A look at North American equities heading in both directions
On the rise
Shares of Suncor Energy Inc. (SU-T) rose 0.4 per cent after it reported a better-than-expected fourth-quarter profit on Tuesday, helped by higher crude prices amid tightened global supply.
U.S. oil prices pulled back from a multi-year high last quarter, but were trading 9 per cent higher than the year-ago level as Western sanctions against major energy producer Russia and a decision by OPEC+ to cut output tightened global supply.
Suncor’s total upstream production was 763,100 barrels of oil equivalent per day (boepd) in the fourth quarter, higher than last year’s output of 743,300 boepd.
The company’s refinery utilization averaged 94 per cent and crude throughput was 440,000 barrels per day (bpd), compared with 447,000 bpd last year, as its Commerce City refinery in Colorado was knocked out by winter storm Elliott.
The Calgary-based company reported adjusted operating earnings of $2.43-billion, or $1.81 per share, for the quarter ended Dec. 31, compared with average analysts’ estimate of $1.76 per share.
Suncor did not announce the name of its new CEO on its fourth-quarter earnings call Wednesday, though interim chief executive Kris Smith said a decision is expected “very soon.”
It has been on the hunt for a new CEO ever since former chief executive Mark Little resigned last July, under pressure from an aggressive activist investor and in the wake of a spate of workplace deaths and safety incidents.
Mr. Smith, who was formerly executive vice-president of Suncor’s Downstream division, has been serving as interim CEO since that time. Suncor had previously indicated a permanent CEO would be named by mid-February, and Mr. Smith told analysts on a conference call Wednesday that a decision is imminent.
“The board is going through a very diligent process, ensuring that they make the decision that’s going to take this company forward,” Mr.. Smith said.
Bausch + Lomb Corp. (BLCO-T) surged 7.6 per cent after it named Brent Saunders, the former chief executive officer of Allergan, as its CEO and chairman of board, marking his return to the Canadian eye-care company after nearly a decade.
Mr. Saunders will join Bausch + Lomb on Feb. 16 in an advisory capacity to help with the transition, the company said.
He will take helm on March 6 from Joseph Papa, who last July announced plans to step down as CEO.
The Vaughan, Ont.-based firm said in December that Mr. Papa will continue serving as the CEO until at least March 4, 2023.
Bausch + Lomb is in the process of being spun out from Bausch Health Companies (BHC-T), which was formerly known as Valeant Pharmaceuticals.
Mr. Saunders has served as the CEO of Botox maker Allergan, until it was acquired by AbbVie Inc for $63-billion in 2020, and previously headed Bausch + Lomb until its acquisition by erstwhile Valeant in 2013.
Toromont Industries Ltd. (TIH-T) was higher by 5.8 per cent following the release of better-than-anticipated fourth-quarter 2022 results after the bell on Tuesday.
The Vaughan, Ont.-based industrial building construction company reported EBITDA of $258-million, exceeding the Street’s expectation of $208-million on stronger-than-expected performances from its Equipment Group segment and CIMCO Refrigeration. After adjusting for a $15.4-million property sale, earnings per share came in at $1.74, also topping the consensus forecast ($1.74)
Toromont also raised its quarterly dividend by 10 per cent to 43 cents per share. It’s the company’s 34th consecutive year of increases.
“Ending the year on a high note, Toromont delivered impressive 4Q22 results, handily surpassing the street consensus,” said Raymond James analyst Bryan Fast. “Toromont’s results did not disappoint pushing return on capital employed (ROCE) to 32 per cent. We believe this supports Toromont’s premium valuation and would remind investors it is the most defensive name amongst the peer group. While backlogs remain elevated, we are aware of recessionary fears. However, we find comfort in Toromont’s long track record of value creation through impressive operational execution, prudent capital allocation and well-timed M&A. We would also single out Toromont’s rock solid balance sheet as providing both a buffer for market shocks and optionality for growth not captured in our forecasts. With our view on the long-term potential of this story, we continue to see this as a textbook buy-and-hold stock.”
Magna International Inc. (MG-T) increased 1.8 per cent after it said on Wednesday it was investing more than $470-million to expand its operations across Ontario as it looks to increase its presence across the province.
The expansion includes a 490,000-square-foot factory in Brampton that will be used to make battery enclosures for electric vehicles, including the Ford F-150 Lightning.
Auto suppliers are jostling to meet the requirements of automakers, which are investing billions of dollars in developing electric vehicles.
“We’re putting Ontario back on the map as we build up Ontario’s electric vehicle supply chain from mining to manufacturing,” Ontario Premier Doug Ford said.
In an effort to bolster its portfolio of self-driving technology, Magna agreed to buy Veoneer Active Safety business in December for $1.53-billion in cash.
Magna, which has 49 manufacturing facilities throughout Canada, is expanding in Guelph, Belleville, Newmarket, Windsor, and Penetanguishene and will add 1,000 new jobs to Ontario, the Canadian auto parts maker said on Wednesday.
Magna said it had received $23.6 million in grants from the Ontario government to support its expansion.
First Quantum Minerals Ltd. (FM-T) turned positive after saying it earned US$117-million in the fourth quarter of 2022, 52.6 per cent down from US$247 million in the same quarter a year earlier, due to significantly lower cash flows from operating activities, which the company attributes to working capital movements related to trade and other receivables.
The company says it earned US$1.03-billion for the full year, 24.3 per cent, up from US$832-million in 2021.
Earnings per diluted share in the fourth quarter were 17 US cents, down from 36 US cents a year earlier, while earnings per diluted share for the full year were US$1.49, up from US$1.20 in 2021.
The company says it produced 206,007 tons of copper in the fourth quarter, slightly up from a year earlier, but its copper production for the full year was down almost five per cent to 775,859 tons.
CEO Tristan Pascall says 2022 was challenging for the company and the entire mining industry, with volatile commodity prices and rising costs and interest rates.
The company says it is continuing discussions with the Panama government about its Cobre Panama mine, at which loading operations were suspended in February in the latest development in the dispute between the government and the company over tax and royalty payments.
Brookfield Asset Management Ltd. (BAM-T) was higher after Spanish newspaper Expansion reported on Wednesday it seeking to buy the 50-per-cent stake in Spain’s renewable power company X-elio it does not already own, .
Milstead: ‘Opportunity Fund’ a rare Brookfield disaster
The stake is owned by U.S. buyout fund KKR (KKR-N) and a deal would value X-elio at as much as 2.5 billion euros (US$2.68-billion), Expansion reported.
The paper said that KKR had hired investment banks to sell its stake while Brookfield, which first bought a stake in X-elio in 2019, holds a right of first offer.
X-elio operates and builds renewable power infrastructure mainly in Spain, the United States and Latin America.
With its sunny plains, fast-flowing rivers and windy hillsides, Spain is attracting many investors for renewable energy projects.
On the decline
Barrick Gold Corp. (ABX-T) would be open to taking over Newmont’s stake in its Nevada Gold Mines joint venture, CEO Mark Bristow said on Wednesday, after Newmont’s (NGT-T) $16.9-billion bid for Newcrest ramped up pressure on gold miners to do deals.
Mr. Bristow though distanced himself from rival Newmont’s M&A push on Wednesday and highlighted Barrick’s plan to grow through exploration rather than acquisitions.
Shares of Barrick Gold close down 3.3 per cent at the Toronto Stock Exchange.
“We can’t see much strategic benefit in just getting big for bigness sake, and we don’t agree with you that it builds a better company with more gravitas,” Mr. Bristow said in response to investors concerns about the potential challenge a bigger Newmont posed.
“In fact, I believe it probably adds more risk.”
However Barrick was interested in buying out Newmont’s share in its Nevada Gold Mines asset. The Newcrest acquisition by Newmont, if successful, could result in the enlarged company shedding some assets.
“I’ve always said that the best assets that we haven’t got are the other parts of our joint ventures,” Mr. Bristow told Reuters. “If there was a way of acquiring those assets I think we would be desirous of acquiring them.”
Barrick beat analysts’ estimates for quarterly profit and announced a share buyback of up to US$1-billion after record payouts to shareholders last year.
Bristow stuck to the company’s ‘build, not buy’ approach and ruled out the possibility that Barrick would launch a counter bid for Newcrest.
Mr. Paying a premium means that the only way to make money is if gold or copper prices increase, said Bristow, adding that if the above variables do not occur, then companies have to add more value to those assets.
Newmont’s offer implied a 21-per-cent premium to Newcrest’s share price. This month Reuters reported that Newmont was open to sweetening its US$16.9-billion bid for rival Newcrest.
Barrick last month reported a 13.4-per-cent rise in gold production as access to high-grade ore at its Cortez and Carlin mines in Nevada powered a “strong finish” to the fourth quarter. Earnings for the quarter came in at 13 US cents per share, while analysts on average had expected 11 US cents, according to Refinitiv IBES.
Production for the year, however, was 4.1 million ounces of gold, down from 4.4 million ounces in 2021.
Barrick’s all-in sustaining costs (AISC), an industry metric that reflects total expenses, rose to US$1,242 per ounce of gold, a 28-per-cent increase from a year earlier. Its cost of producing copper jumped by 21 per cent, to US$3.18 per pound from US$2.62 per pound.
Barrick expects costs to stabilize or lower slightly in 2023, forecasting costs of US$1,170 to US$1,250 per ounce of gold and between US$2.95 and US$3.25 per pound of copper.
The company returned a record US$1.6-billion to shareholders in 2022 through dividends and buybacks.
On the operational side, seven Barrick workers have died on the job since 2022. Mr. Bristow admitted to these issues, calling it a personally “traumatic” time for him. “We did not invest enough time in knowing our contractors, and we need to ensure that we have an induction process in place so they understand our processes”, Bristow added.
Keyera Corp. (KEY-T) dipped 0.5 per cent after its earnings for its fourth-quarter of 2022 fell short of the Street’s expectations.
Before the bell, the Calgary-based midstream oil and gas operator reported adjusted EBITDA of $212-million, down from $294-million during the same period a year ago and below the Street’s estimate of $218-million. Earnings per share of a loss of 37 cents, hurt by a $180-million impairment expense, also missed the consensus projection (a 35-cent profit).
“Overall, we view the print as neutral to modestly negative,” said ATB Capital Markets analyst Nate Heywood in a research note.
“On a segment basis, results were in line with expectations with the largest weakness year-over-year seen in the marketing business, which we would attribute to softer commodity pricing and an AEF turnaround. Management announced the KAPS project has reached 99-per-cent completion and line-fill activities are underway. Given the project being largely complete, the cost estimate remains unchanged at ~$1 billion (net); however, certain costs have slipped from 2022 into 2023 and raised the 2023 capital budget. Additionally, management revised its timing for the project’s completion to Q2/23 compared to Q1/23. Management also announced the sanctioning of a 40 mmcf/d expansion project at its pipestone facility, which has also contributed to the higher 2023 growth capex guidance.”
West Fraser Timber Co. Ltd. (WFG-T) finished narrowly lower after saying it saw losses of US$94-million in the fourth quarter of 2022, down more than 128 per cent from earnings of US$334-million during the same quarter a year earlier.
The company says in the fourth quarter it faced dampened new home construction in the U.S. due to high interest rates, which weighed on its lumber business in particular.
Sales in the fourth quarter were US$1.62-billion, down more than 20 per cent from US$2.04-billion a year earlier, while earnings per diluted share were negative US$1.13, down from US$3.13 a year earlier.
The company says for the full financial year, it earned US$1.98-billion, down almost 33 per cent per cent from $2.95-billion in 2021.
Last week, the company announced it would temporarily curtail operations at its mill in Quesnel, B.C., after announcing in January it was indefinitely curtailing its Perry Sawmill in Florida due to high fibre costs and softening lumber markets.
President and CEO Ray Ferris says the company anticipates moderating costs will continue to have an impact on the business.
In a research note, Raymond James analyst Daryl Swetlishoff said: “The largest, most liquid stock in our coverage universe with attractive product and geographic exposure, West Fraser is a go to for investors seeking building products exposure. Heavy inventory write downs plus weaker quarter-over-quarter lumber (down 30 per cent) and OSB (down 22 per cent) markets drove an adj. EBITDA miss of $99-million vs. consensus at $126-million (down 21 per cent) (though in line with RJL). .... We remain supportive of the company’s balanced approach to capital allocation, and highlight West Fraser’s robust balance sheet plus incremental 2023 FCF drive potential for additional share buyback announcements ahead. What’s more, lumber commodity markets have staged a ‘better late than never’ 31-per-cent year-to-date rally after bottoming out at the US$335/mfbm level in early Jan 2023. While seasonality tailwinds typically start to abate post Super-Bowl, we highlight 50-per-cent improved month-over-month buyer traffic in U.S. single family housing coupled with our expectation of additional (material) permanent B.C. interior curtailments support our conviction for further commodity gains into the spring building season.”
Ford Motor Co. (F-N) was down 0.2 per cent after Chief Financial Officer John Lawler said on Wednesday it can save up to US$2.5-billion this year through better management of production schedules and due to a drop in commodity prices,
The Detroit automaker, however, will take years to close the cost disadvantage of US$7-billion to US$8-billion it has with its competitors, said Mr. Lawler, who was speaking at the Wolfe Global Auto conference.
The automaker posted dismal quarterly results earlier this month and blamed chip shortages, supply chain disruptions and production “instabilities” for adding to its costs.
Mr. Lawler has said Ford faces US$5-billion in higher costs this year and that the company will be “very aggressive” in reducing expenses in its manufacturing and supply chain operations.
Kraft Heinz Co. (KHC-Q) forecast annual profit below Wall Street estimates on Wednesday, weighed down by cost inflation and concerns that consumers may skimp out on its quick-fix meals and condiments in the face of price hikes.
However, shares of Kraft, also known for brands such as Philadelphia Cream Cheese and Jell-O, finished 0.6 per cent lower after forecasting 2023 organic sales growth slightly above estimates.
Packaged food makers have raised prices multiple times over past two years to shield their margins, but are still battling elevated production expenses and higher costs of commodities including dairy, soybean, oils and packaging materials.
While those price hikes coupled with strong demand for Kraft’s Lunchables and Mac and Cheese Cups drove fourth-quarter results above estimates, the company cautioned consumers could start pushing back against prices further in the year.
The warning comes as retailers resist food manufacturers’ price hikes, with Walmart Inc pitching its own private-label products to customers. Analysts have also noted food companies may have to ramp up promotions to keep demand afloat this year.
The Heinz ketchup maker’s sales volumes dipped 4.8 percentage points in the fourth quarter, hurt by a mix of price increases and supply constraints.
“Consumers are looking for convenient, filling, and nutritious meals, while at the same time paying more attention to the price tag,” Chief Executive Miguel Patricio said.
The downbeat profit outlook comes in contrast with rivals such as Mondelez International Inc and Hershey Co that have successfully passed on price increases to consumers with little pushback in demand.
While Wall Street analysts called Kraft’s outlook anywhere between “mixed” and “underwhelming”, Barclays analyst Andrew Lazar said its forecast of improving gross margins signaled pricing was better catching up to costs.
The company expects annual adjusted earnings of between US$2.67 and US$2.75 per share, below the market estimate of US$2.77.
With files from staff and wires
David Leeder