A roundup of some of the North American equities that made moves in both directions
On the rise
Air Canada (AC-T) rose 13.1 per cent on Wednesday in reaction to saying it will tap a government wage subsidy program to rehire workers laid-off after most global airline traffic was halted amid the COVID-19 pandemic.
Canada’s largest passenger airline say to it will apply for the federal emergency wage subsidy retroactively to March 15 to “retain or return” employees who lost their jobs due to government flight restrictions that reduced seat capacity by as a much as 90 per cent.
Air Canada on March 30 said half its workforce – 16,500 flight attendants, pilots, service agents and others – would be laid off. The jobs cuts followed thousands of layoffs at domestic rivals WestJet Airlines, Porter Airlines and Air Transat.
- Eric Atkins
“Element has a very resilient business model, and the ongoing execution of our strategic plan to transform our core business and strengthen and deleverage our investment-grade balance sheet positions us well to not only withstand the stresses of this tumultuous time but to emerge with momentum,” president and CEO Jay Forbes said. “Our workforce is safe and working hard to deliver our consistent, superior client experience throughout this unprecedented period. We remain optimistic about the road ahead for Element."
The company said it continues to target $180-million of actioned profit improvements and sub-6-times tangible leverage by end of 2020.
It also established an additional $560 million credit facility underwritten by four banks to provide interim funding for redemption of maturing convertible debentures if U.S. bond market conditions are not conducive to planned senior unsecured note issue.
"The COVID-19 pandemic is evolving rapidly and its duration, magnitude and economic impact are uncertain, especially in our radio operations which generate revenue primarily from the retail industry," the company said. "As a result, it is not possible at this time to reliably estimate the impact of the pandemic on the financial results of the Corporation for the remainder of the fiscal year. The Corporation intends to reinstate annual guidance when the situation stabilizes"
The announcement came with the release of its second-quarter results late Tuesday.
Adjusted EBITDA fell 1.8 per cent to $279-million, which it attributed to lower earnings in its Communications segment and in its media activities.
Desjardins Securities analyst Maher Yaghi said: “We believe CCA is among the best-positioned companies in the Canadian telecom sector to absorb the potential impact from COVID-19. The company has a smaller exposure to SMBs than its peers, and we believe consumer wireline should fare better than wireless during the crisis as people spend more time at home. That being said, we continue to believe CCA should trade at a discount, as we believe the company’s prospects are weaker than its peers’ in a post-pandemic world.”
The company says Institutional Shareholder Services Inc. and Glass Lewis & Co. have recommended shareholders vote to support the all-share transaction.
The combination will create one of the world’s largest online betting and gambling companies.
A meeting of the Stars Group shareholders to vote on the deal is set for April 24 using a virtual only format.
Under terms of the agreement announced in October, shareholders of the Stars Group will receive 0.2253 new Flutter shares for each share they hold.
Héroux-Devtek Inc. (HRX-T) increased 8.8 per cent after it announced its decision to withdraw its fiscal 2022 sales guidance “given the uncertainty brought to overall economic conditions, and specifically the aerospace market, by the ongoing COVID-19 pandemic.”
“We are withdrawing our fiscal 2022 sales guidance given our currently limited visibility over the longer-term impact of the pandemic on the aerospace market, especially in the commercial segment,” stated CEO Martin Brassard. “Our strong defence backlog, however, will play a key role in our ability to weather the storm.”
Desjardins Securities analyst Benoit Poirier said: “Bottom line, while HRX is not immune to the adverse impact of COVID-19, we believe its stronger exposure to the defence segment, healthy balance sheet (net debt to EBITDA of 2.7 times) and experienced management team should help it outperform.”
Marathon Oil Corp. (MRO-N) rose 7.6 per cent after it cut its capital expenditure for the second time in a month, as crude oil prices hover around $30s per barrel due to a price war among top producers and the coronavirus-fueled hit to demand.
The company follows Devon Energy (DVN-N) and Occidental Petroleum (OXY-N) in again reducing spending, with North American energy producers now cutting nearly US$37-billion, or about 30 per cent, from their original capex estimate, according to data compiled by Reuters.
Marathon Oil now expects to spend about US$1.3-billion in 2020, US$1.1-billion lower than its original forecast and US$600-million below its estimate provided in March.
The company plans to suspend further drilling activity in the Northern Delaware region of the Permian basin, the largest U.S. shale basin, with only a limited number of wells producing through the rest of the year.
Marathon had in March suspended all drilling and completion activity in Oklahoma, as well as further exploration and appraisal drilling.
The company also plans to take frac holidays in North Dakota’s Bakken and South Texas’ Eagle Ford basins during the second quarter.
Boeing Co. (BA-N) rose 3.7 per cent despite Spirit AeroSystems (SPR-N), its top supplier, said on Wednesday it had stopped production for the planemaker for an indefinite period and would furlough workers supporting Boeing programs in Kansas and Oklahoma.
Spirit’s announcement comes days after Boeing suspended production of its 787 Dreamliner airplane, citing the impact of the coronavirus pandemic.
Boeing has already suspended production of its smaller 737 MAX airplanes, which await government approval to fly gain following two deadly crashes.
Spirit had previously announces plans to suspend production for Boeing for a period of two weeks ending on April 8.
In January, the company said it would lay off 2,800 workers at its marquee facility in Wichita, as the 737 MAX grounding prolonged.
Boeing said late on Tuesday it will make two new software updates to the 737 MAX’s flight control computer as it works to win regulatory approval to resume flights after the jet was grounded following two fatal crashes in five months.
The planemaker confirmed to Reuters that one issue involves hypothetical faults in the flight control computer microprocessor, which could potentially lead to a loss of control known as a runaway stabilizer, while the other issue could potentially lead to disengagement of the autopilot feature during final approach. Boeing said the software updates will address both issues.
Shares of Spirit were 16 per cent higher.
Tesla Inc. (TSLA-Q) rose 0.3 per cent in the wake of telling employees on Tuesday it would furlough all non-essential workers and implement salary cuts during a shut down of its U.S. production facilities because of the coronavirus outbreak.
Tesla said it planned to resume normal operations on May 4, barring any significant changes, according to an email sent to U.S. employees by in-house counsel Valerie Capers Workman, which was viewed by Reuters.
The company, which suspended production at its San Francisco Bay Area vehicle and New York solar roof tile factories on March 24, said in the email the decisions were part of a broader effort to manage costs and achieve long-term plans.
The coronavirus pandemic has slashed U.S. demand for cars and forced several other automakers to furlough U.S. workers.
Pay for salaried Tesla employees will be reduced beginning on April 13 and cuts will remain in place until the end of the second quarter, the email said.
Amazon.com Inc. (AMZN-Q) was 1.4 per cent higher after revealing it suspend a delivery service that aims to compete with United Parcel Service Inc. (UPS-N) and FedEx Corp. (FDX-N) in the United States.
The online retailer told customers that the service, Amazon Shipping, will be paused starting in June, according to the Wall Street Journal, which was first to report the change.
Amazon is suspending the service because it needs people and capacity to handle a surge in its own customers’ orders, the Journal reported, citing sources.
“We regularly look at a variety of factors across Amazon to make sure we’re set up in the right way to best serve our customers,” an Amazon spokesperson told Reuters in an email confirming the halt in service.
Shares of FedEx and UPS were up 8.2 per cent and 6.2 per cent, respectively.
U.S. brewer Constellation Brands Inc. (STZ-N) was up 5.5 per cent after announcing before the bell it has begun reducing operations at its breweries in Mexico to protect its workers in line with government directives to contain the spread of the coronavirus.
The company said it was taking these additional steps to avoid “irreversible impact” to its operations and that the actions were in line with those taken by other brewers in Mexico.
Last week, Constellation said its breweries in Mexico were still operational even as rivals such as AB InBev-owned Grupo Modelo and Dutch brewer Heineken suspended operations after Mexico declared a health emergency and ordered the suspension of non-essential activities.
“We are taking these additional steps after gaining more clarity related to the Mexican government’s response to this health and economic crisis,” Constellation Chief Executive Officer Bill Newlands said in a statement.
Mr. Newlands added that its supply to the United States would not be disrupted despite the reduced production activity.
Zoom Video Communications Inc. (ZM-Q) was up 3.6 per cent after announcing it has hired former Facebook security chief Alex Stamos as an adviser and formed an advisory board to improve the video conferencing app’s privacy and security issues amid a global backlash against the platform.
Zoom is facing widespread criticism from users worried about the lack of end-to-end encryption of meeting sessions and “zoombombing”, where uninvited guests crash into meetings.
The company was slapped with a class action suit by one of its shareholders on Tuesday, accusing the video-conferencing app of overstating its privacy standards and failing to disclose that its service was not end-to-end encrypted.
Shareholder Michael Drieu claimed in a court filing that a string of recent media reports highlighting the privacy flaws in Zoom’s application have led to the company’s stock, which had rallied for several days in the beginning of the year, to plummet.
The company’s shares closed down about 7.5 per cent at US$113.75 on Tuesday. They have lost nearly a third of their market value since touching record highs in late-March.
Levi Strauss & Co. (LEVI-N) gained 9.3 per cent after saying Tuesday a majority of its stores in China, where the coronavirus outbreak first emerged in December, were open with sales recovering on a weekly basis and digital sales rising last month.
The company also reported better-than-expected earnings and revenue for the first quarter ended Feb. 23, even as sales in Asia declined due to store closures.
In a research note, Citi analyst Paul Lejuez said: “1Q was strong, with revenue beats in the Americas and Europe and GM ahead of expectations. Unfortunately, the qtr ended in Feb, and clearly things have changed in March, with the COVID-19 crisis forcing the closure of all stores (expect those in China that have reopened). The company has ample liquidity and is reducing expenses and capex as a result of the environment. We believe LEVI is a strong brand – the company had significant momentum prior to the current crisis – and we believe it will remain a strong brand once the crisis passes. Importantly, it sells to retailers that remain open (WMT, TGT, AMZN) and that we expect to gain share in the future (off-mall, value-based) and we believe this will increasingly offset the declines it has experienced in the traditional dept store channel.”
McDonald’s Corp. (MCD-N) was up 1 per cent after saying first-quarter comparable sales declined 3.4 per cent, as the world’s largest burger chain had to shutter stores and stick to delivery or take-out due to the coronavirus outbreak across the globe.
Analysts had expected same-store sales to drop 0.91 per cent for the quarter ended March 31, according to IBES data from Refinitiv.
During the quarter, McDonald’s said it secured US$6.5-billion of new financing.
On the decline
The company plans to use the net proceeds for working capital and other general corporate purposes.
The company says it’s deep cleaning the plant including common areas and offices as it completes an investigation into the cases.
Maple Leaf says an additional COVID-19 case has occurred in an employee at a plant in Hamilton, but the worker had not been present at the plant for two weeks before the diagnosis.
Walt Disney Co. (DIS-N) closed down 0.2 per cent after Executive Chairman Bob Iger said in an interview published on Tuesday that it might require theme park visitors to have their temperatures checked when they reopen after coronavirus restrictions on public gatherings are lifted.
The company is considering the idea as one way to make the public feel safe about returning to Disney’s parks once they are allowed to open again for business, Mr. Iger told Barron’s.
“One of the things that we’re discussing already is that in order to return to some semblance of normal, people will have to feel comfortable that they’re safe,” Mr. Iger said. “Some of that could come in the form ultimately of a vaccine, but in the absence of that it could come from basically, more scrutiny, more restrictions.”
“Just as we now do bag checks for everybody that goes into our parks, it could be that at some point we add a component of that that takes people’s temperatures, as a for-instance,” Mr. Iger added.
With files from staff and wires