A roundup of some of the North American equities that made moves in both directions
On the rise
Cenovus Energy Inc. (CVE-T) jumped after it reported a more than seven-fold jump in quarterly profit that surpassed analyst estimates and nearly tripled its dividend, as supply concerns boosted crude prices to multi-year highs.
Russia’s invasion of Ukraine has exacerbated concerns about an already-tight global oil market and pushed crude prices to their highest levels in more than a decade. West Texas Intermediate crude, the U.S. benchmark was last trading around $100.
Cenovus bought rival Husky Energy last year to create Canada’s second-largest oil and gas producer. Upstream production rose to 798,600 barrels of oil equivalent per day (boepd) in the first quarter, from 769,254 boepd a year earlier.
The company, which reduced its net debt to $8.4-billion as of the end of March, announced plans to return 50 per cent of excess free funds flow to shareholders through buybacks or variable dividends when debt is below $9-billion.
When net debt falls below Cenovus’s target of $4-billion, the company plans to return 100 per cent of excess free funds to shareholders.
“We have built this business with a focus on free funds flow generation and we have made rapid progress on the balance sheet,” Cenovus chief executive Alex Pourbaix said on a conference call.
The company said its base dividend will increase from 14 cents per share to 42 cents per share annually, beginning in the second quarter of this year.
Excluding one-time items, Cenovus earned 79 cents per share, beating analysts’ estimates of 71 cents per share, according to IBES data from Refinitiv.
Cenovus raised its 2022 capital expenditure forecast by $300-million to a range of $2.9-billion to $3.3-billion, to reflect increased costs associated with rebuilding its Superior Refinery in Wisconsin.
Miner Teck Resources Ltd. (TECK.B-T) Wednesday beat market estimates for quarterly profit on the back of higher copper and coking coal prices, sending its shares higher.
Copper prices climbed to record highs in the first three months of the year on fears that Russia’s invasion of Ukraine and the resulting sanctions from the West would upend supply. The metal has also benefited from demand sparked by its key role in the transition from fossil fuels to electrification.
Teck said its average realized price for copper rose about 15 per cent to $4.51 per pound in the quarter, while its realized steelmaking coal prices more than doubled to $357 per ton.
But Teck saw some pressure from rising inflation, especially in diesel prices, with operating costs surging 13 per cent.
That prompted the company to raise its view for steelmaking coal unit cost in 2022 by around 9 per cent. Teck kept its cost outlook for copper and zinc unchanged.
“The fact that the company maintained its base metals guidance and carries some natural protection from inflation via its oil and zinc asset is likely a win in our view,” J.P. Morgan analyst Michael Glick wrote in a note.
Adjusted quarterly profit came in at $2.96 per share, topping analysts’ estimate of $2.89 per share, according to Refinitiv IBES data.
Toronto-based First Quantum Minerals Ltd. (FM-T) increased after it reported late Tuesday a 171-per-cent jump in its first-quarter profit, powered by higher copper prices from supply worries.
Realized price of copper, a key metal used in wiring, electric vehicles and electronics, rose nearly 37 per cent to US$4.45 per pound in the quarter, the company said, on fears that Russia’s invasion of Ukraine would disrupt supply chains.
But the company’s total copper and gold production fell to 182,210 tons and 70,357 ounces, respectively, while nickel production rose to 5,122 tons.
In Panama, site of its largest operations, the company reached record mill throughput of 7.6 million tons in March and completed planned maintenance at its supplying power plant. Following a deal for a contract renegotiation between First Quantum and the Panama government in January, details are pending for the agreement to pass the National Assembly.
First Quantum lowered its production guidance for 2022 to 790,000-855,000 tons of copper, from a previous estimate of 810,000-880,000 tons.
First Quantum also mentioned increased operational costs for fuel, explosives, sulfur, freight, reagents and steel.
“Such inflationary pressures have currently added approximately $0.10 per pound to monthly copper cash costs and approximately $0.50 per pound to monthly nickel cash cost.”
The company said it has a collar structure in place for coal purchases with the ceiling price already exercised, limiting exposure to further increases in coal prices through 2023.
Net earnings attributable to the company’s shareholders rose to US$385-million, or 56 US cents per share, in the quarter, from US$142-million, or 21 US cents per share, a year earlier.
In a research note, Raymond James equity analyst Farooq Hamed said: “Overall, we expect investors to be disappointed by the reduced copper production guidance out of Zambia. We expect investors were already expecting cost warnings and potential cost guidance increases for miners.”
The business technology and consulting firm says the profit amounted to $1.53 per diluted share for the quarter ended March 31, up from $1.34 per diluted share a year earlier.
Revenue in what was the second quarter of CGI’s financial year totalled $3.27-billion, up from $3.08-billion in the same quarter last year.
On a constant currency basis, CGI says revenue grew by 10 per cent year over year.
The company’s profit excluding specific items amounted to $1.53 per diluted share, up from $1.35 a year earlier.
Analysts on average had expected a profit of $1.51 per share and $3.19 billion in revenue, according to financial markets data firm Refinitiv.
Microsoft Corp. (MSFT-Q) saw gains as it forecast double-digit revenue growth for the next fiscal year, driven by demand for cloud computing services.
Microsoft forecast Intelligent Cloud revenue of US$21.1-billion to US$21.35-billion for its fiscal fourth quarter, driven by strong growth in its Azure platform. That compared with a Wall Street consensus of US$20.933-billion, according to Refinitiv data.
“If there is any macro headwind, where you have more value for less price means you win. In our case, when it comes to our commercial cloud offerings, we have significant advantages on that across the stack,” Microsoft’s chief executive, Satya Nadella, said when asked how the company was projecting double-digit growth for the next fiscal year.
TECHnalysis Research chief analyst Bob O’Donnell noted Microsoft’s ability to buck industry trends.
“Despite current gloom and doom around big tech, Microsoft’s strong revenues and robust forecast highlight that not all tech is at risk,” O’Donnell said. “For companies that focus on delivering products and services that businesses need to modernize their operations ... there’s still plenty of upside.”
Microsoft on Tuesday reported profit and revenue for its fiscal third quarter that beat Wall Street expectations, also benefiting from demand for its cloud-based services.
Microsoft results indicate that it can keep its pandemic-fueled sales growing as economies reopen and businesses shift to a hybrid model of allowing staff to alternatively work from office and home.
The company reported revenue of US$49.36-billion in the third quarter, compared with US$41.7-billion a year earlier. Analysts on average had expected revenue of US$49.05-billion, according to Refinitiv IBES data.
Net income rose to US$16.73-billion, or US$2.22 per share, in the quarter ended March 31, from US$15.46-billion, or US$2.03 per share, a year earlier. That topped analyst targets of $2.19
Visa Inc. (V-N) was up after saying late Tuesday it expects revenue to accelerate past pre-pandemic levels, reassuring investors of a sustained recovery against the backdrop of challenging macroeconomic conditions.
The forecast from the world’s largest payments processor followed an upbeat quarter fueled by a rebound in consumer spending as easing pandemic restrictions and falling COVID-19 cases encouraged more people globally to travel and shop.
However, runaway inflation, interest rate increases and the invasion of Ukraine are clouding the outlook for global growth this year.
Visa, which in March suspended its operations in Russia, warned of an about 4-per-cent hit to its revenue this year from the Ukraine conflict, the latest global company to flag an impact from the crisis.
Still, the payments giant said it was currently not seeing any material impact on cross-border travel in other parts of Europe as a result of the conflict.
Cross-border volumes jumped 38 per cent during the second quarter, with total payment volumes rising 17 per cent.
The company reported net income of US$3.6-billion, or US$1.70 per share, above analysts’ average estimate of US$1.65 per share, according to IBES data from Refinitiv.
Visa’s operating expenses, however, surged 11 per cent to US$2.4-billion as it spent more on employee compensation and marketing.
The talks on a possible sale come a few months after the California-based company’s chief executive officer, Ynon Kreiz, said Mattel had completed its turnaround plan and was in “growth mode.”
In its fourth-quarter results in February, Mattel forecasted full-year profit above analysts’ estimates, citing robust demand for its Barbie dolls and other toys that would help the toymaker weather rampant supply chain disruptions.
L Catterton declined to comment. Mattel and Apollo Global Management did not immediately respond to requests for comment.
In January, Mattel won the rights to produce dolls based on Disney royalty like Elsa and Jasmine, snatching back a highly lucrative license from archrival Hasbro Inc.
On the decline
Citing tough operating conditions and “worldwide economic uncertainty,” the company now predicts adjusted diluted earnings per share growth of between 15 and 20 per cent, versus its target of 20 per cent at the start of the year.
“We will bring this company back to being best in class,” said Tracy Robinson, who came on board as CEO on Feb. 28. She arrived from TC Energy, where she headed the energy company’s natural gas pipelines operations.
“There’s been a big shock to the supply chain. And we’re working very hard to get our rhythm back,” Robinson told analysts on a conference call.
Higher fuel surcharges and freight rates along with bigger coal and U.S. grain export volumes boosted revenue five per cent. But a smaller overall grain crop, global supply snarls and a cold winter all contributed to a net earnings drop of six per cent last quarter.
In a research note titled New CEO, Consistent Message, Citi analyst Christian Wetherbee said: “Coming off CN’s 1Q call two issues investors should be in focus. First, new CEO Tracy Robinson made the impression we expected. She generally said the right thing about balancing growth and profitability, but her messaging appears aligned with the board, which has emphasized growth over OR [operating ratio]. But this is not a surprise as she won the job against candidates with significantly more of a cost-first approach. The second issue is guidance. As expected, CN cut its OR and EPS growth targets. The good news is that we believe the majority of the cut is driven by 1Q weakness, with better performance expected in 2Q-4Q. The bad news is that the outlook supports EPS of $6.80, which is below consensus’ $7.03. Ultimately, in spite of a 1Q challenges, volume is accelerating and the toughest quarter of 2022 is likely behind CN. This should mitigate some pressure on shares near-term.”
Cannabis producer Canopy Growth Corp. (WEED-T) slid after revealing it is laying off 250 people, about a 10th of its staff, in a cost-cutting plan to save the company $100-million to $150-million within 12 to 18 months in order to reach profitability.
The layoffs are not tied to a specific facility closing, but rather a reorganization of team structures, said Canopy spokesperson Jennifer White in an e-mail to The Globe and Mail. At the end of March, Canopy employed 3,084 people.
She confirmed the company will retain its primary production facilities in Smiths Falls and Kincardine in Ontario, and Mirabel, Que., and “no production facilities” are affected by the announcement.
Other planned measures include increasing partnerships with contracted manufacturing organizations and small craft cannabis producers, as well as maintaining Canopy’s core production, Ms. White said.
In the company’s fiscal 2022 third quarter, ended Dec. 31, 2021, Canopy reported a $115.5-million net loss, compared with a net loss of $829.3-million in the same quarter a year earlier. Its revenue fell 8 per cent as the falling cost of cannabis continued to drag down earnings across the sector.
- Irene Galea
Google parent Alphabet Inc. (GOOGL-Q) fell in response to reporting its first quarterly revenue miss of the pandemic after the war in Ukraine hurt YouTube ad sales, leaving investors rattled as the global economy sputters.
The world’s largest provider of search and video made a fortune over the last two years as the pandemic forced more shops and people online. But outdoing those sales is proving difficult so far this year with the war, rising inflation and product shortages causing advertisers to dump marketing campaigns, according to analysts.
Alphabet Chief Financial Officer Ruth Porat said it was too early to predict when sales slowed by the war may pick up and warned that the strengthening U.S. dollar would hurt sales even more in the current quarter.
Alphabet shares, which were up nearly 90 per cent over the past two years, fell after the results late on Tuesday. They had dropped 3.6 per cent during the regular session.
David Wagner, portfolio manager at Aptus Capital Advisors, voiced growing concerns about the macro environment. “Alphabet has been seen as one of the most insulated companies in the advertising space relative to peers, but sometimes you can still own the best house in the worst neighborhood,” he said.
Alphabet said first-quarter sales rose to US$68.01-billion, up 23 per cent from last year but below the average estimate of US$68.1-billion among financial analysts tracked by Refinitiv, its first miss since the fourth quarter of 2019.
Notably, YouTube advertising sales of US$6.9-billion missed analysts’ target of US$7.5-billion, according to FactSet.
Quarterly profit was US$16.44-billion, or US$24.62 per share, missing expectations of US$25.76 per share.
Alphabet also said its board had authorized an additional US$70-billion in stock repurchases. It has bought back over US$81-billion in shares over the last two years.
Boeing Co. (BA-N) unveiled US$2.7-billion in charges and added costs across its aircraft portfolio on Wednesday, and expressed doubts over hitting jet delivery targets as technical problems, inflation and supplier risks cloud its path toward recovery.
Shares of the U.S. planemaker fell to a nearly 1-1/2 year low after it posted a quarterly loss and announced it was halting 777X production through 2023 due to a fresh delay in its entry into service after certification problems and weak demand.
“Another dreadful set of results,” Agency Partners analyst Nick Cunningham said in a client note, adding that a “general sense of disarray continues.”
On the plus side, Boeing said it submitted a certification plan to U.S. air-safety regulators in a step toward resuming deliveries of its 787 Dreamliner, halted for nearly a year by inspections and repairs in a separate industrial headache costing about US$5.5-billion.
The twin-aisled Dreamliner, along with its cash cow 737 MAX, are vital to Boeing’s ability to emerge from overlapping coronavirus and jet-safety crises, a path steepened by war in Ukraine.
Boeing did not specify when Boeing would resume Dreamliner deliveries. Reuters reported last week Boeing had advised key airlines and parts suppliers that the deliveries would resume in the second half of this year.
Boeing also confirmed a delay in handing over the first 777X jet to 2025, from the previous target of late 2023, but said it remained confident in the program.
“We’ve got to give ourselves the time and freedom to get this right,” Calhoun told analysts.
It reported a quarterly core loss per share of US$2.75, compared with a loss of US$1.53 per share a year ago. Revenue fell to US$13.99-billion from US$15.22-billion.
Like other aerospace companies, Boeing is grappling with supply chain logjams, inflation and fallout from war in Ukraine.
“Inflation continues to take a hard run at everything we do,” Calhoun told analysts.
It booked a US$660-million charge in the quarter on its VC-25B - commonly known as Air Force One - due to higher supplier costs and technical problems and schedule delays.
“Air Force One, I’m just going to call a very unique moment, a very unique negotiation, a very unique set of risks that Boeing probably shouldn’t have taken,” Calhoun said. “But we are where we are, and we’re going to deliver great airplanes. And we’re going to recognize the costs associated with it.”
Boeing also recorded US$367-million in charges for its T-7A Red Hawk trainer jet due to inflation, supply chain issues and pandemic impacts.
And it booked pre-tax charges of US$212-million due to the war in Ukraine and international sanctions against Russia, which pose risks to materials supply and aircraft orders.
Asked whether Boeing would hit a 500-aircraft delivery target for the 737 MAX this year, Chief Financial Officer Brian West said, “we probably won’t get quite all the way there.”
With files from staff and wires