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A look at North American equities heading in both directions

On the rise

Shares of Dollarama Inc. (DOL-T) jumped over 5 per cent after it raised its full-year same-store sales forecast on Wednesday, as the Canadian discount store chain benefited from inflation-weary consumers shopping at its stores in search of cheaper groceries and household supplies.

While inflation in Canada has eased in recent months, consumers are still battling higher prices of groceries and gasoline, prompting more shoppers to make their purchases at discount retailers.

Dollarama hikes sales forecast as high inflation drives shoppers to seek cheaper groceries, household goods

Montreal-based Dollarama has seen robust demand for consumables such as snack bars, chocolates and beverages, and also rolled out additional price points up to $5 to expand the range of products.

The company’s U.S. counterpart Dollar Tree Inc. (DLTR-Q) raised its annual net sales forecast in November, while Dollar General Corp. (DG-N) said last week that its full-year same-store sales would be toward the upper end of its previous estimate.

Dollarama said it now expects comparable store-sales growth between 9.5 per cent and 10.5 per cent for fiscal 2023, up from prior forecast of 6.5-7.5 per cent.

The company also narrowed its forecast range for full-year gross margin to a range of 43.1 per cent to 43.6 per cent, from prior estimate of 42.9 per cent to 43.9 per cent.

The company’s third-quarter net sales rose 14.9 per cent to $1.29-billion, compared with analysts’ average estimate of $1.23-billion, according to IBES data from Refinitiv.

It reported a profit of 70 cents per share for the quarter ended Oct. 30, in line with Wall Street estimates.

Mobileye Global Inc. (MBLY-Q) beat estimates for revenue and earnings on Wednesday in its first quarterly report after going public in October, as the Intel Corp. (INTC-Q) unit benefited from strong demand for its self-driving technology from carmakers.

Shares of the company closed 5.3 per cent higher after it also forecast a revenue range for the current quarter that came in well above expectations.

A push to incorporate assistive-driving capabilities to bolster safety features in cars has led to greater adoption of self-driving technology, helping companies such as Mobileye.

Total revenue at Mobileye grew 38 per cent to US$450-million in the third quarter ended Oct. 1. Analysts were expecting revenue of US$447-million, according to Refinitiv data.

Net loss, however, widened to US$45-million from US$26-million. On an adjusted basis, the company earned 15 US cents per share, above analysts’ estimates of 12 US cents, according to Refinitiv.

It forecast fourth-quarter revenue of between US$527-million and US$545-million. Analysts were expecting revenue of US$483.7-million for the quarter.

Mobileye, which counts BMW, Nissan, Volkswagen, among others as its customers, listed on the Nasdaq on Oct. 26 after raising US$861-million in an initial public offering. Its stock has risen 45 per cent from the IPO price of $21, valuing the company at US$24.45-billion.

On the decline

Mosaic Co. (MOS-N) slipped after it said late Tuesday that it has temporarily curtailed potash production at its Colonsay, Saskatchewan, mine, citing slower-than-expected demand.

Up to Tuesday’s close, shares of the fertilizer producer had risen 22 per cent year-to-date, versus a 17.3-per-cent decline in S&P 500 index .

Mosaic said in a statement that its inventories are adequate to meet demand in the short term. The company had restarted Colonsay in August 2021 after idling it for two years.

Potash prices spiked this year due to sanctions against Russia and Belarus, the world’s second- and third-biggest producers after Canada.

Prices have since declined, however.

Mosaic’s decision to curtail production is short-term and longer-term fundamentals look positive, said Chief Executive Joc O’Rourke. The Florida-based company expects to restart both of Colonsay’s mills in early 2023.

Colonsay was producing at a rate of 1.3 million tonnes annually, and plans an expansion to raise output to between 1.8 million and 2 million tonnes by late next year.

Rival Nutrien Ltd. (NTR-T) is carrying out a potash expansion of its own in Saskatchewan.

Southwest Airlines Co. (LUV-N) was down despite becoming the first major U.S. airline to reinstate its quarterly dividend, more than two years after suspending it in the wake of the coronavirus pandemic.

U.S. airlines have benefited from pent-up demand for leisure trips and a gradual return of lucrative business travel, helping them post strong quarterly earnings despite worries of an economic slowdown.

“Our fourth-quarter 2022 outlook remains strong, and we have a solid plan for 2023,” Chief Executive Officer Bob Jordan said in a statement.

In a regulatory filing ahead of its investor day on Wednesday, Southwest said it was expecting “strong leisure revenue trends” to continue into the first quarter of next year, while business travel was expected to improve.

The carrier also trimmed its fourth-quarter fuel cost forecast by about 5 US cents per gallon, compared with its previous estimate.

Southwest declared a third-quarter dividend of 18YUS cents per share, the same level at which it was prior to the pandemic. The dividend will be paid on Jan. 31.

The airline did not detail any stock buyback plans, which have been fiercely opposed by unions, who have asked U.S. airlines to focus on investing in their workers and fixing operational issues.

As part of the federal COVID-19 relief package, airlines had been prohibited from buying back their shares. The ban, however, expired on Sept. 30.

Shares of GSK (GSK-N) and Sanofi (SNY-Q) gave back big early gains on Wednesday following the dismissal of thousands of U.S. lawsuits claiming that the heartburn drug Zantac caused cancer.

The ruling on Tuesday by U.S. District Judge Robin Rosenberg in West Palm Beach, Fla., knocked out about 50,000 claims in federal court on the basis that they were not backed by sound science.

The drugmakers, citing scientific consensus, have repeatedly asserted that Zantac does not cause cancer.

The Florida outcome represents a “nice early Christmas present for the defendants. Was this all just a storm in a tea-cup after all?,” Bernstein analysts wrote in a note.

The ruling can still be appealed and the decision does not directly affect tens of thousands of similar cases pending in state courts around the country. In a statement on Wednesday, GSK said it would continue to defend itself vigorously, including against all claims brought at the state level.

Although it is unlikely investors will assume Zantac risk has completely dissipated, Wall Street analysts suggested the probability and scale of future Zantac damages via other legal routes do look significantly lower.

Originally marketed by a forerunner of GSK, the medicine has been sold by several companies at different times, including Pfizer, Boehringer Ingelheim and Sanofi as well as a plethora of generic drugmakers.

Uncertainty surrounding the litigation had wiped almost US$40-billion off the market value of GSK, Sanofi, Pfizer and Haleon (HLN-N) over roughly a week in August, with shareholders fearing payouts of billions of dollars, similar to cases involving Merck & Co’s painkiller Vioxx and Bayer’s glyphosate-based weedkiller Roundup.

At their peak, the gains on Wednesday meant GSK and Sanofi had almost recouped all the losses since that brutal selloff in August, adding as much as US$21.1-billion in combined market value.

In the first few of hours of Wednesday trading, more of GSK’s London-listed stock changed hands than the average for a full day over the past five years, according to Refinitiv data.

Brazilian miner Vale SA (VALE-N) was lower after it said on Wednesday it expects to produce between 310 million and 320 million tons of iron ore in 2023, against an output of about 310 million this year.

Brazilian mining giant Vale to sell minority stake in base metals unit to unnamed investor

The mining giant added in a securities filing that its capital expenditure (capex) is set to reach US$6.0-billion next year, up from US$5.5-billion in 2022, and will average US$6.0-6.5-billion per year between 2024 and 2027.

The fresh forecasts came as Vale holds an investor day in New York on Wednesday.

The company also said it sees its iron ore production growing in the coming years to reach 340-360 million tons in 2026 and more than 360 million from 2030 onwards.

Vale, which has previously announced it was mulling potential partnerships for its base metals business, also provided new estimates for nickel and copper production.

The company’s nickel output is seen dropping to 160,000-175,000 tons next year from around 180,000 tons in 2022.

It is then expected to resume an upward trend to hit 230,000-245,000 tons in 2026 and more than 300,000 tons after 2030.

Nickel is a key ingredient for batteries used in electric vehicles, and the Brazilian company has already said it has a strategy to increase its exposure to the fast-growing sector.

Vale holds agreements to supply nickel to Tesla, Ford Motor Co and Swedish battery startup Northvolt, and has recently reached a deal to also become a supplier to General Motors Co.

Vale added that its copper production is expected to stand at about 260,000 tons this year and jump to 335,000-370,000 tons in 2023.

Its copper output should reach 900,000 tons starting in 2030, it said.

U.S.-listed Chinese stocks such as Alibaba Group Holding Ltd. (BABA-N) and Inc. (JD-Q) tumbled on profit booking after China’s trade shrank the steepest in 2-1/2 years in November.

The declines came despite China announced the most sweeping changes to its tough anti-COVID regime that included allowing infected people with mild or no symptoms to quarantine at home and dropping testing for domestic traveling, following protests against COVID controls.

The country’s exports and imports shrank at their steepest pace in at least 2-1/2 years in November, as feeble global and domestic demand, COVID-led production disruptions and a property slump at home piled pressure on the world’s second-biggest economy.

The downturn was much worse than markets had forecast, and economists are predicting a further period of declining exports, underlining a sharp retreat in world trade as consumers and businesses slash spending in response to central banks’ aggressive moves to tame inflation.

Exports contracted 8.7 per cent in November from a year earlier, a sharper fall from a 0.3-per-cent loss in October and marked the worst performance since February 2020, official data showed on Wednesday. They were well below analysts’ expectations for a 3.5-per-cent decline.

Beijing is moving to ease some of its stringent pandemic-era restrictions, but outbound shipments have been losing steam since August as surging inflation, sweeping interest rate increases across many countries and the Ukraine crisis have pushed the global economy to the brink of recession.

Exports are likely to shrink further over coming quarters, Julian Evans-Pritchard, senior China Economist at Capital Economics, said in a note.

“Outbound shipments will receive a limited boost from the easing of (China’s) virus restrictions, which are no longer a major constraint on the ability of manufacturers to meet orders,” he said.

“Of much greater consequence will be the downturn in global demand for Chinese goods due to the reversal in pandemic-era demand and the coming global recession.”

Pinterest (PINS-N) dipped following the late Tuesday announcement that it has reached a deal with Elliott Management, the activist investment firm that has offered up ideas on how to improve operations at the image sharing and social media service company.

Marc Steinberg, a portfolio manager at Elliott, will join the board on Dec. 16, Pinterest said. The two sides had been holding talks for several months.

Pinterest CEO Bill Ready, who took the job in June, called the deal with Elliott a “one-of-a-kind agreement” and said the company “appreciates the perspective” Steinberg, Jesse Cohn, a managing partner at Elliott, and others at the firm bring.

According to regulatory filings, Elliott, one of the company’s biggest investors, owns nearly 3 per cent of common stock, making up a portion of its total stake of more than 9 per cent. The stock price has tumbled 38 per cent since January and closed at US$22.72 on Tuesday.

Elliott, one of the world’s busiest activist investing firms, has extensive experience in the tech and social media sector as Cohn held board seats at Twitter and eBay and worked closely with Steinberg on those investments.

Pinterest’s board will have 11 directors of which 8, including Steinberg, are independent.

Carvana Co. (CVNA-N) plummeted as Bloomberg Law reported on Wednesday it is speaking with lawyers and investment bankers about options for managing its debt load, as concerns grow about the company’s solvency due to plunging used-car prices, while a rating cut hammered shares.

Carvana has spoken with advisers at Kirkland & Ellis and Moelis & Co, Bloomberg reported, citing people familiar with the matter. The three companies did not immediately respond to Reuters’ requests for comment.

Wedbush downgraded its rating on Carvana’s stock to “underperform” from “neutral,” sending the company’s shares down as much as 47 per cent to a record low.

Wedbush raised the possibility of a debt default by the used-car retailer which would increase the risk of bankruptcy. The brokerage cut its price target to a Wall Street low of US$1.

Carvana has suffered from waning used-car demand and high costs, forcing it to undertake job reductions to rein in expenses this year. Last month, it cut about 1,500 employees, or 8 per cent of its workforce.

With files from staff and wires