized oil firms for pouring cash into shareholder payouts rather than expanding capacity despite short supply.

Marathon’s crude capacity utilization was about 94 per cent in the fourth quarter, resulting in total throughput of 2.9 million barrels per day (bpd), which was roughly flat year-over-year.

It expects current-quarter throughput to be 2.8 million bpd and forecast full-year spending of US$1.3-billion.

The company’s refining and marketing margins surged 81.5 per cent to US$28.82 per barrel compared with last year.

Meanwhile, realized refining margins for rival Phillips 66 jumped 65 per cent to US$19.73 per barrel in the October to December quarter.

Profits last year from turning oil into gasoline, diesel and jet fuel hit multi-decade highs as refineries ran at full throttle to meet rising demand amid a supply squeeze following Russia’s invasion of Ukraine and plant closings.

Findlay, Ohio-based Marathon posted fourth-quarter adjusted net income of US$6.65 per share compared with analysts’ average estimate of US$5.67 per share, according to Refinitiv data.

Phillips 66 reported an adjusted income of US$4 per share, missing analysts’ expectations of US$4.35 per share.

“Refining margins (for Phillips) were weaker than forecast in the Atlantic Basin and West Coast, driving the earnings miss,” said Jason Gabelman, analyst, Cowen and Co.

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 16/04/24 4:00pm EDT.

SymbolName% changeLast
Caterpillar Inc
Exxon Mobil Corp
General Motors Company
Imperial Oil
Lithium Americas Corp
Lululemon Athletica
Marathon Petroleum Corp
McDonald's Corp
Nike Inc
Paypal Holdings
Pfizer Inc
Phillips 66
Spotify Technology S.A.
Teck Resources Ltd Cl B
Tesla Inc
United Parcel Service

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