A look at North American equities heading in both directions
On the rise
Shopify Inc. (SHOP-T) surged almost 11 per cent on Wednesday after revealing increased prices for three of its service plans after they remained “largely unchanged” for 12 years.
In a corporate blog post, The Ottawa-based e-commerce technology company says its basic plan will now cost $51 per month, up from $38, while its mid-range Shopify plan will move from $99 per month to $132 and its advanced plan will increase from $389 each month to $517.
Existing merchants that switch their plan from monthly to yearly terms will keep the current, lower monthly prices before the new rates take effect on April 23.
In a blog post announcing the changes, vice-president of product and chief operating officer Kaz Nejatian says the resources needed to offer powerful, innovative and reliable tools have changed dramatically.
He sees the company is increasing its prices so that it can maintain the same value to merchants.
The changes come after Shopify laid off about 1,000 workers last year in the wake of its stock tumbling and customers moving back to pre-pandemic shopping habits.
See also: Mutual fund managers like these Canadian stocks. Hint: Shopify isn’t one of them
Shares of News Corp. (NWSA-Q) and Fox Corp. (FOXA-Q) were both higher on Wednesday after Rupert Murdoch reversed course and withdrew a proposal to re-unite the companies.
Several top shareholders had publicly said they opposed the proposed plan, and late Tuesday News Corp said in a statement that the combination was “not optimal for shareholders of News Corp and Fox at this time.”
The deal would have reunited the media empire Mr. Murdoch split nearly a decade ago.
No offer was exchanged between News Corp and Fox Corp before merger deliberations were abandoned, according to sources familiar with the process, who said pushback from News Corp shareholders played a role in those plans being scrapped.
Mr. Murdoch proposed reuniting his media empire last fall, arguing that together the publishing and entertainment companies he split apart in 2013 would give the combined company greater scale in news, live sports and information, sources said.
Several people close to the Mr. Murdochs viewed the effort to reunite the media companies as driven by the 91-year-old Murdoch’s succession planning to consolidate power behind his son and Fox head Lachlan Murdoch, a notion the company described as “absurd” in November.
Some of News Corp’s larger shareholders, including Independent Franchise Partners and T. Rowe Price balked at the idea.
Activist investment firm Irenic Capital, which was among the first to say that the proposed reunion would likely undervalue News Corp, on Tuesday applauded the decision to not move forward.
“This is the right decision,” Irenic’s chief investment officer Adam Katz said. “Looking ahead, News Corp has an opportunity to create substantial value for its owners.”
AT&T Inc.’s (T-N) better-than-expected quarterly subscriber additions overshadowed a US$25-billion non-cash charge related to the impact of higher interest rates on its businesses and triggered a rise in its shares.
The carrier has used discounts and trade-in offers to lure customers in the highly competitive telecoms market, as it ramps up competition with Verizon (VZ-N) and T-Mobile US (TMUS-Q) after shedding its media business last year.
“With improving churn numbers and strong 5G wireless net adds, AT&T is entering 2023 in a good position,” Third Bridge analyst Jamie Lumley said.
But indicators point to the company running out of room for growth in the near future, Ms. Lumley added.
Apart from 5G technology, AT&T is also investing in bolstering its fiber-optic network, which lets it sell both broadband services and video packages. The company added 280,000 fiber customers in the December quarter.
AT&T on Wednesday forecast adjusted earnings in the range of US$2.35 and US$2.45 per share, which included a 25-US-cent charge related to non-cash pension costs and an expected higher tax rate. Analysts were expecting a profit of US$2.56 per share, according to Refinitiv data.
As the United States stares at a recession, companies are turning increasingly cautious about growth and taking big steps to cut costs.
“We don’t have an outlook that says we’ve solved the (economy) problem,” Chief Executive John Stankey told analysts on a conference call.
“We will be operating in a challenging macroeconomic environment where wireless industry growth is likely to return to more normalized levels.”
For the latest quarter, AT&T added 656,000 postpaid phone subscribers, above Factset estimates of 644,800 additions. The number also came in well above Verizon’s 217,000 additions, although it failed to match T-Mobile’s expected 927,000 additions.
Toronto-based Wesdome Gold Mines Ltd. (WDO-T) erased an early decline following the late Tuesday announcement of the retirement of president and chief executive officer Duncan Middlemiss, who also submitted his resignation from the company’s board of directors.
Chairman Warwick Morley-Jepson will act as Interim President and Chief Executive Officer until a permanent successor is named.
In a research note, Laurentian Bank Securities analyst Barry Allan said the resignation came “at a very unfortunate time” and “inserts further uncertainty into WDO’s future.”
“The announcement was an unexpected development, and while WDO did have a tough 2022 and recently announced that start-up of the Kiena mine was 12 months behind schedule (an announcement that also caught the street by surprise), the sudden resignation of the President & CEO is too much like ‘falling on his sword’ at time when WDO needs good leadership more than ever,” said Mr. Allan. “In the context of mine developments in the mining industry over the last two years, missed timelines and unexpectedly high costs of construction have become the norm, not the exception. We feel his departure was premature and occurs at an extremely unfortunate time.”
“We see this sudden resignation as a further erosion in the market profile of WDO which has unfavourable overtones about the near-term future. We will reassess our opinion once we get an idea of who the next President and CEO may be.”
Boeing Co.’s (BA-N) losses widened for 2022 on weakness in its defence unit as it warned of further supply chain issues, but the U.S. planemaker reported its first yearly positive cash flow since 2018.
The U.S. planemaker missed Wall Street expectations on revenue and earnings per share in the final quarter of the year. Boeing shares, which have risen by more than 70 per cent since September, turned positive in late Wednesday trading, closing up 0.3 per cent.
Boeing Chief Executive Dave Calhoun told analysts the planemaker still faces “a difficult, difficult supply chain and while average deliveries met our objectives, we continue to face a few too many stoppages in our lines ... So those stoppages, while they are coming down, are not where they need to be.”
Chief Financial Officer Brian West said the company was increasing its abnormal accounting estimate by about US$600-million as it expects 787 production to remain lower for “a bit longer than expected due to a supplier constraint,” but still expects to raise its production rate to five per month later this year.
Boeing affirmed plans to deliver up to 450 737 MAX narrowbody aircraft and 70 to 80 widebody 787 Dreamliners in 2023. The company reiterated it expects to generate US$3-billion to $US5-billion in free cash flow in 2023.
The supply chain issues come as Boeing is working to stabilize and ramp production rates.
Third Bridge analyst Peter McNally said Boeing in 2022 “showing some significant progress in key areas, although the reported financial results were mixed.”
He added “execution has been mixed and the aerospace supply chain’s ability to deliver remains uncertain.”
Boeing said net losses rose to US$5-billion for all of 2022 from US$4.3-billion in 2021, while losses from operations rose to US$3.5-billion in 2022 from US$2.9-billion.
Boeing generated US$3.1-billion in free cash flow in the final quarter of 2022. It had forecast about US$2.5-billion in free cash flow for the fourth quarter. Boeing reported US$2.3-billion for all of 2022.
Boeing reported fourth-quarter revenue of $20 billion, up from US$14.79-billion in the same quarter in 2022, and a loss per share of US$1.75. Boeing had been expected to report US$20.38-billion in revenue in the quarter and a gain of 26 US cents a share, according to Refinitiv data.
Earlier this month, Boeing reported a sharp jump in airplane orders and deliveries in 2022. Boeing delivered 480 airplanes and won 774 net new orders after allowing for cancellations in 2022. Boeing in 2021 had delivered 340 planes and reported 479 net new orders.
The company still faces supply-chain issues as it works to ramp up 737 MAX and 787 production and is working to improve results at its Boeing Defense unit, which posted a US$3.5-billion loss in 2022.
Freeport-McMoRan Inc. (FCX-N) turned higher and gained 4.6 per cent despite warning on Wednesday that its struggle to find workers in the United States is limiting the amount of copper it can produce for the green energy transition.
The worker shortage reflects the talent crunch facing the broader mining industry, as well as the wider macroeconomic trend of workers jumping between jobs in the wake of the coronavirus pandemic.
Freeport, which operates seven mines in the United States, including North America’s largest mine, has 1,300 job openings in the country, more than 10 per cent of its U.S. workforce. The company’s U.S. copper production fell 7 per cent last quarter from the same period in 2021. For 2023, the company expects its U.S. copper output to slip nearly 1 per cent from 2022 levels.
“We could have in 2022 produced more (copper) if we were fully staffed. And I believe that is the case again this year,” President Kathleen Quirk told investors on Wednesday after the company posted better-than-expected quarterly results.
Executives noted they are not seeing the same trends in South America or Indonesia, where Freeport also operates large mines.
“Our work is hard work. And it’s harder to drive a big haul truck (at a copper mine) than it is to drive an Amazon or UPS or FedEx truck,” said Chief Executive Richard Adkerson, who called the worker shortage a “strategic challenge” for the Phoenix-based company.
Freeport plans to give “substantial” pay raises to its U.S. staff this year, Mr. Adkerson said. The company is working to train replacement workers, but added that the experience level of its staff in the United States is not what it was even five years ago.
“I think that does have some implications on our ability to develop a mine in the U.S.,” Ms. Quirk said. More than half of Freeport’s estimated 235 billion pounds of copper resources are in the United States, and Mr. Adkerson has called the country key to Freeport’s growth plans.
Freeport on Wednesday posted fourth-quarter net income of US$697-million, or 48 US cents per share, compared with US$1.1-billion, or 74 US cents per share, in the year-ago period. Excluding one-time items, Freeport posted a quarterly profit of 52 US cents per share, ahead of analysts’ estimate of 46 US cents per share, according to Refinitiv data.
Freeport reported average realized copper prices of US$3.77 per pound in the quarter, compared with US$4.42 a year earlier. The company expects its annual capital expenditure to be about US$5.2-billion, higher than US$3.5-billion marked in 2022.
Despite recent macroeconomic concerns, especially in China, Freeport said it has not seen slowing demand for the red metal. “If we could produce more, our customers would want it,” Ms. Quirk said.
On the decline
Canadian National Railway Co. (CNR-T) fell 4.7 per cent after it warned of rockier times ahead in 2023, even as it celebrated double-digit earnings gains for the fourth quarter of 2022.
See also: Wednesday's analyst upgrades and downgrades
The Montreal-based railway reported fourth-quarter earnings growth of 23 per cent year-over-year, to $1.42-billion in the three months ended Dec. 31, 2022 — up from $1.2-billion in the fourth quarter of 2021.
CN said its fourth quarter earnings worked out to $2.10 per share. It also reported fourth quarter revenues of $4.54-billion, an increase of $789-million or 21 per cent.
The railroad said the increase in revenue was mainly due to higher fuel surcharge revenue as a result of higher fuel prices, the positive translation impact of a weaker Canadian dollar, freight rate increases and higher volumes of U.S. grain.
For the full year 2022, CN reported net income of $5.12-billion, up from $4.9-billion in 2021.
But CEO Tracy Robinson warned analysts on a conference call Tuesday that 2023 could be significantly more challenging. With the possibility of recession looming, Ms. Robinson said CN expects North American industrial production to be negative in the year ahead. That will mean lower shipment volumes of key products such as lumber, metals and minerals and consumer products.
Ms. Robinson said CN’s guidance for 2023 projects earnings-per-share growth in the single digits, but added the company will need to stay nimble as there are still many unknowns.
“Without a doubt, we are in an uncertain economic time. And like many others, we are assuming this year, a mild recession,” Ms. Robinson said. “In this company, like others, we’ve dealt with recessions in the past, and we’ll deal with this one.”
Already in 2022, CN saw some softening in demand in some categories including intermodal, lumber, chemicals and plastics. However, it saw higher volumes of Canadian coal exports from west coast ports, and larger U.S. grain export volumes.
CN intends to host an investor day in early May and will provide updated guidance at that point.
In a research note, Raymond James analyst Steve Hansen pointed out that while Canadian rail traffic showed momentum in the fourth quarter of 2022, CN’s dramatic revenue growth for the period is partly because 2021′s fourth quarter was weighed down significantly by major weather events such as flooding in B.C. and extreme cold across parts of the continent.
“While we admire the Canadian rails long-term, we find it difficult to get excited about these short bursts of ‘artificial’ growth,” Mr. Hansen said, adding he expects that growth to dissipate in the face of expected lacklustre economic growth.
Microsoft Corp.’s (MSFT-Q) lacklustre quarterly outlook points to more gloom ahead for the tech sector, analysts said, after the tech bellwether warned that its customers were cautious about spending in a turbulent economy.
The warning from Microsoft, the second most valuable U.S. company, came after a steep fall in client spending prompted tech heavyweights from Amazon.com Inc (AMZN-Q) to Meta Platforms (META-Q) to slash jobs and save cash.
Microsoft, along with Big Tech peers Amazon and Apple Inc (AAPL-Q), pared losses from earlier on Wednesday to trade 0.6 per cent lower on the day. Alphabet Inc (GOOGL-Q) was down 2.6 per cent. The companies are four of the biggest by market value in the United States.
Shares of cloud companies including IBM Corp (IBM-N) and Oracle Corp (ORCL-N) all declined. IBM is scheduled to report fourth-quarter results later in the day.
Microsoft Chief Executive Satya Nadella and other company executives used the words “caution” and “cautious” at least six times on the one-hour call on Tuesday.
“The rate of Microsoft’s revenue slowdown should be seen as a warning sign for the wider tech sector,” Hargreaves Lansdown analyst Sophie Lund-Yates said.
Analysts expect other tech executives to follow Nadella in laying out a conservative outlook.
“What we learned is that no one is immune to macro ... what is telling is the quarter was largely fine, but we started to see softness in December and the outlook for this quarter was worse than expected,” said Rishi Jaluria, analyst at RBC.
Microsoft forecast third-quarter revenue in its so-called intelligent cloud business a tad below market estimates, with a growth rate of as much as 19 per cent. The segment outperformed expectations in the second quarter, however, which initially boosted shares on Tuesday evening.
“That (the outlook) is taking the wind out of the sails,” said Art Hogan, chief market strategist at B Riley Wealth.
Microsoft’s revenue rose 2 per cent to US$52.7-billion in the three months ended Dec. 31, compared with the average analyst estimate of US$52.94-billion, according to Refinitiv IBES. Net income fell 12 per cent to US$16.4-billion, but adjusted income of US$2.32 per share topped Wall Street’s consensus estimate of US$2.29, according to Refinitiv calculations.
Winnipeg-based fertilizer producer Mosaic Co. (MOS-N) was down 0.7 per cent after Chief Executive Joc O’Rourke said on Wednesday it does not currently see the right market conditions to restart its idled Canadian potash mine, with high inventories in the key markets of the United States and Brazil and cold weather slowing train movement of the crop nutrient from Canada .
Mosaic Co curtailed potash production in December at its Colonsay, Saskatchewan, mine, but said then that it expected to restart in early 2023.
“It’s just a matter of starting to see the inventories coming down,” Mr. O’Rourke said in a Reuters interview. “The last thing we want to do is start it up, run it for a month-and-a-half and have to shut it down again.”
Mr. O’Rourke declined to be more specific on timing for restarting the mine, which was producing at an annual rate of 1.3 million tonnes.
“I think once we get through the first quarter, we can certainly be moving a lot more product,” he said. “But I’m being cautious about what to say until we see that movement.”
Spring is North America’s busiest time of year for potash applications.
Potash producers are banking on a return to stable prices in 2023 after disappointing demand late last year in the United States and Brazil. Potash is a key nutrient for corn and other crops, and elevated prices earlier in 2022 contributed to food inflation.
Prices had initially spiked after Russia invaded Ukraine and prompted Western countries to issue sanctions on Russia’s banking system that have slowed its potash exports.
Mr. O’Rourke said he sees strong demand this year once inventories decline.
U.S. farmers are expected to plant more corn, which consumes much fertilizer, with prices attractive.
“U.S. farmers are in really good shape,” Scotiabank analyst Ben Isaacson said. “There’s no reason we shouldn’t see at least partial recovery in potash demand, especially if we get some of the (extra) corn acres.”
A key variable is whether Russia and Belarus, another sanctioned potash producer, find ways to export more.
Mr. O’Rourke expects both will export about the same volume this year as last.
But RBC analyst Andrew Wong estimated that Belarussian and Russian potash operating rates would increase in 2023 by 10 percentage points to 50% and 80% respectively of their pre-war levels.
Top U.S. renewable power producer NextEra Energy Inc. (NEE-N) posted mixed quarterly results, sending its shares sliding 8.7 per cent as the renewable power company announced the retirement of the head of its key Florida utility unit.
NextEra, the largest generator of renewable energy in the United States, fell short of Wall Street’s revenue estimates, though executives said recent U.S. legislation should cause in renewables to surge in coming years.
NextEra’s shares dropped on Wednesday, making the company one of the day’s biggest losers in the Standard & Poor’s 500 Index. The company is the third-largest U.S. energy company by market value, trailing only oil and gas giants Exxon Mobil (XOM-N) and Chevron Corp. (CVX-N).
Juno Beach, Florida-based NextEra’s fourth-quarter revenue of $6.16 billion fell short of Wall Street estimates of US$6.55-billion, according to Refinitiv data. Adjusted profit of 51 US cents per share, however, beat estimates of 49 US cents per share.
The company said Eric Silagy, head of NextEra subsidiary Florida Power & Light (FPL), America’s largest electric utility, would retire after more than 11 years at the helm. He will be succeeded by Armando Pimentel.
A political watchdog group filed a complaint last year with the U.S. Federal Election Commission, saying FPL violated Florida election laws. NextEra CEO John Ketchum said an internal review should show FPL would not be liable for violating any laws, but added that this and other issues may have contributed to Mr. Silagy’s retirement.
“When you think about all the challenges that he had to overcome with the hurricanes and with high natural gas prices and inflation in the supply chain and the media allegations and all those things ... I think it took a toll,” he told analysts on the conference call.
Previous executives had generally served for about a decade, Mr. Silagy said on the call.
Analysts at Morningstar said the decline in shares on Wednesday could be related to Mr. Silagy’s retirement and regulatory uncertainty.
The company’s clean energy unit logged its best year for new renewables and storage growth, adding more than 8,000 megawatts to its backlog. NextEra is banking on increased use of renewable energy like solar and wind for power generation amid a global push to shift to cleaner fuel sources.
That move accelerated last year following sanctions on Russia due to its invasion of Ukraine, which sent gas and oil prices soaring. The U.S. Inflation Reduction Act should increase spending on renewable projects, Ketchum said.
“We anticipate a tremendous acceleration of growth in renewables and storage deployment across the U.S. due in part to the IRA, particularly in the latter half of the decade,” he said.
With files from staff and wires
David Leeder