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A look at North American equities heading in both directions

On the rise

Shares of SNC-Lavalin Group Inc. (SNC-T) jumped 12.2 per cent on Thursday after it reported its first-quarter profit rose compared with a year ago as its revenue also climbed higher.

The engineering firm says its profit attributable to shareholders totalled $28.4-million or 16 cents per diluted share for the quarter ended March 31.

The result was up from a profit of $24.8-million or 14 per diluted share a year earlier.

Revenue totalled $2.02-billion, up from $1.89-billion in the first three months of 2022.

The increase came as the company’s revenue from professional services and project management rose to $2.01-billion compared with $1.87-billion a year earlier. Revenue from its capital business totalled $16.3-million, down from $16.4-million.

On an adjusted basis, the company says its profit from professional services and project management amounted to 32 cents per diluted share, up from an adjusted profit of 22 cents per diluted share in the first quarter of 2022.

Calling it a “drama-free start to 2023,” National Bank Financial analyst Maxim Sytchev said: “This was a clean quarter while management reiterated all of the financial targets on prospective basis, most important being around cash flow generation in H2/23E as the LSTK work winds down (backlog in this vertical now at $518-million, down 46 cent year-over-year). While pure engineering firms are drama-free, their valuations are reflective of this dynamic while SNC’s transition is only on a cusp of the journey. As we’ve stated a number of times in the past, E&C transition stories towards consulting start to work when all the legacy projects are fully off the books; as we get closer to that completion date, we are likely to see heightened interest / momentum. With only REM spilling into 2024, investors with 12-months + time horizon will likely see the risk / reward as attractive.”

Finning International Inc. (FTT-T’) increased 5.1 per cent in the wake of the release of stronger-than-anticipated quarterly results and a 6-per-cent raise to its quarterly dividend.

On Monday after the bell, the Vancouver-based industrial equipment dealer reported revenue of $2.14-billon, up 24 per cent year-over-year and above the Street’s forecast of $1.04-billion forecast. Adjusted diluted earnings per share jumped 30 cents from the same period a year ago to 89 cents, topping the consensus expectation of 70 cents.

National Bank analyst Maxim Sytchev called the results “great,” but he expressed concern that the market may view them as “peak-ish.”

“We are in a somewhat manic market now with all the tea leaves being potentially over-interpreted. Q1/23 results, no question, were strong,” he said. “But one needs to ask a question … if Q4/22 results were equally robust, shares sold off and CAT/ TIH also failed to reignite, why would FTT shares be any different. Lack of meaningful upward momentum in oil/copper price also puts a valuation lid now somewhere in close to the $40.00 per share range. FTT management continues to execute, increased the dividend and announced a 10-per-cent buyback program while also trying to reduce cyclicality of the business by introducing a greater amount of operational flexibility throughout the cycle. We, however, believe that risk/reward now is balanced given the general macro uncertainty.”

Despite grappling with the impact of bad weather on its North American operations early in 2023, Calfrac Well Services Inc. (CFW-T) reported stronger-than-anticipated first-quarter results before the bell, sending its shares higher by 2.2 per cent.

The Calgary-based reported revenue of $493.3-million, up 67 per cent year-over-year and above the Street’s expectation of $468.4-million driven by stronger pricing and activity in North America. Adjusted EBITDA of $83.2-million rose from $22.8-million a year ago, also topping the consensus expectation of $81.2-million.

“Despite adverse weather impacting results in NAM, CFW reported the best-ever Q1 adjusted EBITDA margin since 2012, as it set records for both stages completed in a day and sand pumped during the month,” said ATB Capital Markets analyst Waqar Syed. “This is a testament of improving operational performance. The Company is continuing to add Tier IV DGB fleets, and that should cause further qualitative improvement in its fleet. Net debt fell from $323-million at YE2022 to $319-million at the end of Q1/23, with the net debt to capital ratio improving to 39.8 per cent versus 42.8 per cent at the end of Q4/22. Net debt to LTM [last 12-month] EBITDA was 1.1 times at the end of Q1/23, down from 5.7 times in the year-ago quarter. We believe that CFW’s NAM geographic footprint isolates it somewhat from the issues impacting U.S. pumping companies that have higher exposure to the Texas market. CFW has a higher exposure to the Rockies and the northeast, which are isolated from issues impacting the Haynesville and the Midcontinent.”

“The stock is down nearly 34per cent year to date, and today’s results and management commentary should somewhat allay investor concerns.”

Chorus Aviation Inc. (CHR-T) closed 1 per cent higher after saying profits last quarter rose 40 per cent year over year, allowing it to pay down part of its hefty debt as the travel industry begins to regain its purchase.

The Halifax-based company is reporting net income of $32-million for the quarter ended March 31, compared with $22.9-million in the same period a year earlier.

It says first-quarter operating revenue jumped 21 per cent to $415.3-million from $342.4-million in 2022.

Chorus, which leases planes across the globe and provides regional service for Air Canada via Chorus subsidiary Jazz Aviation, says it plans to use some of the extra cash to bring down its ratio of net debt to adjusted earnings to between 3.6 and four times by the end of the year.

The company forecasts revenue this year will total between $1.5-billion and $1.7-billion, and that adjusted earnings will hit $410,000 to $450,000 — both roughly in line with last year’s figures.

On a per share basis, Chorus says it took in adjusted earnings of 11 cents per share last quarter versus 10 cents the year before.

Sleep Country Canada Holdings Inc. (ZZZ-T) increased 6.9 per cent after announcing its earnings for the first quarter were $11.3-million, down 38.5 per cent from $18.4-million a year earlier.

The Toronto-based company says revenues were $206.5-million, largely unchanged from $207.0-million the same quarter a year earlier.

Diluted earnings per share for the quarter ended March 31 were 32 cents, down from 49 cents a year earlier.

Sleep Country says same-store sales decreased by 6.2 per cent, but that was partially offset by incremental revenue stemming from a Jan. 1 acquisition of e-commerce retailer Silk & Snow Inc.

“We view the lower than expected decline in SSS as positive and a sign that consumer demand remains better than feared,” said Stifel analyst Martin Landry. “The Board approved a 10-per-cent increase in the company’s dividend, which now generates a yield of 4 per cent. Sleep Country’s valuation, at 5.5 times EBITDA, is depressed vs historical levels and seems to reflect a continued decline year-over-year in earnings for the coming quarters while we expect EPS to increase year-over-year in H2/23. ZZZ’s shares should react positively [Tuesday].”

Palantir Technologies Inc. (PLTR-N) said late Monday it expects to turn a profit every quarter in 2023, betting on interest “unlike anything we have seen” in its new artificial intelligence platform, sending its shares soaring 23 per cent.

The new generative AI platform was launched two weeks ago and works on the same technology that’s behind ChatGPT.

The data analytics software maker, known for its work with the U.S. Central Intelligence Agency, also beat first-quarter revenue and profit expectations on bigger projects from existing commercial and government clients.

“Investors will be pleased not only with the better-than-expected results for the quarter, but also the guidance for profitability as well as the recent AI initiatives,” said D.A. Davidson & Co analyst Gil Luria.

The first iteration of the AI platform will be made available to some customers this month, Palantir CEO Alexander Karp said, adding the new offering can assist militaries in targeting enemies.

The customers include “one of the largest insurance companies in the world” and supply chain and security customers, Chief Revenue Officer Ryan Taylor told Reuters.

Palantir’s first-quarter revenue rose 18 per cent to US$525.2-million and adjusted profit stood at 5 US cents per share, both above estimates.

The strong first quarter was driven by a 26-per-cet rise in commercial revenue, rising more than expected, said RBC Capital Markets analyst Rishi Jaluria.

Palantir continues to tighten its cloud spending and is investing in focus areas like AI, said finance chief David Glazer. In February, it said it would cut 2 per cent of its workforce.

It remains bullish on demand for its offerings in the United States, but faced challenges in “certain areas” internationally, Mr. Taylor said, without elaborating.

The company forecast second-quarter revenue of US$528-million and US$532-million, below estimates of US$536.2-million, per Refinitiv data. Its full-year revenue forecast, however, was largely in line with estimates.

On the decline

Suncor Energy Inc. (SU-T) fell 1 per cent after it reported a better-than-expected first-quarter profit late Monday, helped by steady demand for energy amid crimped global supplies.

The results come amid global oil prices pulling back from last year’s record highs and trading 20 per cent below on average, but the prices are still higher than historical levels due to tight supplies.

On an adjusted basis, the company earned $1.36 per share, compared with analysts’ estimates of $1.32 per share.

Peers Imperial Oil Ltd. (IMO-T) and Cenovus Energy Inc. (CVE-T) had also beat profit estimates last month.

Suncor, however, reported a fall in total upstream production to 742,100 barrels of oil equivalent per day (boepd) in the first quarter, lower than 766,100 boepd a year earlier due to unplanned maintenance during the quarter.

Its refinery utilization averaged 76 per cent and the crude throughput was 367,700 barrels per day (bpd), compared with 436,500 bpd last year.

The company’s 103,000 barrel-per-day Commerce City refinery in Colorado was knocked out by winter storm Elliott.

“Suncor reported constructive 1Q23 financial results while providing a brief strategic update,” said Desjardins Securities analyst Chris MacCulloch. “With a more focused asset base, a renewed focus on safety, operational excellence, reliability and profitability will be the primary objective of newly appointed President and CEO Rich Kruger after taking the reins of the company early last month.”

“Taking a step back, the opening months of 2023 have been highly transformative for SU from a portfolio transition perspective as it continued rationalizing non-core assets and reinvesting the proceeds toward increasing strategic ownership of oil sands projects to eventually help backfill Base Mine volumes. To quickly summarize, the company (1) closed the sale of its wind and solar assets for $730-million; (2) announced the sale of its UK North Sea assets for $1.2-billion, which is set to close in 2Q23; (3) closed the acquisition of Teck’s Fort Hills stake for $712-million; and (4) announced plans to acquire TotalEnergies Canada for $5.5-billion, which includes the remaining 31.23-per-cent WI in Fort Hills and a 50-per-cent non-operated WI in the Surmont oil sands project.”

George Weston Ltd. (WN-T) was down 0.1 per cent after it raised its dividend as it reported its first-quarter profit and revenue rose compared with a year ago.

The company, which holds large stakes in Loblaw Companies Ltd. (L-T) and Choice Properties Real Estate Investment Trust (CHP.UN-T), says it will increase its quarterly dividend to 71.3 cents per share from 66 cents per share.

The increased payment came as George Weston says it earned a profit attributable to common shareholders of $426-million or $3.01 per diluted share for the 12-week period ended March 25.

The result was up from a profit of $363-million or $2.45 per diluted share in the same quarter a year earlier.

Revenue for the quarter totalled $13.13-billion, up from $12.41-billion in the same quarter last year.

On an adjusted basis, George Weston says it earned $1.99 per diluted share, up from an adjusted profit of $1.90 per diluted share a year earlier

Following in-line first-quarter results and a modest increase to its full-year 2023 guidance, shares of Ag Growth International Inc. (AFN-T) were down 5.6 per cent on Tuesday.

The Winnipeg-based company reported record first-quarter revenue of $347-million, up 19 per cent year-over-year and above the Street’s forecast of $326-million driven by gains in its Farm segment. Adjusted EBITDA was up 16 per cent to $48-million, narrowly below the consensus estimate of $50-million.

Citing “a strong order book, clear strategic priorities, and the organization settling into a more disciplined operating cadence,” it raised its 2023 EBITDA guidance to at least $265-million, up from $260-million previously.

“FN’s Q1/23 results were in line and represent another seasonal record for the Company,” said IA Capital markets analyst Matthew Weekes. “AFN’s commentary indicates a mixed outlook between different geographies but is positive overall, with a 7-per-cent increase in the order book year-over-year resulting in a modest increase in 2023 guidance. Our estimates remain largely unchanged, but we are refreshing our valuation including rolling forward to capture projected growth into H1/24, resulting in our revised $68.00 target price (previously $67.00). We reiterate our Buy rating, supported by AFN’s (a) diversified ag-equipment business serving both Farm and Commercial customers across multiple platforms and geographies; (b) positive growth trajectory, which is anticipated to continue to be supported by AFN’s focus on organic growth and operational improvements; (c) strengthening balance sheet; and (d) positive secular market trends.”

Toronto-based battery recycler Li-Cycle Holdings Corp. (LICY-N) was lower by 1.1 per cent after it said on Tuesday it planned to develop a recycling hub in Italy along with Swiss miner and commodity trader Glencore Plc to produce battery materials including lithium.

Li-Cycle had earlier announced in March that it would be building a French battery processing facility amid rising demand for lithium due to its key role in transition towards net zero.

The two companies are expected to complete a joint feasibility study for the project by mid-2024, Li-Cycle said.

Once the companies make a final investment decision on the project, commissioning of the hub in Portovesme, Italy, is expected to commence in late 2026 to early 2027.

The Portovesme Hub is expected to have processing capacity of up to 50,000 tons to 70,000 tons of black mass annually, or the equivalent of up to 36 gigawatt hours of lithium-ion batteries, Li-Cycle added.

Glencore had announced an investment of US$200-million into Li-Cycle last year.

Markham, Ont.-based Pet Valu Holdings Ltd. (PET-T) dropped 4.7 per cent with the release of mixed first-quarter results before the bell.

The retailer reported revenue of $250.29-million, up 17.4 per cent year-over-year and above the Street’s expectation of $245.4-million. However, adjusted earnings per share dropped 8.6 per cent to 32 cents, which missed the consensus forecast by 3 cents, as higher SG&A and interest expenses weighed. Same-store sales growth of 9.4 per cent was also lower than the 10.5-per-cent projection by analysts.

Pet Valu reiterated its 2023 guidance of revenues between $1.050-$1.075-million with same-store sales growth of between 7-10 per cent and 40 to 50 new store openings.

“The pet industry remains resilient despite an economic slowdown as seen with Pet Valu’s 9.4-per-cent same-store-sales,” said Stifel analyst Martin Landry. “However, investors will need to be patient before revenue growth flows through the bottom line in a meaningful way as the company copes with inflationary pressures and currency headwinds. Shares may be down today on the earnings miss.”

Broadcaster Fox Corp. (FOX-Q) beat estimates for third-quarter revenue and adjusted profit on Tuesday, as Chief Executive Lachlan Murdoch affirmed the company’s prime-time programming strategy following its recent US$787.5-million settlement with Dominion Voting Systems and dismissal of star host Tucker Carlson.

Dominion had sued Fox for US$1.6-billion over its coverage of debunked vote-rigging claims about the voting technology firm. The two sides settled the dispute on April 18 prior to the start of opening statements.

“We made the business decision to resolve this dispute and avoid the acrimony of a divisive trial and a multi-year appeal process, a decision clearly in the best interest of the company and its shareholders,” Murdoch said during a call with investors.

Shares of the company were down 1.5 per cent on the day.

Total revenue rose 18 per cent to US$4.08-billion, inching past analysts’ estimates of US$4.03-billion, according to Refinitiv data.

Fox’s ad revenue also surged 43 per cent to US$1.88-billion, well past the expectation of US$1.67-billion.

Mr. Murdoch said the results were supported by higher viewership for Fox Sports’ broadcast of Super Bowl LVII and growth at its streaming service Tubi, which delivered 31-per-cent revenue growth in the quarter.

The company, however, posted a net loss of US$50-million due to charges associated with costs related to the news operations’ legal settlement.

Mr. Murdoch said the company will be “ready to defend” the pending US$2.7-billion lawsuit from a second voting technology firm, Smartmatic, when it goes to trial, which will likely not be until 2025.

Fox Chief Financial Officer Steve Tomsic said he expects the company’s buyback pacing to continue “whatever happens with future litigation” due to its strong cash position.

Fox finished the quarter with US$4.1-billion in cash.

Fox “can handle Dominion’s (settlement charge) because they are very under-levered with a ton of cash,” said Douglas Arthur of equity research firm Huber Research Partners.

The upbeat results from Fox underscore the cautious approach by advertisers who are mostly buying slots on dominant networks.

On an adjusted basis, Fox earned 94 US cents per share, above estimates of 87 US cents.

Geodrill Ltd. (GEO-T) closed lower after reporting a 12-per-cent year-over-year increase in revenue to a record first quarter of $37.6-million.

The Toronto-based company, which focus its operations on West Africa, also said “demand for drilling services has continued to increase” and its expects “the robust mining and exploration cycle will continue in 2023.”

Its shares are now up over 30 per cent in 2023.

With files from staff and wires

Follow David Leeder on Twitter: @daveleederOpens in a new window

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