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A look at North American equities heading in both directions

On the rise

Shares of Restaurant Brands International Inc. (QSR-T) rose 2.8 per cent after it beat Wall Street estimates for first-quarter revenue and profit on Tuesday, boosted by higher prices and increased traffic at its Burger King and Tim Hortons chains.

Last month, McDonald’s Corp. (MCD-N) and Chipotle Mexican Grill Inc. (CMG-N) also posted better-than-expected quarterly sales as they have been bumping up menu prices over the past year to protect their margins from a jump in raw material and labour costs.

Tim Hortons-parent Restaurant Brands posts profit, sales gain on increased traffic, higher prices

Restaurant Brands’ Burger King chain has been able to attract younger customers to its restaurants through a newly released viral “Whopper Whopper” jingle.

It is also working on a US$400-million “Reclaim the Flame” plan to boost sales by ramping up advertising, bringing in new kitchen equipment and remodeling restaurants.

Restaurant Brands in February named its chief operating officer, Joshua Kobza, as CEO in a turnaround plan for its struggling Burger King brand.

According to location analytics firm Placer.ai, Burger King saw positive week-over-week visit growth for the majority of weeks since January 2023.

All four Restaurant Brands chains have seen steady demand in the United States this year as consumers continue to spend on basic necessities like food and essentials and take advantage of value deals amid stubbornly high inflation.

The company’s global comparable sales rose nearly 10 per cent in the March quarter, led by a 16-per-cent growth at Tim Hortons Canada and a 12-per-cent rise at Burger King International.

Excluding items, Restaurant Brands earned 75 US cents per share, compared with estimates of 64 US cents, according to Refinitiv IBES data.

Total revenue rose to US$1.59-billion from US$1.45-billion a year earlier. Analysts on average had expected US$1.56-billion.

In a research note, Citi analyst Jon Tower said: “Heading into earnings, investors anticipated solid top-line results, with Canadian LSR sales staying strong (a good read for TH) and US industry metrics suggesting at strong start to 2023 (a good read for BK US), and both came in better-than-expected, including better flow-through for QSR and franchisees. That said, results elsewhere suggest top-line upside was likely more industry-wide rather than idiosyncratic, and higher net closures (78, highest since 4Q20) show continued strain on the BK US system/suggest additional consolidation remains a risk. We expect shares to move modestly higher in the NT today, but further multiple expansion would require a positive update on 2Q and/or indications that the BK US stores closures are near an end.”

BlackBerry Ltd. (BB-T) jumped 9.3 per cent after revealing it is exploring a potential breakup of the company.

The Waterloo, Ont.-based company said in a release late Monday its board is initiating a review of its portfolio of businesses to explore strategic alternatives that “include, but are not limited to, the possible separation of one or more of BlackBerry’s businesses.” The company has hired investment banks Morgan Stanley & Co. and Perilla Weinberg Partners as financial advisers but has not set a timetable for completing the process.

The move appears to be an attempt to appease investors leading up to its June 27 annual meeting. Last year, lead director Prem Watsa, whose Fairfax Financial Holdings Ltd. owns 8 per cent of BlackBerry stock, was narrowly re-elected with just 50.7 per cent of votes cast in his favour. Since then, British hedge fund Fifthdelta Ltd. has made a big move into BlackBerry stock, buying 57.9 million shares, or 9.98 per cent of the total, according to regulatory filings. Fifthdelta has made other investments in the internet-of-things space, suggesting it is interested in BlackBerry’s connected car business.

This is a pivotal year for BlackBerry: The company recently announced the sale of most of its legacy smartphone-related patents to Dublin’s Key Patent Innovations. That ended a period of several years in which BlackBerry generated hundreds of millions of dollars in high-margin revenue extracting licensing fees from other companies for alleged use of its intellectual property.

It was the second attempt to sell most of its IP after a failed effort last year. Key paid US$170-milllion in cash up front and the deal could be worth up to US$900-million to BlackBerry depending on the new owner’s success in pursuing further licensing deals.

- Sean Silcoff

TMX Group Ltd. (X-T) gained 1.5 per cent after it reported a profit of $89.0-million attributable to shareholders in its first quarter as its revenue rose four per cent to hit a record $299.1-million.

The operator of the Toronto Stock Exchange says its revenue for the quarter was up from $287.4-million in the same quarter last year.

TMX says its profit amounted to $1.59 per diluted share for the quarter ended March 31.

The result compared with a profit of $267.4-million or $4.75 per diluted share a year earlier when it benefited from the acquisition of voting control of Box Holdings Group LLC, an all-electronic equity options market.

On an adjusted basis, TMX earned $1.85 per diluted share in its latest quarter, up from an adjusted profit of $1.82 per diluted share in the first quarter of last year.

Analysts on average had expected an adjusted profit of $1.77 per share and $286.6 million in revenue, according to estimates compiled by financial markets data firm Refinitiv.

“Q1/23 EPS was ahead of our forecast and consensus, driven primarily by higher-than-forecast revenues in most segments,” said RBC Dominion Securities analyst Geoffrey Kwan in a note. “Bigger picture, we think the TMX is doing a good job executing on its growth strategy despite the challenging capital raising environment and to a lesser extent, equity trading volumes that are gradually declining from prepandemic highs. We think the TMX offers a solid mix of growth potential, strong defensive attributes and an attractive valuation and maintain our Outperform rating.”

Uber Technologies Inc. (UBER-N) forecast quarterly core earnings above estimates on Tuesday, after a surge in demand for travel and food delivery helped the U.S. ride-sharing giant report better-than-expected results for the January-March period.

Shares of the company soared 11.6 per cent and drove gains in those of rival Lyft Inc. (LYFT-Q), which reports results on Thursday.

Uber is benefiting from its dominant position in key global markets as travel rebounds from a pandemic-induced lull. A jump in the number of people looking to gain additional income is also helping platforms such as Uber squeeze out higher profit by offering lower incentives to gig workers, analysts have said.

“Our clear lead on driver preference has allowed us to better serve this growing demand: 5.7 million drivers and couriers earned $13.7 billion (including tips) on Uber during the quarter, both all-time highs,” CEO Dara Khosrowshahi said.

After a tepid performance in the last two years, “the rideshare category in the United States and Canada is now growing faster in 2023,” he said.

Uber expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) - one of its closely watched financial metrics - between US$800-million and US$850-million for the June quarter. That was higher than analysts’ projection of US$749.1-million, according to Refinitiv.

The company also forecast gross bookings, the total dollar value from its services, of between US$33-billion and US$34-billion, compared with the expectations of US$33-billion.

“Uber’s category leadership in mobility and global scale and diversification in delivery are translating into a resilient and increasingly profitable local commerce business,” D.A. Davidson & Co analyst Tom White said.

Revenue jumped 29 per cent to US$8.83-billion and beat estimates of US$8.73-billion, thanks to a 72-per-cent growth in the ride-hailing segment. The food delivery unit’s growth was slightly above expectations at 23 per cent.

Adjusted EBITDA came in at US$761-million, Uber’s highest on record.

Marriott International Inc. (MAR-Q) increased 5 per cent after it raised its full-year profit forecast and flagged a faster-than-expected recovery in international markets as well as strong booking trends globally.

Flexible work arrangements have fueled travel demand and helped hotel operators to improve their margins that took a beating during the pandemic. The travel industry has also benefited in the last few quarters from a strong U.S. dollar.

“With the faster than expected recovery in international markets and continued solid booking trends globally to date in the second quarter, we are raising our RevPAR guidance for the full year,” Marriott Chief Anthony Capuano said.

Marriott forecast full-year growth in revenue per available room (RevPAR), a key measure for a hotel’s top-line performance, between 10 per cent and 13 per cent, compared with its prior forecast of 6 per cent to 11 per cent. It posted a 34.3-per-cent rise in its first-quarter RevPAR.

Marriott has seen a steady uptick in bookings, even as experts had feared that high inflation and fears of an economic slowdown could dent consumer spending.

The company, which owns hotels such as Sheraton, Westin and St. Regis, expects full-year adjusted profit between US$7.97 and US$8.42 per share, compared with its prior forecast of US$7.23 to US$7.91.

For the first quarter ended March, it reported an adjusted profit of US$2.09 per share, compared with the average analyst estimate of US$1.84 per share, as per Refinitiv data.

Revenue rose 34 per cent to US$5.62-billion, ahead of analysts’ average estimate of US$5.41-billion.

Molson Coors Beverage Co. (TAP-N) rose 7.7 per cent after it beat first-quarter sales and profit expectations on Tuesday, benefiting from price hikes the brewer undertook over the quarters and from resilient demand for its beer brands.

Like other brewers such as Constellation Brands Inc. (STZ-N), the Coors Light maker has been lifting prices of its products from beers to hard seltzers to shield its margins from soaring material and energy costs that inflated with the war in Ukraine.

Inflation-hit consumers have been trading down from higher-priced beers to cheaper brands, benefiting companies like Molson Coors that also sell mainstream beers and malt beverages at more affordable prices even after having raised prices on them.

Analysts have said carryover price increases from Molson Coors’ second round of hikes taken in 2022 would be the primary driver for the company during the first quarter.

Constellation Brands Inc in April forecast full-year profit above Wall Street estimates, expecting to gain from price increases and strong demand for its high-end beer brands.

Molson Coors’ net sales rose about 6 per cent to US$2.35-billion in the quarter ended March 31, beating analysts’ average estimate of US$2.23-billion, according to Refinitiv data.

The Chicago-based company posted adjusted earnings of 54 US cents per share, topping analysts’ expectations of 26 US cents.

But it maintained full-year 2023 net sales forecast of a low single-digit increase from 2022 on a constant currency basis.

On the decline

Thomson Reuters Corp. (TRI-T) closed down 0.5 per cent despite reporting higher sales and operating profit in the first quarter, helped by divestitures and high customer retention rates, as it plans a deeper investment in artificial intelligence.

The news and information company reported adjusted earnings of 82 US cents per share, beating analyst forecasts for 80 US cents.

Total revenue rose 4 per cent in the quarter to US$1.738-billion, beating expectations, according to estimates from Refinitiv.

Thomson Reuters, which owns the Westlaw legal database, Reuters news agency and the Checkpoint tax and accounting service, said organic revenue was up 7 per cent for its “Big 3″ segments: Legal Professionals, Corporates and Tax & Accounting Professionals.

“While we acknowledge elevated macroeconomic uncertainty, our underlying business is resilient, and we are largely maintaining our 2023 outlook,” Chief Executive Office Steve Hasker said in a statement. “We are also excited about recent developments in AI, which we believe will provide plentiful opportunities to better serve our customers as we continue to invest in their future.”

Thomson Reuters reaffirmed most 2023 financial forecasts, but trimmed its full-year total revenue growth forecast to 3 per cent to 3.5 per cent, from 4.5 per cent to 5 per cent, from the sale of a majority take in legal business management software company Elite to TPG.

In an interview with Reuters Tuesday, Mr. Hasker said the company does not expect layoffs this year.

Thomson Reuters plans to spend US$100-million on an annual run rate basis to invest in artificial intelligence, Mr. Hasker said. The company will start seeing generative AI incorporated into flagship products in the second half of this year. Generative AI is a type of artificial intelligence that generates new content or data in response to a prompt, or question, by a user.

The US$100-million is separate from the company’s M&A budget, which will be about US$10-billion from now to 2025, Michael Eastwood, Thomson Reuters’ Chief Financial Officer, said in an interview.

Over the last three years, almost all of the company’s M&A budget has been allocated to artificial intelligence, and executives see that trend continuing. AI features will be incorporated in most major business divisions -- legal, tax and accounting, and in the news business.

AI is already embedded in Thomson Reuters products such as Westlaw Edge and Practical Law. In 2022, the company acquired PLX AI, a real-time financial news service powered by the technology.

The company said it sold 24.5 million shares of London Stock Exchange Group (LSEG) in the first quarter for gross proceeds of US$2.3-billion. As of April 30, it owned 47.4 million shares of LSEG, worth US$5-billion.

Thomson Reuters said it had “increasing confidence” about its outlook but noted there were “many signs that point to a weakening global economic environment” from high interest rates and geopolitical risk.

In April, the company said it would return US$2.2-billion to shareholders through a cash distribution and a reverse stock split after selling some of its LSEG shares.

Thomson Reuters shares are trading at an all-time high.

MEG Energy Corp. (MEG-T) fell 6.3 per cent after reporting a 77-per-cent year-over-year drop in net earnings (to $81-million versus $362-million), which it attributed to lower oil prices.

However, the Calgary-based company results, released after the bell on Monday, largely exceeded the Street’s expectations. That included cash flow per share of 94 cents, which was 2 cents higher than analysts’ forecast, and bitumen production of 106,840 barrels per day, ahead of the consensus estimate of 106,600 barrels.

MEG says its capital expenditures rose from $25 million to $113-million compared with the same period in 2022, reflecting higher drilling activity.

MEG says it paid down $117-million in debt during the quarter to see its net debt decline to $1.4-billion.

“MEG released strong 1Q23 financial results with cash flow beating consensus despite in-line volumes,” said Desjardins Securities analyst Chris MacCulloch. “With corporate debt rapidly melting away, the company has now arguably emerged as one of the most defensively positioned producers in the Canadian energy sector given relatively low breakeven costs, extensive tax pools and a long reserves life. Either way, the combination of narrow WCS differentials, sluggish AECO natural gas prices and elevated Alberta power prices all appear poised to continue supporting extensive buybacks, with the one caveat being that Christina Lake is poised to move into post-payout in 2Q23 from a royalty perspective.”

Osisko Mining Corp. (OSK-T) was lower by 5 per cent on news of a joint venture with South Africa’s Gold Fields to develop the Windfall gold mining project in Quebec.

The investment gives Gold Fields an entry point into the Canadian mining sector, which it has coveted for years.

Gold Fields said it would pay an initial $300-million to acquire 50 per cent of the project, with an additional $300-million payable once the Canadian government has issued construction and operating permits.

The initial $300-million was funded through existing cash reserves and debt facilities, the company said.

Gold Fields missed out on a Canadian asset last November when its bid to acquire Yamana Gold was hijacked by Agnico Eagle (AEM-T) and Pan American Silver Corp. (PAAS-T).

Gold Fields interim CEO Martin Preece said the company had scoured a range of opportunities in Canada’s Abitibi region, before settling on Windfall.

“We are very pleased to be partnering with Osisko to bring the high-quality Windfall Project into production and believe that this will be the first mine of several in this partnership in a highly prospective region,” Preece said in a statement.

Gold Fields said a feasibility study had showed the Windfall project would have an initial mine life of 10 years, producing an average 294,000 ounces annually, which would potentially put it among Canada’s 10 biggest gold mines.

On March 16, Gold Fields and AngloGold Ashanti announced a deal to merge their neighbouring Tarkwa and Iduapriem mines in Ghana to create Africa’s biggest gold mine.

Following its failure to acquire Yamana, Gold Fields has said it would no longer seek big mergers and acquisitions, but would pursue incremental growth through targeted asset purchases.

Pfizer Inc. (PFE-N) on Tuesday beat estimates for first-quarter profit, helped by steady demand for its COVID products and said it expects newer drugs to contribute to growth later this year, but its shares gave back early gains and closed 0.4 per cent lower.

The company has said it expects 2023 to be a low point for COVID product sales, before potentially returning to growth in 2024.

First-quarter sales for both the vaccine and its antiviral pill came in above Wall Street estimates.

Sales of its COVID-19 vaccine Comirnaty slumped 77 per cent to US$3.06-billion in the quarter, but topped estimates of US$2.37-billion, according to Refinitiv data.

Antiviral treatment Paxlovid sales rose by US$2.8-billion to US$4.07-billion, also beating estimates of US$3.13-billion, bolstered by strong demand in China during the quarter.

Pfizer is pumping billions of dollars into research and to buy potential blockbuster assets to mitigate an anticipated US$17-billion hit to revenue by 2030 from patent expirations for top drugs, and a decline in demand for its COVID products.

The drugmaker on Tuesday reaffirmed its annual profit forecast of US$3.25 to US$3.45 per share and COVID products sales outlook of about US$21.5-billion.

Wells Fargo analyst Mohit Bansal said he had expected the company to lower its 2023 forecast for COVID vaccine sales further.

“Expectations for vaccine sales were weak, so intact COVID guidance is a positive surprise,” he said.

The company said it expects significantly lower sales contributions from COVID products in the second quarter from the first quarter.

Excluding COVID products sales, Pfizer said it remains on track to achieve its goal of 7-per-cent to 9-per-cent revenue growth this year and expects the majority of the growth to occur in the second half.

Overall revenues for the first quarter fell 29 per cent to US$18.3-billion, compared with estimates of US$16.59-billion.

Excluding items, the U.S. drugmaker posted a better-than -expected profit of US$1.23 per share.

BP (BP-N) made a profit of US$5-billion in the first quarter of 2023, up from the previous three months on the back of stellar oil and gas trading, but the company’s New York-listed shares declined 8.1 per cent as it slowed a share buyback program

BP’s results, which beat forecasts, follow a strong showing by rivals including Exxon Mobil (XOM-N) and Chevron (CVX-N) last week as oil majors continue to benefit from energy prices that remain elevated despite some softening since the start of the year.

BP’s shares, however, were around lower - compared with a drop of around 1.55 per cent for an index of European oil companies - after it said it would repurchase US$1.75-billion worth of shares over the next three months, down from US$2.75-billion in the previous three.

The smaller target is a result of a significant drop in operating cash flow to US$7.6-billion during the quarter from US$13.5-billion in the final quarter of 2022.

BP will still exceeded its goal of using 60 per cent of surplus cash to buy its own shares, but investors were disappointed.

The lower share buyback “will more than offset the good operational performance as BP is the first international oil company...to cut buybacks this quarter,” Jefferies analysts said in a note.

The London-based company repurchased a total of US$11.7-billion worth of shares in 2022.

First-quarter underlying replacement cost profit, BP’s definition of net income, reached US$4.96-billion, up from US$4.8-billion in the fourth quarter of 2022 and above expectations of US$4.3-billion in a company-provided survey of analysts.

The profit reflects “an exceptional gas marketing and trading result, a lower level of refinery turnaround activity and a very strong oil trading result”, BP said, noting the partial offset from lower oil and gas prices and refining margins.

BP said it expects oil and European gas prices to remain strong in the second quarter even as refining profit margins are expected to weaken due to lower diesel prices.

Fuel demand in Europe has been “a little bit” soft while consumption in China has been strong following the lifting of pandemic restrictions, BP Chief Financial Officer Murray Auchincloss told analysts on a call.

Top U.S refiner Marathon Petroleum Corp. (MPC-N) slid 4.5 per cent as it posted a more than three-fold jump in quarterly profit on Tuesday, benefiting from higher margins on sustained fuel demand and tight crude supplies, and boosted its share buyback program by US$5-billion.

Pandemic-era closure of facilities and demand recovery have lifted refiners’ margins, with crude supplies also coming under pressure after Russia’s invasion of Ukraine.

Strong demand for refined products has also helped the company, with jet fuel demand jumping recently.

Refining and marketing margin soared 70.8 per cent to US$26.15 per barrel for the January-March quarter, compared with a year earlier.

Marathon said crude capacity utilization was 89 per cent in the reported quarter, lower than last year’s 91 per cent due to planned maintenance activity in the Gulf Coast region.

U.S. oil refiners dialed back operating runs due to maintenance activities during the quarter after solid demand recovery led to sky-high utilization rates last year.

Marathon’s throughput of 2.8 million barrels per day (bpd) for the first-quarter was flat from last year.

For the current quarter, it expects throughput to be 2.86 million bpd.

The Findlay, Ohio-based refiner said net income attributable to the company stood at US$2.7-billion, or US$6.09 per share, for the three months ended March 31, compared with US$845-million, or US$1.49 per share, a year earlier.

Analysts were expecting a profit of US$5.74, according to Refinitiv data.

Top U.S. liquefied natural gas (LNG) exporter Cheniere Energy Inc. (LNG-A) was 2.3 per cent lower as it raised its 2023 core earnings forecast on Tuesday after reporting a quarterly profit compared with a year-ago loss.

The United States has emerged as the world’s largest LNG exporter after Western sanctions on major supplier Russia left Europe scrambling to find alternate sources of the commodity.

Cheniere raised its consolidated adjusted core earnings forecast for 2023 to US$8.2 billion-$8.7 billion from US$8 billion-$8.5 billion, while analysts on average had expected US$8.39-billion, according to Refinitiv.

“LNG supply will remain tight in the winter of 2023-2024, particularly if the weather is colder than this past winter and Chinese LNG demand increases as forecasted,” said Ryan Keeny, an analyst at Third Bridge.

Cheniere, which operates the Corpus Christi and Sabine Pass export terminals, also expects higher distributable cash flow in 2023.

“We set a new quarterly LNG production record in the first quarter,” said Chief Executive Officer Jack Fusco.

The Houston, Texas-based energy firm said it delivered 619 trillion British thermal units (tbtu) of LNG in the quarter ended March 31, compared with 592 tbtu a year earlier.

According to UBS, more than 70 per cent of U.S. LNG cargoes went to Europe in the first quarter.

Because of the hedging Cheniere did at the end of last year and earlier this year, its first-quarter earnings were insulated from the impact of falling gas prices, said Robert Mosca, an analyst at Mizuho Securities, ahead of the earnings.

Cheniere posted a net income of US$5.4-billion, or US$22.10 cents per share, compared with average analysts’ estimate of US$5.52 cents per share, according to Refinitiv.

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 22/04/24 4:00pm EDT.

SymbolName% changeLast
BB-T
Blackberry Ltd
+1.59%3.84
BP-N
BP Plc ADR
+1.01%38.91
LYFT-Q
Lyft Inc Cl A
+3.59%16.73
MEG-T
Meg Energy Corp
+0.26%31.24
MPC-N
Marathon Petroleum Corp
+0.95%198.25
MAR-Q
Marriot Int Cl A
+0.6%237.41
TAP-N
Molson Coors Brewing Company
+0.45%64.52
OSK-T
Osisko Mining Inc
-0.62%3.19
PFE-N
Pfizer Inc
+1%26.26
QSR-T
Restaurant Brands International Inc
+2.29%100.45
TRI-T
Thomson Reuters Corp
+1.41%209.58
X-T
TMX Group Ltd
+0.86%36.41
UBER-N
Uber Technologies Inc
-0.32%68.98

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