A roundup of some of the North American equities making moves in both directions today
On the rise
Sobeys’ parent company Empire Company Ltd. (EMP.A-T) was up 4.4 per cent in the wake of reporting that sales at its stores have grown significantly, as restaurants have shut their doors and Canadians stayed at home to curb the spread of COVID-19.
Empire reported on Wednesday that same-store sales – an important retail industry metric that measures sales at stores open more than a year – grew by 37 per cent in the four weeks starting March 8, compared to the same time last year. In the two weeks before Easter, sales were up 24 per cent. Empire owns grocery banners including Sobeys, Safeway, FreshCo and IGA. The sales numbers do not include fuel sales at locations where Empire has gas stations. Fuel sales have decreased 40 per cent since March 1, the company reported.
- Susan Krashinsky Robertson
Aphria Inc. (APHA-T) jumped 4.7 per cent on Wednesday after it reported after the bell on Tuesday third-quarter net revenue of $144.4-million, an increase of 96 per cent from the prior-year quarter. Analysts were expecting revenue of $130.7-million.
Net income of $5.7-million or 2 cents per share compared to a net loss of $108.2-million or 43 cents per share for the same period last year.
HEXO Corp. (HEXO-T) was up 4.4 per cent after announcing it has formed a joint venture with Molson Coors Beverage Co. (TAP-N, TPX-B-T) to explore opportunities for non-alcohol hemp-derived CBD beverages in Colorado.
The venture will be majority owned by Molson Coors and will operate as a standalone entity with its own board of directors, management team, resources and go-to-market strategy.
Molson shares were down 4.2 per cent in New York.
UnitedHealth Group Inc. (UNH-N), the largest U.S. health insurer, rose 4.1 per cent after beating quarterly profit expectations, boosted by strength across its businesses, and maintained its 2020 outlook while it continues to assess the impact of COVID-19.
The company, the first health insurer to report results this earnings season, said it continues to expect adjusted net earnings of US$16.25 to US$16.55 per share for the year, the mid-point of which is above analysts’ estimate of US$16.22, according to Refinitiv IBES data.
UnitedHealth also said Andrew Witty, president of the company and chief executive officer of Optum, which manages drug benefits and offers healthcare data analytics service, is taking a leave of absence to work with the World Health Organization for COVID-19 vaccine development.
Procter & Gamble Co. (PG-N) gained 0.2 per cent after it raised its quarterly dividend by 6 per cent on Tuesday and advanced the release of its third-quarter earnings to April 17, saying that it aims to provide shareholders information as quickly and transparently as possible.
P&G, which was previously scheduled to release its results on April 21, also said its decision to release earnings ahead of schedule should not be seen as an indication of positive or negative results.
P&G and other consumer staples companies have seen the coronavirus outbreak create a surge in demand for toilet papers and other household products, with lockdowns imposed to curb the disease’s spread making many customers hoard essential items.
It declared a quarterly dividend of 79.07 US cents per share on its common stock, up from 74.59 US cents in the prior quarter.
Through Tuesday’s close, P&G’s shares have fallen just over 3 per cent this year, compared with a 16-per-cent drop in the Dow Jones Industrial Average index in the same period.
Goldman Sachs Group Inc. (GS-N) finished 0.2 per cent higher after its quarterly profit nearly halved, as it set aside more money to cover for corporate loans expected to go bust in the coming months and booked heavy losses on its debt and equity investments.
The Wall Street trading powerhouse on Wednesday also warned that it expects reduced revenue in its asset and wealth management businesses and a higher rate of client defaults in the aftermath of the coronavirus pandemic.
While total net revenue was flat at US$8.74-billion, three out of the bank’s four business lines reported higher numbers. Analysts on average had expected revenue of US$7.92-billion.
“Our quarterly profitability was inevitably affected by the economic dislocation,” said Chief Executive Officer David Solomon. “As public policy measures to stem the pandemic take root, I am firmly convinced that our firm will emerge well-positioned.”
On the decline
The Toronto-based holding company says its preliminary result will also mean about a 12 per cent decrease in book value adjusted for the $10 per common share dividend paid in quarter.
Chief executive Prem Watsa says that despite the unprecedented turbulence its insurance companies continued to have strong underwriting performance in the quarter.
Net losses on investments currently estimated at about US$1.5 billion primarily reflect unrealized losses in the fair value of our common stock and bond portfolio from the sudden shock of COVID-19, he said. That reverses a significant portion of the US$1.7 billion net gains on investments reported in 2019.
Mr. Watsa says in a statement that the company has drawn on its credit facility solely to ensure that it maintains high levels of cash. It had about US$2.5 billion in cash and marketable securities in its holding company at March 31.
AltaCorp Capital analyst Patrick O’Rourke said: “While the move is likely the prudent thing for the Company to do in light of the current commodity environment, and actually sees a modest positive revision to our 2021 cash flow estimate on the back of the reduced interest expense, the savings of $39-million on an annualized basis seem minor in the context of projected future cash flows and will be potentially viewed by the market as a sign of anticipated further weakness in cash flows. Additionally, the event may result in some near-term shareholder turnover of retail investors that were holding onto the stock for the remaining dividend. While the near-term outlook for 2020 remains very challenged for VET (and most other upstream producers), our 2021 outlook for the business does continue to show improvement relative to the peer group.”
“While operations continue at both mines, the company believes it is prudent to temporarily withdraw our 2020 guidance as the global COVID-19 crisis continues to develop, particularly given the significant risk related to the potential for government laws, regulations or other measures that might be required that could impact our ability to operate, business disruptions in our supply chain, disruptions in the markets for our products, commodity prices generally as well as global health and economic impacts,” it stated.
Bank of America Corp. (BAC-N) lost 6.4 per cent after it recorded a 48.5-per-cent fall in quarterly profit on Wednesday, as it set aside US$3.6-billion in provisions to cover for potential lossses tied to the coronavirus pandemic.
Wall Street banks are bracing for the worst recession in generations with the pandemic shuttering businesses and putting nearly 17 million Americans out of work.
Including BofA’s reserve build, the top 3 Wall Street banks have stashed away over US$14.2-billion due to growing concerns about whether corporate clients and consumers will be able to pay back.
Analysts, however, have said that Bank of America, known as a more conservative bank, can weather a downturn better than its peers due to its smaller exposure to credit cards and tighter credit standards.
“Of the three money center banks they are probably in the best position in terms of credit,” UBS analyst Saul Martinez said in an interview.
In the short term, banks have seen higher loan and deposit growth as cash-strapped customers seek funding to tide them through the crisis and investors stash away cash to wait out the choppy financial markets.
Citigroup Inc. (C-N) dropped 5.6 per cent on the heels of reporting a 46-per-cent plunge in quarterly profit on Wednesday as the bank set aside nearly US$5-billion to prepare for an expected flood of defaults on loans due to a virtual halt in economic activity caused by the coronavirus pandemic.
Citigroup, the most global of the U.S. banks, recorded a US$4.89-billion expense to increase its reserves against anticipated losses on loans, primarily from its credit cards because of rising unemployment.
The blow to earnings was cushioned by higher-than-expected revenue due to a surge in fees as trading desks cashed in on the turbulent markets in February and March. Equities and fixed income trading each jumped 39 per cent each from a year earlier.
Total revenue rose to US$20.73-billion, topping Wall Street’s forecast of US$19-billion, according to Refinitiv data.
Total net income fell to US$2.52-billion, or US$1.05 per share, in the quarter ended March 31, compared with US$4.71-billion, or US$1.87 per share, a year earlier. Earnings per share were also boosted by a 10-per-cent reduction in shares outstanding.
BRP Inc. (DOO-T) dropped 5.5 per cent after announcing further measures to deal with the COVID-19 pandemic, including a global hiring freeze, permanent and temporary layoffs as well as furloughs for some employees.
The Valcourt, Que.-based company also announced all directors and vice presidents will see a 15-per-cent reduction in salary through the remainder of the fiscal year. Most office employees will see a 10-per-cent cut.
“These are challenging and unpredictable times. We are taking all the necessary decisions to protect our employees, ensure BRP’s long-term growth and be ready to react quickly should the markets recover faster than expected,” said president José Boisjoli.
Surge Energy Inc. (SGY-T) sat 19.2 per cent lower in the wake of announcing after the bell on Tuesday it is suspending its previously announced 2020 guidance and capital program of $98.5-million, citing “the unprecedented circumstances facing world crude oil market.”
The Calgary-based company also suspended its dividend, which it estimates will bring $33.5-million in annualized savings when combined with the 90-per-cent reduction announced on March 9.
In a research note, Raymond James analyst Jeremy McCrea said: “Although SGY’s remaining dividend was more of a token amount, the elimination likely will exclude dividend type investors which may weigh on the stock near-term. Despite prudent decisions to move early and fully cut the dividend and shut-in 20 per cent of production, high leverage remains a meaningful risk if commodity prices don’t improve in the near- to medium future.”
Acumen Capital analyst Jim Byrne: “We are not surprised by the company’s update given the shutdown of casinos and gambling halls across North America. We believe the company is well positioned to weather this storm and believe the current valuation represents an attractive entry point for long term investors.”
J.C. Penney Co Inc. (JCP-N) was down 23.6 per cent after Reuters reported it is exploring filing for bankruptcy protection after the coronavirus pandemic forced the U.S. retailer to temporarily shut its 850 department stores, upending its turnaround plans.
The Plano, Texas-based company has access to enough cash to survive in the months ahead, even as revenue dries up because of the store closures, the sources said. Still, the company is contemplating a bankruptcy filing as one way to rework its unsustainable finances and save money on looming debt payments, which include significant annual interest expenses, the sources added.
Concerns about prolonged store closures and customers remaining sparse even when outlets eventually reopen have also factored in to J.C. Penney’s deliberations, some of the sources said.
Occidental Petroleum Corp. (OXY-N) fell after Warren Buffett’s Berkshire Hathaway Inc. (BRK.A-N) agreed to take its common shares in lieu of a first quarter cash dividend, helping relieve the strain on the trouble oil giant’s balance sheet.
However, Berkshire can immediately sell the shares, according to a regulatory filing on Wednesday, but has not indicated its intent. A sale would bring in less than US$250-million at Occidental’s current price.
The stock was off 8.7 per cent on Wednesday and are trading 68 per cent below where they sold at the start of the year. Occidental’s market value is about US$12.24-billion, a fraction of what it paid for Anadarko.
Berkshire last year bought $10 billion worth of Occidental’s preferred shares to help finance its $38 billion acquisition of Anadarko Petroleum.
A bet on rising shale oil prices, the deal came just months ahead of the worst oil-price crash in decades, leaving Occidental with a huge debt load and few buyers for assets it had hoped to sell to offset cost of the acquisition.
Last month, Occidental agreed to take three directors nominated by activist investor Carl Icahn, who had opposed the deal and urged Occidental to sell itself rather than buy Anadarko.
With files from staff and wires