A look at North American equities heading in both directions
On the rise
Shares of Thomson Reuters Corp. (TRI-T) closed 1.7 per cent higher on Wednesday after it reported higher sales and operating profit in the second quarter, helped by strong performance at its “Big 3″ segments: Legal Professionals, Corporates and Tax & Accounting Professionals.
The news and information company reported adjusted earnings of 84 US cents per share, 6 US cents ahead of estimates.
Total revenue rose 2 per cent in the quarter to US$1.65-billion, slightly missing expectations, according to Refinitiv. The company said net divestitures had a 3-per-cent negative impact on revenue, hit by the majority stake sale of the company’s Elite business to private equity firm TPG.
Thomson Reuters, which owns the Westlaw legal database, Reuters news agency and the Checkpoint tax and accounting service, said organic revenue was up 7 per cent for the “Big 3″ segments that together account for the lion’s share of revenue and profit.
CEO Steve Hasker said he saw “good momentum across our portfolio despite an uncertain macro backdrop.” He added, “Importantly, our confidence around the opportunity that generative AI brings to us and our customers continues to strengthen.”
Thomson Reuters maintained its full-year 2023 outlook for organic revenue, adjusted EBITDA margin and free cash flow. It said the first half of the year gave it “increasing confidence” about its financial outlook but cautioned that “many signs that point to a weakening global economic environment” that could impact its guidance.
The company sold 15.5 million shares of the London Stock Exchange Group (LSEG) in the second quarter, for gross proceeds of US$1.6-billion.
Organic revenue in the Reuters News division was up 1 per cent in the quarter, driven by a lower contractual year-over-year price increase in the company’s news agreement with LSEG , slower events growth and lower digital revenues.
Organic revenues in the Print division – which provides information to legal and tax professionals, government, law schools and corporations – fell 4 per cent, in line with the company’s expectations.
In an interview Wednesday, Chief Financial Officer Michael Eastwood said the company has “a lot of flexibility, not just for M&A,” and that he anticipates going into 2024 “continuing with 10-per-cent annual dividend increases and, if appropriate, continued return of capital.”
In June, the company announced plans for two acquisitions: Britain-based Imagen, a digital content asset management company, for an undisclosed price; and Casetext, a California-based AI company that helps legal professionals conduct research, analysis and prepare documents using generative AI, for US$650-million.
Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
EQB Inc. (EQB-T), the company that owns EQ Bank, jumped 4.3 per cent following the release of stronger-than-anticipated quarterly results after the bell.
The Toronto-based firm said it earned $130.9-million in the second quarter, up from $58.8-million a year earlier. Diluted earnings per share were $3.39, up from $1.67 during the same quarter last year.
Reaction from the Street: Wednesday's analyst upgrades and dowgrades
EQB raised its guidance for 2023, putting its diluted earnings per share growth guidance to 18 to 22 per cent, up from 10 to 15 per cent.
Revenue for the quarter ended June 30 was $312.5-million, up from $164.1-million, while provisions for credit losses also rose to $13.0 million, up from $5.2 million.
EQB says net interest income was $251.7-million, up from $166.7-million last year, and the company says its customer base grew by 31 per cent to 367,790.
The company also announced its chief risk officer Ron Tratch is leaving at the end of August and that it will announce his replacement in due course.
Starbucks Corp. (SBUX-Q) missed market expectations for quarterly comparable sales on Tuesday, with demand for its coffees and cold drinks showing some signs of tapering in the North American and international markets even as China sales rebounded sharply.
The world’s largest coffeehouse chain has targeted its younger, wealthier U.S. customer base by launching new drinks and promoting food options that have helped drive up average customer sales. But quarterly transactions climbed just 1 per cent in North America, slowing from a 6-per-cent increase in the prior quarter.
However, Starbucks saw a sharp recovery in China, with comparable sales surging 46 per cent in the third quarter. That rebound was in line with its expectations and is expected to last, company officials told investors in a call.
“China, I think, is what’s holding the stock up here,” Sante Faustini III, director of product intelligence at research firm M Science, told Reuters.
Shares of Starbucks were higher by 0.9 per cent as the coffee chain topped Wall Street estimates for quarterly profit and slightly lifted its outlook for full-year earnings growth.
M Science’s Faustini III, said while the 7-per-cent rise in North America comparable sales as “light,” saying the focus was on booming China sales.
Starbucks projected average weekly sales in China to grow in the low- to mid-single digits range in the current quarter, resulting in similar comparable sales growth.
It also cited a record more than 20 million members for its customer loyalty program in China, it’s largest market outside the United States, which has 31.4 million rewards members.
Overall, the company now expects full-year earnings growth in the range of 16 per cent to 17 per cent, compared to its prior outlook of toward the low end of 15-per-cent to 20-per-cent growth range.
It maintained its forecast for full-year comparable sales growth near the high end of a 7-per-cent to 9-per-cent range, compared to Wall Street’s expectations of an 8.7-per-cent rise among 14 analysts polled by Refinitiv.
Starbucks executives told investors said they expected revenue pressure to continue in the fourth quarter, driven by at-home coffee business, and for pricing trends to moderate in the final quarter following several months of price hikes.
Excluding items, Starbucks posted a profit of US$1 per share, beating analysts’ average estimate of 95 US cents.
Kraft Heinz (KHC-Q) missed quarterly sales estimates on Wednesday as inflation-hit customers bought fewer packaged meals and condiments, discouraged by higher product prices.
Shares of the Jell-O maker were up 1.2 per cent after it maintained its annual sales and profit forecasts.
U.S. packaged food makers have kept their product prices higher for more than two years to shield their margins from a surge in costs of labor, raw materials and transportation, but the benefits are starting to fade as consumers grow more price-conscious.
Kraft Heinz’s product prices rose 11 percentage points in the second quarter ended July 1, driving a 7 percentage point decline in volumes. In the prior quarter, volumes had fallen 5.3 percentage points year on year.
The company also flagged higher promotions in the market as customers hunted for cheaper alternatives for its ready-to-eat meals and snacks, sauces and cooking essentials.
“In the U.S., price gaps have expanded relative to both private label and branded competition. We have seen branded competition increase their levels of promotion, while we have remained more disciplined,” Kraft said in its prepared remarks.
The Philadelphia Cream Cheese maker logged adjusted earnings of 79 US cents per share for the quarter, above analysts’ estimate of 76 US cents per share.
The results were in line with Oreo-maker Mondelez International (MDLZ-Q) and candy maker Hershey (HSY-N) that also saw volumes falter in their most recent quarter, as they passed on price increases to consumers.
The Heinz ketchup maker’s net sales rose to US$6.72-billion in the quarter, from US$6.55-billion last year. Analysts on average had expected US$6.81-billion, based on Refinitiv data.
The company reiterated its 2023 targets for organic sales growth of 4 per cent to 6 per cent and adjusted profit of between US$2.83 and US$2.91 per share.
Fertilizer supplier Mosaic Co. (MOS-N) rose 1.2 per cent as it restarted a Canadian potash plant last month after idling it since December due to waning demand for the crop fertilizer, and said it sees tight supplies through 2023.
Mosaic restarted the Colonsay, Saskatchewan mine to offset a short-term drop in potash production that was due to summer maintenance at the larger Esterhazy, Saskatchewan mine, the Tampa, Florida-based company said on Tuesday. It also sees global potash constraints, particularly from sanctioned producer Belarus and at North American ports.
War in Ukraine and extreme weather are limiting crop supplies, elevating the importance of fertilizer to maximize production, CEO Joc O’Rourke said on a Wednesday call with analysts.
“We’re already seeing robust demand in several of our key markets since the spring,” O’Rourke said, referring to North America and Brazil.
Mosaic shares were up a day after the company reported lower than expected profits.
On an adjusted basis, the top U.S. phosphate maker reported earnings of US$1.04 per share for the quarter ended June 30, compared to the average analyst estimate of US$1.12 per share, according to Refinitiv data.
In July, a strike by dock workers at Canada’s Port of Vancouver, now ended pending a worker vote, led to Canpotex withdrawing all offers for new sales.
Canpotex, owned by Mosaic and rival Nutrien (NTR-T) to export their potash offshore, is also repairing mechanical problems at its Portland, Oregon port that further restrict shipments.
Nutrien last month reduced potash production at its Cory, Saskatchewan mine due to the strike.
On the decline
Cameco Corp. (CCO-T) was down 3.5 per cent in the wake of posting a surprise second-quarter loss and Britain’s competition regulator saying it was investigating its US$7.9-billion deal with Brookfield Renewable Partners (BEP.UN-T) to acquire nuclear power plant equipment maker Westinghouse Electric.
The Competition and Markets Authority (CMA) said it had invited comments on the deal from interested parties. It did not give any further details.
The deal was announced in October last year on the heels of an uptick in interest in nuclear power amid an energy crisis in Europe and soaring crude oil and natural gas prices.
“This is part of the standard regulatory approval process for transactions of this nature,” Cameco said in an email to Reuters.
The company added that it expected the deal to close before the end of the year.
Cameco will own 49-per-cent of Westinghouse, while Brookfield Renewable and its institutional partners will own the rest, the companies have said.
Before the bell, the Saskatoon-based company reported an adjusted earnings per share loss of 1 cent, falling well below the Street’s expectation of a 13-cent profit. It cited unrealized losses on U.S. dollar cash balances.
“Our financial performance, which reflects the expected quarterly variation in our contract deliveries this year, is benefitting from our strategic decisions, with gross profit improving as we transition to our tier-one run rate. The significant momentum seen in the nuclear energy industry and the heightened supply risk caused by geopolitical developments are translating into increased opportunities for Cameco. As a result, for 2023, we have increased our consolidated revenue outlook, which is primarily driven by higher expected average realized prices under our contract portfolio and increased deliveries in our uranium segment,” said president and CEO Tim Gitzel in a release.
RB Global Inc. (RBA-T) dropped 4.9 per cent after announcing before the bell the departure of CEO Ann Fandozzi and CFO Eric Jacobs.
“The CEO and CFO departures were unexpected, with the company noting that Ann Fandozzi had chosen to resign after being unable to come to an agreement on compensation structure,” said National Bank analyst Maxim Sytchev in a note.
“The RBA Board felt that Ann’s ask of front-loading 5 years of equity compensation was excessive and the associated structure and magnitude of her desired compensation was well above peers and market standards. The press release did not provide a specific reason for Eric Jacobs’ departure. Ann will be succeeded by COO Jim Kessler (who will also join the RBA Board) in the CEO role, while Eric’s duties will be temporarily taken over by Megan Cash, the current SVP of Global Control & Corporate Finance, while the Board conducts a search for a permanent CFO.”
Ahead of its full second-quarter earnings report after the bell on Thursday, the Illinois-based company, formerly known as Ritchie Bros Auctioneers Inc., released preliminary results. Revenue of US$1.107-billion and headline adjusted EBITDA of US$308-million both exceeded the Street’s expectations (US$1.046-billion and US$280-million, respectively).
Celestica Inc. (CLS-T) declined 2 per cent after Onex Corp. (ONEX-T) announced a plan to divest its remaining 5.8-per-cent stake in the electronics company, selling 6.8 million shares with BofA Securities as lead underwriter.
Andrew Willis: Onex eyes exit on long-held Celestica stake
Reuters reports the offering will priced at US$20.75, which is a 2.9-per-cnet discount to stock’s last sale on Tuesday.
While it raised its annual dividend by 6 per cent to $2.46 from $2.32 and in line with expectations on the Street, shares of Capital Power Corp. (CPX-T) slipped 1.5 per cent following the premarket release of weaker-than-anticipated second-quarter 2023 results before the bell.
The Edmonton-based company reported adjusted EBITDA of $327-million, missing the Street’s forecast of $351-million. Earnings per share of 68 cents also missed estimates ($1.04).
“The miss was largely attributable to downtime at the Genesee facility, which occurred during a period of unseasonably warm weather, low wind availability, and high-power prices ($372/MWh), which required CPX to procure higher priced power to offset portfolio positions,” said ATB Capital Markets analyst Nate Heywood in a note.
“The print was accompanied by a 6-per-cent dividend increase, in line with our expectation and guidance, with the new annualized dividend of $2.46 and an implied current yield of 6.1 per cent. Management continues to point to 2023 EBITDA guidance of $1.455-$1.515-billion (ATB estimate: $1.499-billion | consensus: $1.527-billion), pointing towards the upper end of the range. CPX shares have recently been under pressure following the late Q2/23 announcement pointing toward headwinds for its G1 & G2 repowering project, including a more than 20-per-cent cost creep and timing delays.”
Bausch + Lomb Corp. (BLCO-T) dipped 1.5 per cent after it posted modestly better than expected second-quarter earnings on Wednesday after its new chief executive, Brent Saunders, took the helm in March.
B+L reported revenue of $1.04-billion in the quarter, up from $941-million a year ago. Analysts, on average, expected revenue of $963-million for the quarter, according to Refinitiv data.
Excluding items, B+L said it earned $65-million, or 18 cents per share, down from $103-million or 29 cents per share last year, as the company’s expenses rose. Still, the earnings beat analysts’ expectations by 3 cents a share.
Mr. Saunders, a noted dealmaker, previously helmed and built up Botox maker Allergan before it was acquired by AbbVie for US$63-billion in 2020.
This is his second stint at Bausch + Lomb, which makes contact lenses, surgical devices, prescription drugs and generic eye products. In 2013, Saunders oversaw B+L’s acquisition of Valeant Pharmaceutical, now Bausch Health Companies Inc. (BHC-T) Bausch Health still owns most of B+L’s shares and has said it intends to fully spin the company off. Some Bausch Health investors are trying to block the spinoff.
In a research note, Citi analyst Joanne Wuensch said: “With its new CEO in place, a very healthy ophthalmology market, new products, and tuck-in acquisitions bolstering the portfolio, we look forward to the company’s next chapter and maintain our Buy/High Risk rating on BLCO.”
Advanced Micro Devices (AMD-Q) on Tuesday after the bell forecast a strong fourth quarter and expects to have artificial-intelligence hardware that can challenge Nvidia (NVDA-Q) chips by then.
Shares dropped over 7 per cent in Wednesday trading.
AMD CEO Lisa Su said AMD is set to ramp production of its MI300 artificial-intelligence chips in the fourth quarter. The MI300 AI accelerator chips are designed to compete against the advanced H100 chips already sold by Nvidia, though they are in short supply.
Ms. Su said customer interest in the company’s MI300 series chips is “very high” and that AMD expanded its work with “top-tier cloud providers, large enterprises and numerous leading AI companies” during the third quarter.
Investors are betting AMD could one day challenge Nvidia in the surging market for advanced AI chips when AMD releases a competing product later this year. AMD has not given a detailed full-year forecast but said it expects sales in its data centre business that will contain MI300 sales to be higher in 2023 than 2022′s US$6.04-billion total.
Jenny Hardy, portfolio manager at GP Bullhound, which owns Nvidia and AMD stock, said that Nvidia still faces supply constraints, leaving an opening for AMD’s chip.
“So if AMD can ramp production and launch those MI300 chips in the fourth quarter, they will likely see strong demand because plenty of people cannot get their hands on Nvidia chips. So we would assume that AMD can effectively kind of fill some of that supply-demand gap,” Hardy said.
For the second quarter, revenue at AMD’s data centre business fell 11 per cent to US$1.32-billion, while revenue at its client business fell 54 per cent to US$998-million from US$2.2-billion a year ago.
Large cloud players like Microsoft and Google plan to ramp up spending on data centres in the second half of the year and that spending will skew toward AI chips and infrastructure, analysts said.
However, PC shipments decline has moderated and demand has started showing signs of improvement.
“Looking to the third quarter, we expect our Data Center and Client segment revenues to each grow by a double-digit percentage sequentially driven by increasing demand for our EPYC and Ryzen processors, partially offset by Gaming and Embedded segment declines,” said AMD finance chief Jean Hu.
The company forecast current-quarter revenue of about US$5.7-billion, plus or minus US$300-million. Analysts polled by Refinitiv expect revenue of US$5.82-billion.
Yum Brands (YUM-N) closed down 1 per cent after it topped market estimates for quarterly results on Wednesday, as cheaper meals and promotional offers at its KFC restaurants boosted demand and overshadowed lacklustre traffic at Taco Bell and Pizza Hut.
The company has attracted more lower-income consumers who have been most hit by inflation through aggressive promotions and value meal deals, while an array of new menu item launches across its brands have also helped boost traffic.
Louisville, Kentucky-based Yum Brands is also benefiting from cooling costs of key commodities such as chicken, cheese and pork that had peaked amid COVID-19-related disruptions and the Russia-Ukraine crisis.
Quarterly comparable sales at KFC rose 13 per cent, handily beating estimates of 8.29 per cent, and logging the best same-store sales growth in at least seven quarters. New launches such as chicken nuggets, and cheaper meal options like the $5 Mac & Cheese Bowls and the 2-for-$5 fried chicken wrap offers helped KFC sales.
Meanwhile, Taco Bell’s second-quarter same store sales grew 4 per cent, slightly below expectations of a 4.18-per-cent rise, as traffic at the chain tempered in comparison to strong demand last year driven by the launch of the Mexican Pizza.
Same-store sales at Yum Brands rose 9 per cent in the quarter ended June 30, compared with analysts’ estimates of a 7.01-per-cent increase, according to Refinitiv IBES data.
Excluding items, Yum Brands earned US$1.41 per share, above estimates of US$1.24 per share.
With files from staff and wires
David Leeder