A survey of North American equities making moves in both directions
On the rise
CAE Inc. (CAE-T) increased 2 per cent in Tuesday trading after it announced a definitive agreement to sell its Healthcare business to Chicago-based Madison Industries for an enterprise value of $311-million.
“This decision to streamline our portfolio better positions CAE to efficiently allocate capital and resources to secure the many attractive growth opportunities on the horizon in our much larger, core simulation and training markets,” said CAE president and CEO Marc Parent.
It said proceeds will be principally used to accelerate deleveraging, “as well as to support CAE’s continued focus on technology advancement, market leadership and cost optimization within its core training and simulation markets.”
Coca-Cola Co. (KO-N) on Tuesday raised its annual sales and profit forecasts for a second time this year, riding on resilient demand from consumers for its sodas, juices and energy drinks as well as higher prices.
The company’s shares rose 2.9 per cent after it also topped expectations for third-quarter results.
Rival PepsiCo. (PEP-Q) also beat analysts’ expectations earlier this month as consumers continued to spend on sodas, dubbed “affordable luxuries,” at a time of elevated food prices and higher cost of living from sticky inflation.
Coca-Cola’s average selling prices rose 9 per cent in the third quarter, the company said, while overall unit case volumes increased 2 per cent.
Still, benefits from the increases are expected to moderate nearly two years after many consumer goods companies hiked product prices to shield themselves from rising labor and transportation costs.
The average price of 192 ounces of Coca-Cola’s soda in the U.S. was US$10.37 as of Sept. 9. It climbed to US$9.25 in 2022 from US$7.96 in 2021, according to NielsenIQ’s data.
The beverage giant now expects organic revenue growth of 10 per cent to 11 per cent for the full year, compared with its prior forecast of an increase of 8 per cent to 9 per cent.
The company forecast annual core earnings per share to rise between 7 per cent and 8 per cent, compared with prior expectations of an increase of 5 per cent to 6 per cent.
Net revenue rose nearly 8 per cent to US$11.91-billion in the third quarter, compared with analysts’ estimates of US$11.44-billion, according to LSEG data.
Adjusted earnings came in at 74 US cents, compared with estimates of 69 US cents per share.
General Electric Co. (GE-N) on Tuesday raised its full-year profit forecast for a third time this year after quarterly earnings topped Wall Street estimates on robust demand for jet engine parts and services and a better performance in its renewable business.
GE shares were up 6.5 per cent in Tuesday trading.
GE’s aviation business, its cash cow, has been lifted by a surge in demand for aftermarket services as a strong rebound in air travel prompted airlines to use jets for longer against the backdrop of commercial plane shortages.
The business, however, is still grappling with supply-chain challenges. The company said high supplier delinquencies are impacting jet engine output, pushing out the deliveries for LEAP engines into 2024 and 2025.
“We’re navigating a still-challenging supply chain environment to deliver for and support our customers,” CEO Larry Culp said on an earnings call.
LEAP engines, which GE produces in a joint venture with France’s Safran, power the narrowbody aircraft of Boeing Co and Airbus. The company now estimates the engine deliveries to be up 40 per cent to 45 per cent this year from 2022, down from a 50-per-cent increase estimated earlier.
Chief Commercial Officer Rahul Ghai said the company expects a similar growth in the engine deliveries next year.
GE’s aerospace unit posted double-digit growth in orders, revenue and profit from a year earlier. Its margin expanded by 130 basis points in the quarter from a year ago.
Profits at GE’s grid and onshore wind businesses in the quarter helped narrow losses at its renewable unit.
GE, which has completed the separation of its healthcare unit, said it would spin off its aerospace and energy, including renewables, businesses into independent companies in the beginning of the second quarter next year and would list them on the New York Stock Exchange.
The Boston-based company now expects 2023 adjusted profit per share of US$2.55 to US$2.65, compared with an earlier forecast of US$2.10 to US$2.30.
Its adjusted profit for the third quarter came in at 82 US cents per share, topping an average analysts’ expectation of 56 US cents per share, LSEG data showed.
3M Co (MMM-N), which recently closed at an 11-year low, was higher by 5.3 per cent on Tuesday after it raised its full-year adjusted profit forecast and reported upbeat quarterly earnings, as the diversified manufacturer was able to offset slow demand with price hikes and cost-cut measures.
3M hiked prices to offset high raw material and labor costs, and undertook a workforce reduction amid waning demand for consumer electronics.
However, more price hikes would be difficult for the company as U.S. households are delaying big-ticket purchases and cutting back on discretionary spending amid recessionary fears.
3M, which makes electronic displays for smartphones and tablets, last month flagged weakness in its electronics and consumer segments for the fourth quarter.
“We do not expect the shares to sustain any bounce ... pending the litigation backdrop/further news to come in December on Combat Arms and the PFAS water settlement,” Barclays analysts said in a note.
3M reported a third-quarter loss of US$3.74, compared to a year-ago profit of US$6.77, as it took a pretax charge of US$4.2-billion related to its Combat Arms earplugs settlement.
The St. Paul, Minnesota-based company now expects full-year adjusted earnings per share to be in the range of US$8.95 to US$9.15 per share, versus prior forecast of US$8.60 to US$9.10 per share.
Adjusted profit for the third quarter came in at US$2.68 per share, above analysts’ estimates of US$2.34. Adjusted revenue of US$8.02-billion also beat Street estimates of US$7.98-billion.
Citi analyst Andrew Kaplowitz said: “Solid earnings beat on an inline sales, we think is indicative of benefits from the company’s ongoing restructuring and self-help actions, supporting, in our view, operational execution despite an uncertain macro environment as well as still mixed end markets/geographic dynamics. We note that MMM raised its 2023 adj. EPS guidance on a lowered adj. organic growth guidance (which we view as a positive); although, the company’s implied 4Q guidance is modestly below Citi/Street estimates (we think some caution given end market/macro uncertainty). We think the company is making good progress across resolving its litigations, but a complete resolution could still take time in our view (personally liability (PFAS) still not accounted for).”
Dow Inc. (DOW-N) was up 2 per cent even though it forecast average net sales for the current quarter below analyst estimates on Tuesday, as the chemical maker continues to navigate weak demand and low prices for its products in key markets.
Chemical makers had flagged a potential blow in the second half of the year from a slower-than-expected recovery in China following its post-pandemic reopening and lower demand in Europe.
Dow reported a sequential decline of 7 per cent in prices of their products in Europe, the Middle East, Africa and India, primarily due to lower feedstock and energy rates.
The chemical maker expects net sales in the fourth quarter in the range of US$10.0-billion to US$10.5-billion, the midpoint of which is below average analysts’ estimate of US$10.48-billion, according to LSEG data.
However, the company added it expects to see benefits from rising oil prices in the next few quarters.
Prices of Dow products such as polyethylene, poly vinyl chloride and other base metals increase on the back of rising crude oil.
Dow had initiated a cost savings measure in January, which included the elimination of 2,000 roles globally, and is on track to deliver US$1-billion in cost savings this year.
The company’s adjusted profit was 48 US cents per share for the three months ended Sept. 30, compared with analysts’ average estimate of 44 US cents per share, according to LSEG data.
Spotify Technology S.A. (SPOT-N) surged 10.4 per cent after it swung to a quarterly profit aided by price hikes in its streaming services and growth in subscribers in all regions, and forecast that its number of monthly listeners would reach 601 million in this quarter.
The company posted a third-quarter operating income of 32 million euros (US$34.1-million), its first quarterly profit since 2021, helped by a higher gross margin and lower marketing and personnel costs.
“We believe moving forward, we should see pretty consistent growth in our operating income,” its Chief Financial Officer Paul Vogel said.
It forecast operating income of 37 million euros in the current quarter.
After spending more than a billion euros in building up its podcast business, Spotify has been keeping a tight lid on costs, laying off 6 per cent of its employees earlier this year and in July raising prices for its premium plans.
“We are still focusing on efficiencies, but efficiencies for us doesn’t mean just cost cutting, it means getting more out of each dollar,” CEO Daniel Ek told Reuters
Spotify’s gross margin rose to 26.4 per cent in the July to September period, up 166 basis points from a year earlier.
“We do expect to continue to see margin expansion into next year,” Vogel said in an interview.
The company’s number of monthly active users rose 26 per cent to 574 million in the third quarter, beating its own guidance and analysts’ forecast of 565.7 million.
Premium subscribers, who account for most of the company’s revenue, rose 16 per cent to 226 million, topping estimates of 223.7 million, according to IBES data from LSEG.
Revenue rose 11 per cent to 3.36 billion euros, beating estimates of 3.33 billion.
Spotify’s monthly user forecast for the fourth quarter sets the company firmly on target to reach 1 billion users and US$100-billion in revenue annually by 2030. Analysts had expected a forecast of 591.2 million listeners.
It also expects premium subscribers to reach 235 million in the last three months of the year and revenue to reach 3.7 billion euros. Analysts were expecting a forecast of 232.4 million premium subscribers and revenue of 3.69 billion euros.
On the decline
Teck Resources Ltd. (TECK.B-T) dropped 8.9 per cent on Tuesday after missing market estimates for third-quarter profit on Tuesday, pressured by lower prices for steelmaking coal and zinc, and reduced sales volumes of steelmaking coal and Highland Valley copper.
The Vancouver-based miner says it continues to evaluate offers put forward by prospective buyers of its steelmaking coal business with the hope of making a decision before the end of the year.
While CEO Jonathan Price said Tuesday he is pleased with the level of outside competition Teck has generated through its announced plan to separate its base metals business from its steelmaking coal business, the company will only accept a bid if it is confident regulators will approve the transaction.
“An important consideration will be the certainty of achieving separation, including receipt of the required regulatory approval,” Mr. Price told analysts on a conference call to discuss the Vancouver-based mining company’s third-quarter results.
“We have to consider the certainty of execution and the risks associated with any transaction ... And ultimately, we will do what we believe is in the best interest of our shareholders having regard for those regulatory and approval requirements.”
Teck, Canada’s largest diversified mining company, has been working to split its coal assets from its base metal operations, in the hope of expanding its copper and zinc production to meet growing global demand for these metals, both of which are used in the production of electric vehicles and are considered to be key resources for the coming energy transition.
Also on Tuesday, Teck raised the cost estimates for its QB2 copper project in Chile as it reported its latest quarterly results and lowered its production guidance for copper, molybdenum and steelmaking coal for the year.
The mining company said Tuesday it now expects the QB2 project to cost between US$8.6-billion and $8.8-billion, up from earlier guidance for between US$8.0 billion and US$8.2 billion.
Teck said delays in construction of the molybdenum plant and port offshore facilities, slower than planned demobilization progress and contract claims risk have put pressure on its capital cost guidance for project.
The update came as Teck said it earned a profit attributable to shareholders of $276-million or 52 cents per diluted share for the quarter end Sept. 30 compared with a loss of $195-million or 37 cents per share a year earlier.
The drop came as Teck faced lower prices for steelmaking coal and zinc, as well as reduced sales volumes from steelmaking coal and from Highland Valley Copper, partially offset by higher copper prices and a weaker Canadian dollar compared with a year ago.
Revenue totalled $3.60-billion, down from $4.26-billion in the same quarter last year.
On an adjusted basis, Teck says it earned 76 cents per diluted share, down from an adjusted profit of $1.74 per diluted share a year earlier.
In its guidance, Teck lowered its annual copper production forecast to 320,000 to 365,000 tons from 330,000 to 375,000 tons for this year and cut its annual molybdenum production guidance to 3.0 million to 3.8 million pounds from 4.5 million to 6.8 million pounds.
It also said it expects steelmaking coal production this year to be between 23.0 million and 23.5 million tons, down from earlier expectations for 24.0 million to 26.0 million tons.
In a research note, Scotia Capital analyst Orest Wowkodaw said: “TECK reported weaker than anticipated Q3/23 results and made several negative 2023 guidance revisions. Although the ramp-up at QB2 is making positive progress, the project capex was increased by another 7 per cent (to US$8.6-$8.8-billion). As expected, there was no material update with respect to the company’s planned metallurgical coal separation plans. Overall, we view the update as negative for the shares on a first-look basis.”
The Montreal-based transport company reported total revenue of US$1.911-billion, down from US$2.2-billion during the same period a year ago on a volume reduction related to weaker demand but above the Street’s expectation of US$1.902-billion. However, adjusted EBITDA of US$303-million and fully diluted earnings per share of US$1.57 fell below the consensus forecasts of $315-million and US$1.73, respectively.
TFI raised its quarterly dividend by 14 per cent to 40 cents a share.
“Last quarter, management was comfortable with adjusted EPS guidance of US$6.00–6.50 for 2023,” said Desjardins Securities analyst Benoit Poirier. “Consensus is now at US$6.46 (we forecast US$6.35), but with the significant EPS miss this quarter, it would have to deliver US$1.98 in 4Q just to meet consensus (this will be difficult, in our view, given the Yellow tailwind has now peaked, freight conditions are not improving much and consensus is calling for only US$1.74 in 4Q). A potential positive offset is US$737-million of tuck-in M&A (US$652m) and buybacks completed year-to-date (vs guidance-implied target of US$500-million). We expect a negative trading reaction.”
General Motors (GM-N) on Tuesday withdrew its 2023 profit outlook just ahead of a new United Auto Workers walkout at one of its most profitable factories.
With the UAW clash throttling revenue and profits, Chief Executive Mary Barra told investors the automaker will slow its electric vehicle strategy to put profits ahead of sales targets.
United Auto Workers President Shawn Fain ordered a walkout at the automaker’s Arlington, Texas, factory, which builds highly profitable Cadillac Escalade, Chevrolet Suburban and other large SUVs. The move came less than four hours after GM posted better-than-expected third quarter results.
The UAW’s move to shut down one of GM’s most profitable plants will push the weekly cost of the union’s strikes well above the US$200 million-a-week rate GM executives outlined for investors earlier Tuesday.
GM’s third quarter results beat expectations. Mr. Fain pointed to that as a cause for the UAW to increase pressure on the company to improve its contract offer, which currently includes a 23-per-cent wage increase over 4-1/2 years.
“It’s time GM workers, and the whole working class, get their fair share,” Mr. Fain said in a statement Tuesday.
During a call with analysts, Ms. Barra called GM’s offer a record contract that would allow GM’s U.S. factory workers to earn up to US$84,000 a year, and also compel the company to look for further cost savings.
“We will not agree to a contract that isn’t responsible to our employees and our shareholders,” she said.
GM’s third-quarter net income fell 7.3 per cent to US$3.06-billion, while revenue rose 5.4 per cent to US$44.1-billion. The adjusted earnings per share tracked by analysts were US$2.28, ahead of Wall Street expectations and up from US$2.25 a year ago because of the effect of share buybacks.
GM shares closed down 2.2 per cent in volatile Tuesday trading, fluctuating between gains and losses and hitting their lowest levels in three years at one point.
The rising toll of the UAW strikes, the outlook for higher labor costs once a new contract is reached, rising warranty expenses and an uncertain macroeconomic outlook have forced GM to abandon previous targets for full-year financial performance that it had lifted in July.
As the pace of EV sales growth has slowed in North America and even industry leader Tesla is expressing caution over the pace of its expansion, GM is reworking its EV strategy in the region, pulling back from efforts to challenge Tesla’s lead in the U.S. EV segment.
Citi analyst Itay Michaeli said: “Another impressive beat supporting our thesis around GM’s macro resilience. Q3 adj. EPS of $2.28 ahead of our $1.89 (consensus $1.84) on EBIT-adj. of $3.6-billion (Citi $3.2-billion) with beats across key segments: GMNA EBIT-adj. at $3.5-billion (Citi $3.4-billion) or a 9.8-per-cent margin, GMI at $0.4-billion (Citi $0.2-billion) with China margins improving, and GMF at $0.7-billion (Citi $0.6-billion). Strong Q3 FCF also stands out ($4.3-billion vs. our $1.7-billion) bringing YTD [year-to-date] to $9-billion (22-per-cent yield). 2023 guidance understandably withdrawn due to the UAW situation, however, with GM’s U.S. inventory exiting Q3 in good shape and mid-Oct U.S. datapoints looking sound, it’s clear to us that Q3 positions GM well into Q4. On EVs, despite (unsurprisingly) adjusting volume targets (GM now expecting to exit 2025 with 1 million units of NA capacity), GM confirms its low-to-mid single digit 2025 EV margin target, which should come as a relief. Overall, an encouraging outcome. "
U.S. energy giant Halliburton (HAL-N) slipped 3.4 per cent after it reported a 32-per-cent rise in third-quarter profit on Tuesday as higher international drilling and equipment demand helped overcome weakness in North America.
Oil and gas companies, who rely on service providers for drilling, well construction and completion services, are reinvesting record profits from the market disruption caused by Russia’s invasion of Ukraine to intensify the hunt for new offshore and international sources.
“Everything I see today strengthens my conviction in the long duration of this upcycle. Against this backdrop, we expect continued demand growth for oilfield services in 2024 and beyond,” CEO Jeff Miller said in a statement.
International revenue rose 3 per cent sequentially to US$3.2-billion in the quarter on the back of Latin America strength, while revenue from North American fell 3 per cent to US$2.6-billion.
“This decline was primarily driven by decreased pressure pumping services in U.S. land and lower well intervention services in the Gulf of Mexico,” Halliburton said.
North American producers have kept a tight lid on spending and production since the 2020 prices downturn. Halliburton and rival Baker Hughes (BKR-Q) had in July warned of weakening North America oilfield activity.
Bigger rival SLB (SLB-N) on Friday beat third-quarter estimates on strong global oil drilling activity, but was also hurt by North American weakness.
The Houston-based Halliburton said net income attributable to the company rose to US$716-million, or 79 US cents per share, for the three months ended Sept 30, from US$544-million or 60 US cents per share, a year earlier.
On an adjusted basis, Halliburton posted a profit of 77 US cents, in line with the analysts’ average estimate, according to LSEG data.
Citi analyst Scott Gruber said: “Implications — Modest positive. We recently raised HAL to our top pick within Big OFS given the greater potential for 3q results to lift 2024 earnings expectations amongst investors. If the C&P [Completion and Production] margin beat is sustainable and Middle East/Asia growth resumes, then expectations toward 2024 could move higher.”
With files from staff and wires