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A look at North American equities heading in both directions

On the rise

Restaurant Brands International Inc. (QSR-T) was higher on news it has hired an executive known for leading a turnaround at Domino’s Pizza Inc. (DPZ-N) as its new executive chair, and is giving him one of the largest sign-on executive compensation packages in Canadian history.

Theparent company of Tim Hortons announced Patrick Doyle as its new executive chair on Wednesday. He will replace co-chairs Alex Behring and Daniel Schwartz, who are co-managing partners of 3G Capital, RBI’s largest shareholder. Both Mr. Behring and Mr. Schwartz will remain on the board.

The Toronto-based company, which also owns fast-food chains Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, is making the move as it seeks to boost its stock performance, which its executives believe has lagged the underlying value of the business. While the company’s share price has recovered from a significant dip during the early days of the pandemic, it is hovering around roughly the same price it reached five years ago.

“We have multiplied the value of the company by over 20 times since 2010, but I think we can grow even faster than we’re already growing for shareholders and our franchisees,” Mr. Schwartz said in an interview, adding that 3G is not looking for an exit. “Our investment in RBI is generational. It’s not the five, 10-year – we’re here for the very long term.”

Mr. Doyle is expected to take an active role in advising the company’s executive team, which is in the midst of a two-year, US$400-million investment in improving Burger King’s lagging U.S. business. RBI has begun to see improvements in its Tim Hortons business, following what the company called a “back to basics” turnaround plan.

- Susan Krashinsky Robertson and David Milstead

Loblaw Cos Ltd (L-T) increased in the wake of raising its annual earnings forecast on Wednesday as groceries and drugs continue to see robust demand despite higher prices.

As a cost-of-living crisis grips Canada, retailers are leaning on sales of food, medicines and other essentials to offset a slowdown in demand for more expensive purchases such as clothing and electronics.

Retail bellwether Walmart Inc (WMT-N) on Tuesday raised its annual forecasts, banking on resilient demand for groceries and discounts to attract inflation-hit consumers.

Loblaw now expects fiscal 2022 adjusted earnings per share growth in the high teens, compared with its prior estimate of mid-to-high teens.

Total revenue rose to $17.39-billion in the quarter ended Oct. 8, from $16.05-billion a year earlier. That beat analysts’ estimates of $16.85-billion, according to IBES data from Refinitiv.

In a research note released before the bell, Desjardins Securities analyst Chris Li said: “The top line was strong, with same-store sales ahead of our estimates across all businesses. This was partly offset by slightly softer Retail gross margin, while the SG&A expense rate was in line. Management expects full-year 2022 adjusted EPS growth in the high-teens percentage (vs previous guidance of mid- to high teens). We estimate this implies EPS of $1.56–1.61 for 4Q (up mid-single-digit percentage), slightly below our $1.63 estimate and consensus of $1.68. Given the company’s strong execution and favourable asset mix in the current environment, we believe there is potential upside.”

Metro Inc. (MRU-T) also rose after it reported its fourth-quarter profit fell compared with a year ago as it took a $60-million charge related to the company’s decision to have its Jean Coutu drugstore chain withdraw from the Air Miles loyalty program next year.

President and CEO Eric La Fleche said Wednesday the retailer expects food inflation to moderate in the new year as prices are compared against the high inflation of 2022.

But the outlook remains uncertain as the grocer continues to field cost increase notices from suppliers for February, he said.

His comments during a call with analysts suggest food inflation could persist for several more months as higher costs continue to work through the supply chain.

Statistics Canada said Wednesday that the price of food purchased from stores increased 11 per cent in October, the eleventh consecutive month grocery bills increased at a faster rate year over year than the overall consumer price index..

The grocery and drugstore retailer said it earned $168.7-million or 70 cents per diluted share for the quarter ended Sept. 24 compared with a profit of $194.0-million or 79 cents per diluted share a year ago.

Sales totalled $4.43-billion, up from $4.09-billion in the same quarter last year.

Food same-store sales gained 8.0 per cent, while pharmacy same-store sales rose 7.4 per cent.

On an adjusted basis, Metro says it earned 92 cents per diluted share in its latest quarter, up from an adjusted profit of 81 cents per share a year ago.

Analysts on average had expected a profit of 90 cents per share and $4.29-billion in sales, according to estimates compiled by financial markets data firm Refinitiv.

Stelco Holdings Inc. (STLC-T) jumped despite saying its net earnings for the third quarter ended Sept. 30 were down by almost 74 per cent year-over-year to $158-million, or $2.33 per diluted share.

The Hamilton-based steelmaker says challenging market conditions in the third quarter, which are expected to continue, included lower steel prices and inflationary pressure.

The company’s revenue was $217-million for the quarter, down 38 per cent from last year and down 18 per cent from the second quarter.

The company says its revenue decrease was primarily due to a 36-per-cent decline in average selling price per net ton, as well as lower shipping volumes and lower non-steel sales, all compared to last year.

However, executive chairman and chief executive Alan Kestenbaum says despite inflation and downward steel pricing trends, the company saw shipping volumes increase over last quarter.

The company reiterated its fourth-quarter guidance that lower prices and shorter lead times will continue to affect results throughout the rest of the year.

NFI Group Inc. (NFI-T) increased with the release of better-than-expected financial results after the bell on Tuesday.

The Winnipeg-based bus manufacturer reported third-quarter revenue of US$514-million up from US$492-million a year ago. The expectation was for revenue of US505.4-million.

Its net loss was US$42.6-million or 56 US cents per share compared to US$15.4-million or 22 US cents a year ago. The adjusted loss was 63 US cents per share versus 16 US cents a year ago. The expectation was for an adjusted EPS loss of 56 US cents, according to S&P Capital IQ.

The company also reaffirmed its financial guidance expectations updated on Oct. 24.

In a research note, ATB Capital Markets equity analyst Chris Murray said: “The numbers were in line with the preliminary results released on October 24 and reinforce that supply chain challenges remain a headwind. Management confirmed that it continues to work with its syndicate and various government bodies to structure a more flexible covenant package given NFI is likely to breach several covenants at Q4/22. Management reiterated that it expects a gradual recovery in H1/23, with a return to more normal levels of production expected in H2/23. Overall, the print was in line with our expectations, and we remain encouraged by the bidding activity and that constructive discussions with lenders remain ongoing. We see potential for the stock to react positively given the results did not come with a capital raise.”

Lowe’s Cos Inc. (LOW-N) raised its annual profit forecast on Wednesday, encouraged by higher prices and steady demand for home improvement products despite decades-high inflation and cooling home prices.

Shares of the North Carolina-based retailer rose in Wednesday trading after it also topped Wall Street estimates for third-quarter results.

Higher mortgage rates are keeping consumers from buying new homes and instead renovating their existing properties, which has buoyed demand at home improvement chains at a time when spending on paint and tools has slowed from the pandemic peak.

Lowe’s upbeat earnings forecast comes in contrast with comments from larger rival Home Depot Inc. (HD-N), which on Tuesday left its annual forecasts unchanged despite beating quarterly estimates, blaming “mixed signals” around demand in a slowing housing market.

Analysts said Lowe’s, which earlier this year named insider Brandon Sink its new finance chief, showed real progress in its third-quarter results, after its comparable sales declined for two straight quarters this year.

The company’s comparable sales rose 2.2 per cent in the three months to Oct. 28, beating analysts’ forecast of 0.9-per-cent growth, thanks to strong demand from contractors and professional builders, and improving demand from do-it-yourself customers who bring in about 75 per cent of Lowe’s total revenue.

“In a more difficult operating environment, we think that Lowe’s results show the operational improvements that the company has made under the new management team,” D.A. Davidson analyst Michael Baker said.

The company forecast full-year adjusted earnings of US$13.65 to US$13.80 per share, compared with the prior estimate of $13.10 to $13.60.

Its quarterly net sales rose more than 2 per cent to US$23.48-billion, topping analysts’ estimates of US$23.13-billion, while adjusted earnings of US$3.27 per share also came above expectations for a profit of US$3.10 per share.

The company, however, trimmed the upper end of its 2022 sales and comparable sales forecasts.

On the decline

Target Corp. (TGT-N) shares tumbled on Wednesday and dragged down rival retailers after warning sales would slide in the holiday quarter and announcing plans to save up to YUS$3-billion in cost cutting to shore up profits.

Shares in other U.S. retailers, which like Target have been offering sharp discounts to clear inventories, also fell, including Macy’s Inc. (M-N), Costco Wholesale Corp. (COST-Q) and Best Buy Co. (BBY-N).

“After so many emergency rate hikes it’s now affecting the consumer a little bit and I think it’s evidenced in Target today,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

Target, which said third-quarter profit had halved, warned of “dramatic changes” in consumer behavior for a drop in demand for everything from toys to home furnishings.

Target’s larger competitor Walmart also slipped, a day after lifting its annual sales and profit forecast as demand for groceries held up despite higher prices.

With annual inflation running at 7.7% in October and high interest rates, shoppers are skimping on discretionary spending, a gloomy prospect for a sector that relies on year-end shopping for a large portion of its annual sales.

Semiconductor firm Micron Technology Inc. (MU-Q) was down after it said on Wednesday it will reduce memory chip supply and make more cuts to its capital spending plan, as the semiconductor firm struggles to clear excess inventory due to a demand slump.

Micron was the first major chipmaker to sound an alarm about falling demand for PCs and smartphones earlier this year in the face of decades-high inflation.

“In order to significantly improve total inventory ... DRAM bit supply will need to shrink and NAND bit supply growth will need to be significantly lower than previous estimates,” the company said.

Micron is reducing DRAM and NAND wafer starts - or the initial process in semiconductor production - by about 20 per cent compared with the fourth quarter that ended on Sept. 1.

For 2023, the company expects its year-on-year bit supply growth to be negative for DRAM and in the single-digit percentage range for NAND.

Real Matters Inc. (REAL-T), a Toronto-based network management services platform for the mortgage and insurance industries, reported revenue of US$58.2-million for its fourth quarter ended Sept. 30, down from US$125.6-million a year ago. The expectation was for revenue of US$70.8-million in the latest quarter, according to S&P Capital IQ

Its net loss was US$10-million or 14 US cents per share compared to a profit of US$9.1-million or 11 US cents per share a year ago.

“Despite the decline in revenues, net revenue margin beat, and the Company continues to limit losses, which we believe will limit the investor reaction to the miss,” said ATB Capital Markets analyst Martin Toner in a note.

Carnival Corp.’s (CCL-N) shares plummeted on Wednesday after the cruise line operator announced plans to raise more debt, revealing a private offering of US$1-billion convertible bonds as part of its 2024 refinancing plan.

The conversion price of US$13.39 represents a 20-per-cent premium to the stock’s last sale on Tuesday.

Carnival plans to use net offering proceeds to make principal payments on debt and for general corporate purposes. It comes about a month after it priced upsized US$-2-billion six-year bonds, citing strong investor demand.

Its rivals Royal Caribbean Cruises Ltd. (RCL-N) and Norwegian Cruise Line Holdings Ltd. (NCLH-N) also dropped.

With files from Brenda Bouw, staff and wires