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A look at North American equities heading in both directions

On the rise

CGI Inc. (GIB.A-T) rose 4.1 per cent after it reported a first-quarter profit of $382.4-million, up from $367.4-million a year earlier, as its revenue rose more than 10 per cent.

The technology and business consulting firm says the profit amounted to $1.60 per diluted share for the quarter ended Dec. 31, up from $1.49 per diluted share in the same quarter a year earlier.

Revenue for the quarter totalled $3.45-billion, up from $3.09-billion, for a year-over-year gain of 11.6 per cent.

Excluding specific items, the company says it earned $1.66 per diluted share, up from $1.50 per diluted share a year earlier.

CGI says bookings in its most recent quarter amounted to $4.04-billion, up from $3.60-billion a year earlier.

As of Dec. 31, the company’s backlog was $25.01-billion.

In a research note, Desjardins Securities’ Jerome Dubreuil said: “CGI’s 1Q FY23 results were better than expectations in terms of both financials and bookings. Despite recession alarm bells, bookings were strong at more than $4.0-billion, with new business comprising one-third of that total.”

Canaccord Genuity Group Inc. (CF-T) was higher after it said on Wednesday it would acquire Mercer’s private wealth business in the country for an undisclosed sum.

The deal, which is expected to close within the next three months, will add nearly $1.5 billion to the total client assets of Canaccord’s Wealth Management unit.

A group led by the management of Canaccord Genuity said on Jan. 9 it would launch a takeover bid for the Canadian financial services firm, valuing it at nearly $1.13-billion after it lost 44 per cent of its market capitalization last year.

The key to Canaccord’s $1.1-billion buyout offer: An overlooked, but very valuable, wealth management arm

Canaccord offers wealth management, investment banking and broker research services.

U.S. chip maker Advanced Micro Devices Inc. (AMD-Q) on Tuesday posted revenue that beat Wall Street targets and said it expected business to improve in the second half, enthusing investors who saw the company gaining on rival Intel.

Shares rose 12.7 per cent in Wednesday trading. Although AMD’s forecast was behind expectations, it was not as weak as some worried. Recent earnings reports for both Intel and AMD show the once fast growing data center business will be more challenging for all chip makers as companies adjust their spending.

“AMD remained resilient and even made gains in their datacenter chips...against Intel,” said Wayne Lam analyst at CCS Insight.

Chief Executive Lisa Su said she was confident AMD will keep gaining market share this year and that the second half would be stronger than the first.

While Intel Corp. (INTC-Q) still dominates the PC and server processing chip markets with a share exceeding 70 per cent, that is down from more than 90 per cent in 2017, according to tech research firm IDC. A big chunk of that share was taken by AMD.

AMD’s Data Center segment revenue grew 42 per cent to US$1.7-billion during the fourth quarter, offsetting a 51-per-cent drop in revenue of the client segment that includes PCs at US$903-million.

PC shipments fell 16.5 per cent to 292.3 million units in 2022, according to data from research firm IDC.

Ms. Su said that AMD was expecting the PC market this year to be down 10 per cent and it would “continue to ship below consumption in the first quarter to reduce downstream inventory.”

“First quarter should be the bottom for us in PCs and then grow from there into the second quarter and then into the second half,” Mr. Su said on the earnings call.

The slumping PC business pummeled Intel’s first-quarter outlook and Intel Chief Executive Pat Gelsinger said he was seeing “some of the largest inventory corrections literally that we’ve ever seen in the industry.”

“I think we will still see pain across the industry for at least another few quarters before things turn around,” said Anshel Sag, analyst at Moor Insights & Strategy.

“We believe AMD’s results continue to show softness across the PC and gaming markets,” said Angelo Zino, analyst at CFRA Research. “We also expect revenue levels in both segments to trough in the first half of this year.”

AMD had already started under-shipping last year in response to plummeting processor demand.

This decline led chipmakers to slash revenue forecasts, triggering a sell-off in chip stocks. AMD’s stock fell 55 per cent last year, underperforming the Philadelphia SE Semiconductor index during an industry downturn

Adjusted fourth-quarter revenue rose 16 per cent to US$5.60-billion. Analysts on average were expecting revenue of US$5.50-billion, according to Refinitiv data.

The company forecast current-quarter revenue of US$5.3-billion, plus or minus US$300-million. Analysts on average expected revenue of US$5.48-billion, according to Refinitiv data.

Peloton Interactive Inc. (PTON-Q) on Wednesday after the bell forecast current-quarter revenue above expectations, in an early sign that its efforts to boost sales, including by selling on third-party platforms, were beginning to yield fruit.

Shares of the fitness equipment maker jumped 26.5 per cent after it also reported a slowing cash burn on a string of cost-cutting measures.

Peloton was all the rage among fitness enthusiasts during COVID-19 lockdowns, with the company hitting hit a peak market value of nearly US$50-billion in early 2021. But with people returning to gyms the company saw demand for its equipment dwindle.

In response, the company had announced plans to sell its fitness equipment on e-commerce giant and at Dick’s Sporting Goods Inc stores.

For the third quarter, Peloton forecast revenue between US$690-million and US$715-million, above expectations of US$689.1-million, as per Refinitiv data.

The company kept its goal of break-even free cash flow by the end of fiscal 2023, a key milestone being watched by investors.

However, Peloton said challenging economic conditions were impacting consumer spending patterns and that near-term demand for connected fitness hardware is likely to remain challenged.

Meanwhile, the company’s net loss narrowed to US$335.4-million, or 98 US cents per share, in the second quarter from US$439.4-million, or US$1.39 per share, a year ago.

Cash burn fell to US$94.4-million from US$546.7-million.

It posted total revenue of US$792.7-million, beating analysts’ average expectation of US$710.02-million.

Tesla Inc. (TSLA-Q) gained 4.4 per cent as it plans to step up output at its Shanghai plant over the next two months to meet demand ignited by aggressive price cuts on its best-selling models, according to a planning memo seen by Reuters and a person with knowledge of the plan.

The automaker plans to produce a weekly average of nearly 20,000 units at its Shanghai factory in February and March, according to the memo, which detailed output plans for Tesla’s most productive and profitable manufacturing hub.

That level of production would take the plant’s output to roughly its rate in September, when it turned out 82,088 Model 3 and Model Y cars, according to data from China Passenger Car Association.

In December, the Shanghai plant had cut output by about a third from November, and extended a Lunar New Year holiday period for workers in January, to cope with rising inventory, before its price cuts of between 6 per cent and almost 14 per cent in China.

On a conference call last week to discuss Tesla’s fourth-quarter results, Chief Executive Elon Musk said orders were roughly double production in January after global price cuts.

Mr. Musk said 2023 deliveries could hit 2 million vehicles, so long as there was no external disruption.

Tesla’s price cuts in China have sparked what analysts have described as a price war, as Chinese automakers Xpeng and Seres’ Aito have followed the company in cutting prices.

In the first 29 days in January, Tesla’s average daily retail sales in China surged 36% over the corresponding period a year earlier, to 25,686 vehicles.

The growth was slightly higher than that of major competitor BYD, while overall car sales fell 45 per cent, data from China Merchants Bank International showed.

Tesla’s Shanghai plant produces vehicles for the China market and for export to Europe.

On the decline

Shares of Canadian Pacific Railway Ltd. (CP-T) slid 1.3 per cent following the release of its fourth-quarter financial results on Tuesday after the bell that drew a mixed reaction from analysts on the Street.

In a conference call, CP’s CEO Keith Creel said the Calgary-headquartered railway is in growth mode as it awaits a decision by the U.S. Surface Transportation Board on its acquisition of Kansas City Southern.

Reaction to CP earnings from the Street: Wednesday's analyst upgrades and downgrades

The ruling, expected sometime this quarter, is the final hurdle CP must clear in its bid to purchase KCS for US$31-billion — a deal which would create the only single-line railroad linking the United States, Mexico and Canada.

In anticipation of a positive ruling and the growth opportunities that will result from the merger, Mr. Creel said CP started hiring in large numbers last spring.

“In spite of a historically tight labour market in ‘22, it was a record year of hiring at CP,” Mr. Creel said. “We added more than 1,600 conductors over the course of last year, and we made some significant progress with our labour agreements.”

During the course of 2022, CP’s total workforce swelled to 13,000, an increase of seven per cent year-over-year.

“That was certainly a significant expense in 2022, and it will be a significant expense this year as we prepare for growth,” said chief financial officer Nadeem Velani on the call.

“Assuming a positive response from the STB, the synergies that we one day will realize will take some people. So we’re hiring a few thousand at a time, and we’re spending cap-ex at record levels on our property and KCS on their properties.”

CP’s deal closed in December 2021, but the shares of KCS were placed into a voting trust that allows the U.S. railway to operate independently while the STB completes its review.

Mexican regulators have already given their approval to the deal.

CP has said its acquisition of KCS will enable significant growth for its rail customers, and allow for 60,000 truckloads annually to be shifted off public highways.

In addition to hiring, CP said it has also been working to ensure labour stability in advance of a finalized merger. CP recently announced a new tentative collective agreement with Unifor, the union that represents the railway’s mechanical employees in Canada, and has also reached an agreement with the union that represents the conductors for KCS in Kansas and Missouri.

All of the activity comes against the backdrop of an uncertain economic environment. On Tuesday, CP Rail said it earned $1.27-billion in the fourth quarter of 2022, compared with $532-million in the same period of 2021.

The diluted profit worked out to $1.36 per share, compared with 74 cents per share in the prior year’s quarter.

Revenues were $2.46-billion, a 21-per-cent increase from the same period in 2021, in spite of weather challenges in the fourth quarter and an outage at the Elkview mine that negatively affected coal shipments.

CP has declined to issue forward guidance for 2023, given the pending merger decision and the potential for macro-economic headwinds such as a possible recession. The company said instead, it will provide guidance at an investor day later this year.

“We’re not going to get too far over our skis and try to predict what that’s going to look like,” said John Brooks, the railroad’s head of marketing.

During the fourth quarter, CP Rail said its adjusted operating ratio, a key metric of railroad efficiency where a smaller number is better, increased 160 basis points to 59.1 per cent.

For the full year 2022, CP Rail’s adjusted operating ratio increased by 380 basis points to 61.4 per cent.

Mr. Creel said on the call that the company’s operating ratio performance in 2022 was not “CP standard” and that he sees opportunity to improve that figure in the year ahead.

TC Energy Corp. (TRP-T) fell 5.6 per cent after it said on Wednesday it now estimates costs for completion of its troubled Coastal GasLink project to be $14.5-billion,, as it faces skilled labour crunch and adverse weather conditions.

The costs are now up 30 per cent from the project’s previously pegged completion cost of $11.2-billion, which was already raised by 70 per cent in July from the initial budget.

First announced in 2018, the 670-kilometre pipeline will transport natural gas to the Shell Plc-led LNG Canada facility on the west coast of British Columbia, Canada’s first LNG export terminal.

The long-delayed pipeline is expected to be integral to Canada’s contribution to the global liquefied natural gas (LNG) market, which has seen demand surge as Europe and Asia seek alternatives to Russian energy imports.

The project has faced several construction delays due to COVID-19 disruptions and protests from environmentalists and some First Nations.

Coastal GasLink’s workers were also attacked by masked assailants in February last year, damaging equipment and construction trailers worth millions of dollars.

TC Energy raised its overall 2023 capital expenditure outlook to about $11.5-billion-$12-billion from $9.5-billion earlier, partly due to the higher costs associated with the project.

An impairment will be recognized to TC Energy’s equity investment in Coastal GasLink LP in its fourth-quarter financial results scheduled for on Feb. 14, due to the increase in the expected costs and the additional funding required, it said.

Costs could increase by another $1.2 billion if construction is extended well into 2024, it added.

Though the cost increase was “disappointing,” Chief Executive François Poirier said the company remains focused on safely completing the project at the lowest possible cost.

Snap Inc. (SNAP-N) on Tuesday said current quarter revenue could decline by as much as 10 per cent, sending its shares plummeting 10.4 per cent as the company struggles with weak advertising demand.

The owner of photo messaging app Snapchat is the first of the major digital advertising platforms to report fourth-quarter results, which often provide an early clue for platforms like Facebook owner Meta Platforms Inc (META-Q) and Alphabet’s Google (GOOGL-Q) when they report results later this week.

In a letter to investors, Snap said a weakening economy, increased competition from other social media platforms and “platform policy changes” continued to hurt its business in the fourth quarter.

Apple began rolling out privacy changes on iPhones in 2021 that have limited advertisers’ ability to collect data for targeted advertising.

Snap Chief Executive Evan Spiegel said during a conference call with analysts that the company is working to improve its ability to measure and boost the effectiveness of its ads, but it would take time for the investments to translate into higher revenue.

“We expect the headwinds we have faced over the past year to persist throughout Q1,” the company said in a letter to investors.

Revenue for the fourth quarter ended Dec. 31 was US$1.3-billion, flat from the prior-year and in line with analyst expectations.

Snap’s net loss was US$288-million during the quarter, versus net income of US$23-million the previous year. It reported adjusted earnings per share of 14 US cents, beating Wall Street estimates of 11 US cents.

Snap will host an investor day on Feb. 16 to detail its plan to move forward after announcing in August that it would lay off 20 per cent of its staff and discontinue experimental projects like a drone camera to cut costs.

Shares of the Santa Monica, California-based company are down 65 per cent over the past year.

With files from staff and wires