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A look at North American equities heading in both directions

On the rise

Bellweather FedEx Corp. (FDX-N) rose 1.5 per cent after it said on Wednesday it will fold its businesses that move freight and divisions that offer other services into one organization, as the delivery firm steps up efforts to cut costs and increase efficiency across its bloated operations.

The freight firm, which competes with direct rival United Parcel Service (UPS-N) and Amazon’s (AMZN-Q) growing delivery operation, is racing to reduce overhead costs that have pressured profits as demand for deliveries cools and global recession threatens.

FedEx had come under criticism from investors last year for its subpar performance compared to UPS, which has a unionized workforce.

In response, FedEx outlined extensive plans to cut costs, including parking planes and reducing headcount. The Memphis, Tennessee-based package delivery company aims to cut US$4-billion in permanent costs by the end of fiscal 2025 and is scheduled to present more details on their progress at an event on Wednesday.

FedEx executives said last month they were on track to hit US$1-billion in permanent cost cuts this fiscal year ending May 31 - putting the company well on its way toward its 2025 goal.

The phased transition announced Wednesday will ultimately bring FedEx Express, FedEx Ground, FedEx Services and other FedEx operating companies into Federal Express Corporation and will be headed by present Chief Executive Officer Raj Subramaniam, the company said.

John Smith will become president and CEO of U.S. and Canada Ground Operations at FedEx Express and assume leadership of surface operations across the FedEx Express, FedEx Ground and FedEx Freight businesses, effective April 16.

FedEx Freight will continue to provide freight transportation services as a stand-alone company under the Federal Express Corp banner, the company added.

The transition is expected to be completed by June 2024.

Laval, Que.-based Liminal BioSciences Inc. (LMNL-Q), formerly known as Prometic Life Sciences Inc., surged over 85 per cent after announcing it has received a non-binding proposal from Structured Alpha LP to acquire the portion of the company it does not currently own for US$7.50 in cash per common share.

SALP currently owns 1.987 million common shares of Liminal Biosciences, representing approximately 64.03 per cent of the company’s currently outstanding common shares.

Walmart Inc. (WMT-N) was up 1.7 per cent despite saying on Wednesday it was expecting inflation to add sustained pressure to its business this year, and that it was planning to slow the pace of hiring as its uses more automation amid a tight labor market.

The world’s biggest retailer said on Tuesday that about 65 per cent of its stores were expected to employ some form of automation by the end of its fiscal year 2026.

The company, which has more than 5,000 U.S. stores, also maintained its full-year forecast.

“We’re assuming that this year is going to be somewhat anomalous ... Still feeling the effects of higher prices,” Chief Financial Officer John David Rainey said at the company’s investor meeting.

Mr. Rainey expects inflation at about 3 per cent by the end of the year.

Conagra Brands Inc. (CAG-N) increased almost 2 per cent after raising its full-year profit forecast on Wednesday, as the Slim Jim beef jerky maker bets on price increases to shield its margins at a time when demand for its frozen foods and snacks showed signs of weakening.

Packaged food companies have been raising product prices to limit margin pressures from elevated supply-chain related expenses as well as higher costs of packaging, transportation and labor.

These price increases have boosted profits at Conagra, which is now also benefiting from easing inflation in commodity prices including those of meat and other proteins. The company’s gross margin rose 325 basis points to 27.2 per cent in the reported quarter.

However, higher grocery and food prices have forced some consumers to trade down from branded packaged food products to cheaper, private-label alternatives, denting sales volumes at Conagra.

The Act II microwave popcorn owner saw a 9-per-cent fall in total volumes in the three months ended Feb. 26, its eighth straight quarterly decline.

That prompted the company to trim the top end of its annual organic net sales forecast to a 7-per-cent to 7.5-per-cent rise, compared with a 7-per-cent to 8-per-cent growth estimated earlier.

Credit Suisse analysts have also warned that Conagra sales could decelerate faster compared to its peers in full-year 2024, owing to the company’s exposure to price-sensitive, lower-income consumers.

Conagra said it expected fiscal 2023 adjusted per-share profit between US$2.70 and US$2.75, compared with its prior forecast of $2.60 to $2.70.

It reported third-quarter adjusted earnings of 76 US cents per share on net sales of US$3.09-billion, above estimates of 64 US cents per share on revenue of US$3.08-billion, according to Refinitiv data.

Johnson & Johnson (JNJ-N) gained 4.5 per cent after it agreed to pay US$8.9-billion to settle tens of thousands of lawsuits alleging that talc in its iconic Baby Powder and other products caused cancer. The amount dwarfs J&J’s original offer of US$2-billion.

The agreement follows a January appeals court ruling invalidating J&J’s controversial “Texas two-step” bankruptcy maneuver, in which it sought to offload the talc liability onto a subsidiary that immediately filed for Chapter 11.

The J&J subsidiary, LTL Management, filed for bankruptcy protection late Tuesday for a second time with the intent to present a reorganization plan containing the proposed settlement to a judge as soon as May 14, the subsidiary said in a court filing. J&J said in a statement that about 60,000 talc claimants had agreed to the proposal.

The J&J subsidiary filed for bankruptcy in New Jersey, the same jurisdiction where it faced the appeals court defeat. J&J crafted new financing arrangements with its subsidiary to avoid running afoul of the appeals ruling, the subsidiary said in a court filing. The ruling determined LTL Management had no legitimate claim to bankruptcy because it was not in financial distress.

The appeals court rejection effectively raised the price tag for J&J to rid itself of the sprawling talc litigation, after plaintiffs’ lawyers had resisted the company’s tactics and prevailed. J&J’s board met over the weekend and approved paying the vastly larger settlement to current and future plaintiffs with various gynecological cancers and mesothelioma, according to Mikal Watts, one of the plaintiffs’ lawyers who negotiated the agreement.

J&J reiterated on Tuesday that its talc products are safe and do not cause cancer. Company lawyers said talc claims lacked scientific merit and accused plaintiffs’ lawyers of continuing to advertise for clients in the hopes of extracting large financial sums.

The company still faces significant risk that other plaintiffs could continue to oppose the settlement and appeal the case again to the same court that has already rejected the subsidiary bankruptcy — the 3rd U.S. Circuit Court of Appeals in Philadelphia.

Exxon Mobil Corp. (XOM-N) saw gains after the Wall Street Journal reported it has ended a major campaign to find oil in Brazil, citing people familiar with the matter.

The oil and gas giant has stopped current drilling at the offshore acreage it started snapping up with partners for US$4-billion in 2017, after failing for the third time to find commercially viable quantities of crude, the report said.

The reported news comes less than a day after Exxon signalled that its first-quarter operating profits dropped about 25 per cent from last year’s record levels on easing oil and gas prices.

On the decline

WSP Global Inc. (WSP-T) was lower by 3.9 per cent after announcing before the bell it has signed a deal to buy Australian engineering services company Calibre Professionals Services One Pty Ltd. for about $250-million.

Calibre is focused on rail, infrastructure, rehabilitation and renewable projects for mining clients.

The company has a workforce of about 800 professionals with offices in Perth, Sydney, Melbourne and Brisbane.

WSP says the deal will help it further develop its position in Australia.

It says the addition of Calibre and its mining advisory and consulting expertise will position it to take advantage of opportunities related to mine closure and rehabilitation as well as water management.

The transaction is expected to close in the second quarter of 2023. It is subject to customary closing conditions, including approval from the Foreign Investment Review Board in Australia.

Toronto-based Roots Corp. (ROOT-T) dipped 1.3 per cent after reporting its fourth-quarter profit fell compared with a year ago as its sales also moved lower.

The retailer says it earned $13.0-million or 31 cents per diluted share for the quarter ended Jan. 28, down from a profit of $18.1-million or 42 cents per diluted share a year earlier.

Overall sales totalled $111.5-million in the quarter, down from $121.3-million.

The drop came as its corporate retail store and e-commerce sales fell to $98.5-million compared with $110.6-million a year ago.

Roots says the result was primarily driven by economic headwinds and an intensified promotional environment.

Partner and other sales totalled $12.9-million for the quarter, up from $10.7-million a year ago, helped by higher sales to the company’s partner in Taiwan, growth in the wholesale of Roots-branded products to select partners, and favourable foreign exchange impacts.

Shares of Toronto-based Hut 8 Mining Corp. (HUT-T) dropped 5.5 per cent after it reported the generation of 131 bitcoins in March with an average production of about 4.2 per day.

The company’s bitcoin balance held in reserve was 9,133, as of March 31.

“While we met key operational milestones in Medicine Hat in March, we continue to be laser-focused on two things,” said CEO Jaime Leverton in a release. “The entire management team is committed to both remediating the challenges at our Drumheller site, and closing the transaction with USBTC, which remains on track.”

As of Tuesday’s close, its shares were up over 105 per cent year-to-date.

Alphabet Inc. (GOOGL-Q) erased early gains after it released new details late Tuesday about the supercomputers it uses to train its artificial intelligence models, saying the systems are both faster and more power-efficient than comparable systems from Nvidia Corp. (NVDA-Q)

Google has designed its own custom chip called the Tensor Processing Unit, or TPU. It uses those chips for more than 90 per cent of the company’s work on artificial intelligence training, the process of feeding data through models to make them useful at tasks such as responding to queries with human-like text or generating images.

The Google TPU is now in its fourth generation. Google on Tuesday published a scientific paper detailing how it has strung more than 4,000 of the chips together into a supercomputer using its own custom-developed optical switches to help connect individual machines.

Improving these connections has become a key point of competition among companies that build AI supercomputers because so-called large language models that power technologies like Google’s Bard or OpenAI’s ChatGPT have exploded in size, meaning they are far too large to store on a single chip.

The models must instead be split across thousands of chips, which must then work together for weeks or more to train the model. Google’s PaLM model - its largest publicly disclosed language model to date - was trained by splitting it across two of the 4,000-chip supercomputers over 50 days.

Google said its supercomputers make it easy to reconfigure connections between chips on the fly, helping avoid problems and tweak for performance gains.

Artificial intelligence (AI) stocks fell on Wednesday after a short seller alleged accounting issues at retail darling C3.ai Inc. (AI-N), dampening investor interest in the group of small companies that have wildly outperformed the market this year.

Shares of C3.ai were down 15.6 per cent during the trading day, while those of Thai security firm Guardforce AI (GFAI-Q) more than 32 per cent. Data analytics firm BigBear.ai (BBAI-N) lost 18.7 per cent and conversation intelligence company SoundHound AI (SOUN-Q) declined 12.3 per cent.

C3.ai shed a quarter of its value on Tuesday, reducing its market valuation to US$2.80-billion, after Kerrisdale Capital said the firm has “serious accounting and disclosure issues” in a letter to its auditor Deloitte & Touche LLP.

Kerrisdale had disclosed its short position in C3.ai last month and accused the company of “poor customer traction, failing sales partnerships and financial pressures.”

“There is no evidence of any real wrongdoing or fraud in the short-seller report, but it raises some concerns and investors could benefit from more clarity on a few items,” said Canaccord Genuity analyst Kingsley Crane.

“It is not necessarily a systemic risk and should not affect other AI stocks near-term. These stocks are traded on (AI) excitement.”

C3.ai did not immediately respond to a request for comment.

Fast-casual dining company Sweetgreen Inc. (SG-N) plummeted 6.4 per cent after being sued by Chipotle Mexican Grill Inc. (CMG-N) in California federal court Tuesday, claiming the salad chain’s new “Chipotle Chicken Burrito Bowl” violates its trademark rights.

Chipotle’s lawsuit said Sweetgreen’s “very similar and directly competitive” bowl is an attempt to capitalize on the Chipotle brand and likely to confuse consumers.

Sweetgreen did not immediately respond to a request for comment Wednesday.

In a statement, Chipotle chief corporate affairs officer Laurie Schalow said the company will “take appropriate actions whenever necessary” to protect its trademarks.

Sweetgreen announced the bowl in a March 30 press release, describing it as “the latest iteration of Sweetgreen’s menu innovation strategy, as the brand evolves beyond salads to introduce a bowl without any greens.”

Chipotle’s lawsuit said Sweetgreen advertises the bowl using the word “Chipotle” in the same font and style as the Mexican-food chain and uses a background with Chipotle’s trademarked “Adobo Red” color.

The lawsuit said Sweetgreen continued infringing despite a cease-and-desist letter and phone call from Chipotle’s legal department. Chipotle said it suggested changing the name to something that uses “chipotle in lower-case, in a textual sentence, to accurately describe ingredients of its menu item,” like a “chicken bowl with chipotle.”

Chipotle asked the court for an order blocking Sweetgreen from using the “Chipotle” name and an unspecified amount of money damages.

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 3:48pm EDT.

SymbolName% changeLast
GOOGL-Q
Alphabet Cl A
+0.83%174.99
AI-N
C3.Ai Inc Cl A
+0.42%24.04
BBAI-N
Bigbear.Ai Holdings Inc
+3.29%1.57
CAG-N
Conagra Brands Inc
-0.53%30.28
CMG-N
Chipotle Mexican Grill
+0.43%3151.63
XOM-N
Exxon Mobil Corp
-0.08%113.42
FDX-N
Fedex Corp
-0.68%247.59
GFAI-Q
Guardforce Ai Company
+2.17%2.83
HUT-T
Hut 8 Corp
+4.43%12.72
NVDA-Q
Nvidia Corp
+2.57%1064.69
ROOT-T
Roots Corp
-0.43%2.31
SOUN-Q
Soundhound Ai Inc Cl A
+1.4%5.06
SG-N
Sweetgreen Inc Cl A
+5.11%32.52
WMT-N
Walmart Inc
+0.83%65.38
WSP-T
WSP Global Inc
+0.78%208.62
JNJ-N
Johnson & Johnson
-1.82%146.97

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