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A survey of North American equities heading in both directions

On the rise

Metro Inc. (MRU-T) rose 0.5 per cent after it reported a 14.5-per-cent decline in profits in its second quarter, as the company continues to face higher-than-usual expenses related to investments in its supply chain.

The Montreal-based grocer also announced on Wednesday that it is terminating its partnership with Air Miles this coming fall, as it plans to expand its own MOI loyalty program to cover all 275 of its Metro and Food Basics stores in Ontario.

MOI launched in Quebec last May, and currently has 2.5 million active members in that province. Air Miles can still be collected and redeemed at stores until the launch, according to the company.

The company recorded a $20.8-million impairment charge related to the decision, saying the impairment of assets represents the carrying value of the loyalty program.

The company reported net earnings fell to $187.1-million or 83 cents per share in the second quarter ended March 16, compared to $218.8-million or 93 cents per share in the same period the prior year. Adjusting for the loss on impairment of the loyalty program as well as other items, adjusted net earnings declined by 8.4 per cent, to $206.4-million or 91 cents per share compared to $225.4-million or 96 cents per share in the same period the prior year.

Metro had previously forecast that this fiscal year would see net earnings slip as the company makes investments in improving its supply chain operations. That includes a transition to a new automated distribution centre for fresh and frozen products in Terrebonne, Que., which is now completed, and to another automated facility for fresh food in Toronto, which will enter its final phase this summer. Last November, executives forecast that on a full-year basis, adjusted net earnings per share would fall within a range of flat-to-down by 10 cents per share.

- Susan Krashinsky Robertson

In a research note, Desjardins Securities analyst Chris Li said:Adjusted EPS was 91 cents vs our 88 cents and consensus of 90 cents. Outperformance mainly came from lower-than-expected operating expenses and strong front-store SSSG (down 5.8 per cent vs our flat estimate), partly due to a strong cough and cold season. This was partly offset by a slight decline in gross margin (down 20 basis points year-over-year vs our flat estimate), with a decline in food. MRU completed the bulk of the transition to the new automated fresh and frozen DC in Terrebonne and is on track to commence the final phase of its Toronto automated fresh DC this summer. There is no change to management’s full-year outlook. Temporary duplication of costs and learning curve inefficiencies, as well as higher depreciation and lower capitalized interest from the ramp-up of the new automated DC, will weigh on profitability this year. Vs FY23, adjusted EBITDA is expected to grow by less than 2 per cent and adjusted EPS is expected to be flat to down 10 cents (-2 per cent) in FY24. During the quarter, MRU recorded $20.8-million in asset impairments from its decision to have Metro stores in Ontario withdraw from the Air Miles loyalty program in fall 2024. It will be launching its own proprietary MOI rewards program in Ontario later this year, which has been quite successful in Québec since it was launched last year. We continue to believe MRU’s solid and consistent execution make it an appealing long-term investment. But near-term catalysts are lacking, especially against the backdrop of moderating inflation and earnings pressure from temporary DC duplicative costs. Our 9-per-cent EPS growth expectation for FY25 is also conservative vs consensus of 12 per cent.”

First Quantum Minerals (FM-T) increased 2.7 per cent after it said on Tuesday that it has cut its debt by $1.14-billion in the first quarter.

The company in February had announced a series of capital restructuring measures that would strengthen its balance sheet and cut debt, a move that will help the Canadian miner deliver on its “operational objectives.”

The company’s total debt as of March 31 stands at $5.99-billion, down from its previous debt of $7.38-billion.

The copper miner reported a net loss attributable to shareholders of the company at $159-million for the quarter ended March. 31, as the company continues to be impacted by Cobre Panama mine closure. It had posted a profit of $75-million in the year-ago quarter.

The Cobre Panama project, one of the world’s largest open-pit copper mines, was forced to shut down after Panama’s top court ruled that its contract was unconstitutional.

BMO analyst Jackie Przybylowski said: “Production and sales volumes, revenues, and costs in Zambia were tracking well versus company guidance and power shortages in Zambia appear to be manageable (at modest cost). This would have been an in-line quarter if not for noise around Cobre Panama closure. As we approach the May 5 Panama general election we look optimistically towards future restart — and we expect the outlook for Panama will be topical on [Wednesday’s] management call. We have conservatively pushed back mine restart to Q2/2025 (from Q1/2025).”

West Fraser Timber Co. (WFG-T) was up 0.33 per cent after saying it earned US$35-million in its first quarter, up from a loss of US$42-million a year earlier.

Earnings per diluted share were 42 US cents, compared with a loss of 52 cents during the same quarter last year.

The Vancouver-based company says sales totalled US$1.63-billion, unchanged from a year earlier.

West Fraser president and CEO Sean McLaren says the company is already seeing early financial benefits from the recent closures of some of its higher-cost lumber mills.

Earlier this year, West Fraser announced it was permanently closing a sawmill in Fraser Lake, B.C., closing another in Maxville, Fla., and indefinitely curtailing operations at its Huttig, Ark., sawmill.

More recently, at the beginning of April, West Fraser announced it and Mercer International Inc. were dissolving their joint venture in Cariboo Pulp and Paper, with West Fraser to be the sole owner and operator.

Tesla Inc. (TSLA-Q) surged over 12 per cent on Wednesday after the electric-car maker eased some worries about slowing growth with a prediction that sales would rise this year and plans to roll out more affordable models in early 2025.

Investors had been bracing for the worst after a tumultuous week at Tesla that saw big layoffs, executive exits, price cuts and the postponement of a highly touted meeting with the Indian prime minister.

The newly minted plans also helped Wall Street shrug off the company’s weak first-quarter results, including a lower-than-expected profit and the first drop in quarterly revenue in nearly four years.

“First impression for us is CEO Elon Musk is appeasing the market by accelerating new product launches,” Jefferies analysts led by Philippe Houchois said in a note.

Tesla was on track to add around US$50-billion to its market value of about US$460-billion. The stock has slid 42% this year, as of last close, as high borrowing costs have dampened demand for EVs and a price war in major market China intensified.

Tesla’s growth strategy could strengthen support for a shareholder vote in June on Musk’s US$56=billion compensation package, which was voided by a Delaware court in January.

Some Tesla investors -- such as Ross Gerber, president and CEO at Gerber Kawasaki Wealth & Investment Management -- had said in recent days that they planned to oppose the package, citing a decline in Tesla’s share price and a compromised board.

Several analysts took Tesla’s remarks that its cheaper models would be built using current platforms and production lines as a sign it had retreated from more ambitious plans for an all-new model that had been expected to cost US$25,000.

“We read ‘more affordable’ as potentially de-contented Model Y/Model 3 versions with improvements in software and AI/hardware capability, but at lower prices,” Morgan Stanley analyst Adam Jonas said.

Mr. Musk declined to provide details of the more affordable models and instead spent much of the earnings call on Tesla’s efforts to diversify its business into AI, humanoid robots and operating a fleet of autonomous vehicles -- all based on software and hardware products it has not yet fully developed.

Investors and analysts have long given Tesla a premium valuation for its efforts such as its driver-assistance technology.

Tesla’s stock trades at 57.38 times its 12-month forward estimated earnings, a PE ratio that is comfortably higher than Ford’s 7.06 and General Motors’ 4.80.

Tesla’s shares jumped to roughly US$160 apiece in early trading, a price at which short sellers have lost US$1.62-billion on paper since Tuesday’s close, according to data and analytics firm Ortex.

However, short-sellers are still up almost US$8-billion in profit this year.

Texas Instruments (TXN-Q) jumped 5.6 per cent on Wednesday, sparking a rally in chip stocks as its strong second-quarter revenue forecast fanned optimism that chip demand was picking up after a years-long slump.

The company is seen as a bellwether for semiconductor demand, as its products are used across industries ranging from automotive to industrial and consumer electronics including smartphones and personal computers.

Shares of Nvidia (NVDA-Q), Advanced Micro Devices (AMD-Q), Arm Holdings (ARM-Q) and Micron Technology (MU-Q) also rose.

Texas Instruments said on Tuesday it expects revenue with a midpoint of US$3.8-billion for the second quarter, compared with LSEG estimates of US$3.77-billion.

Its earnings are closely watched as it is the first among major U.S. semiconductor firms to report quarterly results.

“Looking ahead, we anticipate Texas Instruments to drive a continued recovery profile into the 2H (second half) of the year and into 2025″ said J.P. Morgan analysts in a note.

If gains hold, the stock will be set to add around US$10-billion to its market valuation. It is valued at US$150-billion based on its Tuesday closing price.

Improving demand for consumer electronics also indicates that clients’ analog chip inventory corrections might be ending.

Texas Instruments’ forecast marks a recovery inflection on industrial chip demand, analysts at Bank of America said, but flagged that automotive end markets are going through final stages of clearing inventory.

The company had seen a slump in demand for chips used in automotive markets stemming from clients stocking up on inventory to avoid a supply crunch.

Visa’s (V-N) second-quarter results sailed past Wall Street estimates on Tuesday, as consumers shrugged off worries of a slowing economy to swipe cards on everything from travel to dining out, sending its shares up 0.33 per cent.

U.S. consumer spending has remained remarkably resilient despite higher-for-longer interest rates, with Americans still looking to spend on big-ticket purchases and international travel.

Visa executives in a call with analysts said international travel continues to be healthy, particularly out of the key markets of the U.S. and Europe, but flagged that Asia-Pacific travel has been weak as the post-pandemic recovery continues to be slower than expected.

But the world’s largest payments processor said strong e-commerce trends have helped offset weakness in Asian markets.

“Certain markets are not yet at 2019 levels and Asia in particular stands out. We do think it will continue to recover through the year ... but the pace relative to our own expectations in Asia is a little bit slower than we anticipated,” CFO Chris Suh said in an interview with Reuters.

Visa’s payment volume climbed 8 per cent in the second quarter. Cross-border volume excluding intra-Europe, a gauge of international travel demand, jumped 16 per cent. Processed transactions rose 11 per cent in the period.

“Consumer spend across all segments from low-to-high spend has remained relatively stable. Our data does not indicate any meaningful behavior change across consumer segments,” Mr. Suh said on a post-earnings conference call.

The summer season is also typically strong for travel volumes as people fly both internationally and within the U.S. for vacations.

Visa expects net revenue growth in “low double-digit” for the current quarter ending June 30. The company also reaffirmed its 2024 revenue and profit forecasts.

“There were a lot of investors who thought that they would have to cut the guidance, and the fact that they did not, is a positive for Visa,” said Dan Dolev, senior analyst at Mizuho.

Visa’s second-quarter adjusted profit per share of US$2.51 beat LSEG estimates of US$2.44.

Its net revenue of US$8.8-billion also topped expectations of US$8.62-billion.

On the decline

Shares of Rogers Communications Inc. (RCI.B-T) posted a drop in first-quarter profit on Wednesday, as it grappled with weakness at its media business and higher expenses, sending shares of the Canadian telecom company down over 3 per cent.

Media revenue at the owner of baseball team Toronto Blue Jays fell 5 per cent to $479-million in the quarter ended March 31 due to lower subscriber revenue and higher media content costs.

The business also saw a 7-per-cent rise in operating costs to $582-million because of programming and production costs and higher payroll related expenses for its baseball team.

“Finance costs, the acquisition of Shaw Telecom, and lower media subscription revenues are all weighing on net earnings,” said Michael Ashley Schulman, chief investment officer at Running Point Capital.

The company saw a 23-per-cent jump in operating expenses in the quarter, as it booked $142-million in restructuring costs mainly for severance, including about $30-million for its acquisition of Shaw Communications.

Its net income fell 50 per cent to $256-million. However, adjusted profit was in line with expectations.

The net income drop took the shine off strong growth in Rogers’ wireless business.

The company added 98,000 net monthly bill-paying wireless phone subscribers in the quarter, topping the Visible Alpha consensus estimate of 77,530 net additions, helped by demand from rising population driven by temporary foreign workers and immigrants.

In the reported quarter, Rogers’ free cash flow, a metric closely watched by investors as it helps determine dividend payouts, rose 58 per cent from a year earlier to $586-million, beating Visible Alpha estimate of $501.8-million.

The company’s total revenue rose about 28 per cent to $4.90-billion, compared with analysts average estimate of $4.92-billion, according to 12 analysts polled by LSEG data.

In a research note released before the bell, Desjardins Securities analyst Jerome Dubreuil said: “RCI reported an update which we would characterize as slightly positive, with financials in line, robust operational KPIs and the company announcing that it reached its targeted $1-billion in synergies during the quarter, one year ahead of schedule. 1Q was expected to be a difficult quarter due to intense competition. We therefore believe the stock should react positively today, as the update was better than feared.”

Canadian National Railway Co. (CNR-T) declined 4.8 per cent a day after its executives suggested a stable economic outlook and rising cargo demand bode well for this year, despite the Red Sea crisis dampening container figures on the East Coast.

“We’re seeing momentum building,” CEO Tracy Robinson told analysts on a conference call Tuesday. “The team is gelling, the operation is performing and volumes are on the upswing.”

Revenue dipped by one per cent year over year to $4.25-billion in CN’s first quarter. Diluted earnings hit $1.72 per share, roughly on par with analysts’ expectations, according to LSEG Data & Analytics.

“This is right where we thought we’d be after three months,” Ms. Robinson said.

In spite of a nearly 10-per-cent year-over-year drop in net income, the country’s largest railroad operator reiterated its forecast of earnings per share growth of 10 per cent this year — the bulk of it coming in the second half of 2024 — and capital spending of about $3.5 billion.

The upbeat notes also come despite ongoing discord in the Red Sea, where attacks on cargo vessels have prompted a wholesale shift in global shipping.

The ongoing missile strikes by Iran-backed Houthi militants in Yemen have pushed major container carriers to steer clear of the area. Since mid-December, hundreds of vessels have sailed around the tip of Africa instead of passing through the Suez Canal, tacking on major fuel and crew expenses and triggering a spike in freight rates.

The longer travel time and scrambled schedules have resulted in delays of up to three weeks on scores of ships slated to roll into the Port of Halifax — a key hub for CN — over the past few months. Roughly two-thirds of the 40 ships scheduled to arrive between April 8 and the end of the month will berth at least three days late, with some more than 21 days overdue, according to the port’s vessel forecast.

Other ships are choosing to avoid the Halifax and Montreal ports altogether, offloading U.S.-bound goods at American ports instead due partly to their greater proximity to the Cape of Good Hope, CN executives said.

“They (face) more of an impact because of the Suez Canal,” said chief marketing officer Doug MacDonald of the two ports.

On Canada’s West Coast, container import volumes for CN rose 12 per cent year over year as traffic returned to Vancouver and Prince Rupert after last summer’s strike by 7,400 B.C. dockworkers.

Nonetheless, analyst Ravi Shanker of Morgan Stanley called CN’s optimism “surprisingly bullish” on the conference call, contrasting it with other transport companies’ forecasts.

Ms. Robinson replied by pointing to rising industrial production figures: “It does give us some confidence in a lift in the underlying economy.”

She also cited “CN-specific growth initiatives” as cause for high expectations.

All its segments dipped or remained flat in the first quarter compared with a year earlier, except for petroleum and chemicals, which enjoyed a four-per-cent revenue boost.

The Montreal-based company reported that net income fell to $1.10-billion in the three months ended March 31 from $1.22-billion in the same period a year earlier, amid higher labour costs — head count rose three per cent and wages climbed as well — and the lower container revenue.

CN’s board approved a second-quarter dividend of 84.5 cents per share that will be paid on June 28.

CN rival Canadian Pacific Kansas City Ltd. (CP-T) dropped 6.3 per cent after saying it is preparing for the possibility of a strike by some 3,300 workers next month.

“The way I see it, the positions have not changed a lot,” chief executive Keith Creel told analysts on a conference call Wednesday.

“Obviously hope for the best, but you have to make sure you plan for the worst as well.”

The potential work stoppage helps account for what Creel called a “responsibly conservative” forecast that predicts only a slight uptick in cargo volumes this year.

“If the strike isn’t as long as what we might think would be — or if we don’t have a strike at all — then sure, we’ve got some upside,” the CEO said.

With 6,000 workers at rival Canadian National Railway Co. in talks with their employer as well, there is a possibility of two work stoppages at rail companies this spring, which combined could grind virtually all freight rail traffic in Canada to a halt.

In February, CPKC and CN asked the federal labour minister to appoint a conciliator for the bargaining process over a new collective agreement for train conductors, engineers and yard workers. The notice of dispute started the clock on a possible strike or lockout, which could occur as soon as May 22.

The Teamsters Canada Rail Conference has said safety is at stake, claiming that the country’s two main railways aim to eliminate all “safety-critical rest provisions” from their collective agreements.

“This is just not true, to be very clear,” CN chief network operating officer Patrick Whitehead said Tuesday.

Mr. Creel said Canadian Pacific has offered workers a “win-win scenario.”

“But it takes change. It takes leaders that are willing to see the wisdom in it, the benefit in it. And at this point that has not happened,” he said.

On Wednesday, CPKC reported its first-quarter profit fell compared with a year ago.

The Calgary-based operator said it earned net income attributable to controlling shareholders of $775-million or 83 cents per diluted share for the quarter ended March 31. That is down from a profit of $800-million or 86 cents per diluted share a year earlier.

Canadian Pacific completed its acquisition of Kansas City Southern in December 2021, but had to wait to combine operations until April last year following regulatory approval of the deal.

CPKC said revenue for its most recent quarter totalled $3.52-billion, up from $2.27-billion in the same quarter last year before the railways combined operations.

The railway said its core adjusted combined diluted earnings per share amounted to 93 cents in its latest quarter, up from 90 cents a year earlier.

Toronto-based LNG Energy Group Corp. (LNGE-X) slid after saying it has entered into a binding agreement with a unit of Venezuelan national oil company Petroleos de Venezuela S.A. (PDVSA) to develop and produce hydrocarbons in the country.

LNGEG Growth I Corp, a wholly-owned subsidiary of LNG Energy Group, was conditionally awarded two Productive Participation Contracts (CPPs), which cover five onshore fields that are currently producing approximately 3,000 bbl/d of oil.

The agreement was entered into on April 17 for the operation of the Nipa-Nardo-Niebla and the Budare-Elotes CPPs in onshore Venezuela.

LNGEG Growth I Corp will provide the required investment to further develop the fields and will have a contractual entitlement to between 50-56 per cent of the hydrocarbon production from the Venezuela blocks.

OceanaGold Corp. (OGC-T) slipped 0.7 per cent after it said on Wednesday it will raise 6.08 billion pesos ($106-million) through an initial public offering (IPO) of its Philippine unit, the first listing in the Southeast Asian nation in 2024.

In a disclosure, OceanaGold Philippines Inc said it had priced its IPO at 13.33 pesos (23.26 cents) per share, a discount of 23 per cent to a maximum potential price of 17.28 pesos included in the filing to securities regulators.

“The deal was supported by foreign and local investors,” Eduardo Francisco, president of BDO Capital, the IPO’s underwriter. “It is a big discount which will give good dividend yield and upside to investors.”

OceanaGold plans to sell up to 456 million common shares or a 20-per-cent stake in OceanaGold Philippines, which would give the unit a market capitalization of 30.39 billion pesos.

The offer period will run from April 29 to May 6 and the listing is set for May 13, OceanaGold said in its preliminary IPO notice. It is running the IPO to comply with a regulatory requirement for its gold and copper mine in the northern Philippines.

The Philippines is seeking to revitalize its mining sector to boost the economy. It is a major nickel ore supplier to top metals consumer China, and also has substantial copper and gold reserves.

OceanaGold’s Didipio mine started commercial operations in 2013 and has a mine life of up to 2035. It held 1.1 million ounces of gold and 140,000 tons of copper as of end-2023, with opportunities to increase output through exploration.

Shares of Boeing (BA-N) was lower by 2.9 per cent after reported its first quarterly revenue drop in seven quarters, but the U.S. planemaker beat analyst expectations that were lowered after a January mid-air blowout of a door plug prompted it to slow production of its strongest-selling jets.

After the report, Boeing CEO Dave Calhoun told CNBC that a deal to acquire its key supplier Spirit AeroSystems (SPR-N) is more than likely during the second quarter.

Issues that must be worked out include price and talks with Spirit customer Airbus, Boeing’s major rival. But Calhoun told analysts Boeing can move forward without full clarity on the Airbus side.

“We’re not being held hostage,” said Calhoun who is leaving by the end of the year.

Quarterly revenue was US$16.57-billion, down from US$17.92-billion a year earlier but beating expectations of US$16.23-billion.

Boeing CFO Brian West told analysts second quarter cash burn would be “sizeable” although he expected free cash usage to improve from the US$3.93-billion cash burn in the first quarter. That was less than the US$4.49-billion analysts expected following the Jan. 5 accident involving a nearly new 737 MAX 9 jet.

“Well it could have been worse. While the loss and the cash outflow are not as bad as feared, the company is still clearly facing some serious challenges,” Vertical Research Partners analyst Robert Stallard said in a note.

In the afternoon, Moody’s cut Boeing’s credit rating to the bottom of investment grade. The agency expects headwinds surrounding the company’s commercial airplanes to persist at least through 2026 when Boeing has US$8-billion in debt coming due.

Multiple legal actions resulted from the Alaska Airlines accident. Boeing recorded an earnings charge of US$443-million, net of insurance recoveries, according to a company filing.

Since the accident, the U.S. Federal Aviation Administration (FAA) has imposed a cap on production of single-aisle 737 MAX jets and given Boeing 90 days from Feb. 28 to develop a comprehensive plan to improve quality control.

Reuters reported this month that output of Boeing’s cash-cow 737 MAX had fallen sharply as U.S. regulators stepped up factory checks. Calhoun said production will stay sporadic through the second quarter as the company devises a plan to better monitor its manufacturing system. He said production rates would not rise until the system is under control.

Analysts have warned the slow pace of deliveries could delay Boeing’s financial and production goals. Boeing’s CFO said last month the company needs more time to hit a goal outlined in 2022 for an annual cash flow of about US$10-billion by 2025 or 2026.

That goal is seen as key as Boeing works to accelerate its recovery from an earlier crisis after two MAX jets crashed in 2018 and 2019.

Boeing delivered 13 twin-aisle 787 Dreamliner jets in the quarter. It expects production to return to five per month later this year. Calhoun attributed the slowdown to supply chain issues involving airline seats and parts used in cooling.

Yet with production constrained at Boeing and Airbus, demand remains strong, though the European planemaker has increased its lead in the narrowbody market.

Combined with compensation Boeing had to pay airlines for the temporary grounding of MAX 9 aircraft, margins at its commercial airplanes business deteriorated to negative 24.6 per cent from negative 9.2 per cent.

Overall adjusted loss per share narrowed to US$1.13, beating expectations of loss per share of US$1.76, as per LSEG data.

With files from staff and wires

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 3:33pm EDT.

SymbolName% changeLast
Boeing Company
Canadian National Railway Co.
Canadian Pacific Kansas City Ltd
First Quantum Minerals Ltd
Lng Energy Group Corp
Metro Inc
Oceanagold Corp
Rogers Communications Inc Cl B NV
Tesla Inc
Texas Instruments
West Fraser Timber CO Ltd

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