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A survey of North American equities heading in both directions

On the rise

Shares of Canadian Pacific Kansas City Ltd. (CP-T) rose 1.7 per cent after saying it expects adjusted earnings per share to grow by double digits this year, following a bump in revenue last quarter — and despite lower container volumes and a weaker grain harvest.

“Looking forward to 2024, we are confident that our unique synergy opportunities along with improving macroeconomic conditions can overcome a weak Canadian grain crop and position us for another strong performance this year,” said CEO Keith Creel.

Reaction from the Street: Wednesday's analyst upgrades and dowgrades

Smaller loads of wheat and other grains are expected to persist into the second half of 2024, the company said.

Containers remain another source of uncertainty, as consumers continue to reroute their spending toward services rather than goods in a reversal of pandemic trends. Pressure from inflation and rising interest rates threaten to work as additional drags on product purchases.

CPKC said it saw lower domestic container volumes last quarter due to shrinking retail volumes, even as international container shipments rebounded along with a ramp-up in activity at the Port of Vancouver after the 13-day strike in July.

The decrease was partially offset by a rise in refined fuel products and automotive shipments, as COVID-19-induced kinks in the manufacturing supply chain smoothed themselves out.

CPKC — the product of Canadian Pacific’s purchase of Kansas City Southern in April — said it boosted revenues four per cent to $3.78-billion last quarter from a combined revenue of $3.64-billion a year earlier. Core adjusted combined income climbed three per cent to $1.10-billion last quarter from $1.07-billion a year earlier.

The US$31-billion deal — the continent’s first big rail merger in more than two decades — created the only railway stretching from Canada through to the U.S. and Mexico.

“This isn’t easy,” chief operating officer Mark Redd told analysts on a conference call, referring to the blending of two distinct rail networks. But he also stressed the potential efficiency made possible by “synergies.”

Fourth-quarter core adjusted combined diluted earnings rose to $1.18 per share from $1.14 per share the previous year, CPKC said.

Net income fell 20 per cent year over year to $1.02-billion last quarter from $1.27-billion, it said. The figure doesn’t take into account Kansas City Southern profits from last year.

CPKC forecast that core adjusted combined diluted earnings per share will grow in the double digits this year from $3.84 per share in 2023.

CGI Inc. (GIB.A-T) gained almost 1 per cent in the wake of reporting its first-quarter profit and revenue rose compared with a year ago.

The Montreal-based business and technology consulting firm says it earned $389.8-million or $1.67 per diluted share for the quarter ended Dec. 31.

The result compared with a profit of $382.4-million or $1.60 per diluted share in the same quarter a year earlier.

CGI says it its profit excluding specific items amounted to $1.83 per diluted share, up from $1.66 per diluted share a year earlier.

Revenue for the three-month period totalled $3.60-billion, up from $3.45-billion a year earlier.

Excluding foreign currency variations, CGI says revenue grew by 1.5 per cent year-over-year.

In a research note, Desjardins Securities analyst Jerome Dubreuil said: “CGI’s 1Q FY24 results were broadly in line with our expectations, with a sequential decline in organic growth but strong bookings and cash generation. Peers providing guidance for the year generally expect an improvement in organic growth later this year; CGI does not provide guidance, but we also expect an improvement on the back of another quarter of strong bookings. The large buyback program renewal and strong cash generation should help the share price in light of recent strong performance.”

Boeing Co. (BA-N) increased 5.3 per cent despite CEO Dave Calhoun saying it has “much to prove” to regain the confidence of regulators and customers after a mid-air cabin-panel blowout of a 737 MAX aircraft, adding that the planemaker will “go slow” as it faces a “serious challenge.”

As expected, Mr. Calhoun did not offer a financial or delivery forecast for 2024, stating that the company must focus on delivering quality airplanes.

The planemaker, however, reported a smaller quarterly loss and better-than-expected revenue and free cash flow, though investors are more likely to focus on the company’s expectations as it navigates the current crisis.

“We will not rush the system and we will take our time to do it right,” Mr. Calhoun said in a letter to employees, while voicing confidence in Boeing’s recovery.

The accident involving an Alaska Airlines-operated MAX 9 jet earlier this month has turned into a full-blown safety and reputational crisis for the iconic planemaker, potentially leading to slower jet production and a loss of more narrowbody market share to Airbus.

Boeing said on Wednesday that 737 aircraft were being produced at a previously outlined rate of 38/month, a level that it plans to maintain after the U.S. Federal Aviation Administration (FAA) barred the company from lifting production, while increasing its oversight.

The 787 production rate was at five per month, Boeing said, adding that it had also resumed 777X production during the fourth quarter.

For the fourth quarter, Boeing reported an adjusted per-share loss of 47 US cents, compared with analysts’ estimates of a loss of 78 US cents, as per LSEG data.

Revenue rose 10 per cent to US$22.02-billion, compared with expectations of about US$21.1-billion.

Payments processor Mastercard (MA-N) was up 0.9 per cent after it reported an 11-per-cent jump in fourth-quarter profit, driven by resilient consumer spending during the holiday season as labour markets remained strong and fears of a recession eased.

The company reported a profit of US$2.8-billion, or US$2.97 per share, for the three months ended Dec. 31, compared with US$2.5-billion, or US$2.62 per share, a year earlier.

Growing expectations of a “soft landing” - where inflation cools without tipping the economy into a recession - has boosted consumer confidence.

Gross dollar volume, the dollar value of all transactions processed on Mastercard’s platform, climbed 10 per cent. Cross-border volume, a gauge of travel demand that tracks spending on cards outside the country of their issue, jumped 18 per cent.

Net revenue rose 13% to $6.5 billion, Mastercard said.

Last week, Visa (V-N) also reported a better-than-expected quarterly profit, thanks to a strong holiday season.

U.S.-listed shares of GSK PLC (GSK-N) were 0.9 per cent higher as it beat market estimates for fourth-quarter results on Wednesday, and unveiled an upbeat forecast for 2024 and beyond on the ramp-up of its vaccines and cancer drugs pipeline, underscoring the benefits of its consumer health unit spin-off.

This is the British drugmaker’s first annual earnings report after it spun off Haleon in July 2022. While GSK has been selling its stake, it still remains a top shareholder in the company that owns Sensodyne toothpaste and other household brands.

CEO Emma Walmsley’s strategy has been centered around sharpening GSK’s focus on vaccines and infectious diseases, and shifting its HIV focus to long-acting treatment and prevention therapies, amid a series of upcoming patent expiries and declining revenue from current bestsellers.

“We are now planning for at least 12 major launches from 2025, with new Vaccines and Specialty Medicines for infectious diseases, HIV, respiratory and oncology,” Walmsley said in a statement.

The company is betting on Arexvy, its respiratory syncytial virus (RSV) for older adults, to be its next blockbuster medicine, as costly U.S. litigation over discontinued heartburn drug Zantac looms and it recovers from a series of setbacks in its cancer portfolio.

Arexvy clocked sales of 1.24 billion pounds for the year ended Dec. 31, following a strong second-half launch that has trounced a shot from U.S. rival Pfizer.

GSK expects its adjusted profit per share to increase between 6 per cent and 9 per cent in 2024, on sales growth of 5-7 per cent, above analysts’ expectations for growth, according to a company-supplied poll.

The company also expects sales and adjusted operating profit to grow more than 7 per cent and 11 per cent annually by 2026, compared with 5-per-cent and 10-per-cent forecast earlier, respectively.

By 2031, GSK now expects to achieve sales of more than 38 billion pounds, 5 billion pounds ahead of what was estimated earlier.

Shares in the company are up nearly 9 per cent in the last 12 months, compared with a 1.5-per-cent dip in London’s blue-chip FTSE 100 index.

On the decline

Alphabet Corp. (GOOGL-Q) disappointed Wall Street on Tuesday as holiday season advertising sales came in below expectations and the company said its spending on data centers to support its artificial intelligence plans would jump this year.

Shares fell 7.4 per cent in Wednesday trade.

Alphabet has faced tough competition for ad budgets from other online platforms such as Facebook, Instagram, TikTok and Amazon., and economic signals in the U.S. have been mixed.

Investors punish Microsoft, Alphabet as AI returns fall short of lofty expectations

Ad revenue in the fourth quarter was US$65.5-billion, up from US$59.0-billion in the year ago quarter but short of the average analyst expectation for US$66.1-billion, according to LSEG data.

“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks,” commented Thomas Monteiro, senior analyst at Investing.com.

Google, inventor of foundational technology for today’s AI boom, also faces tough competition from the two players that have captured the business world’s attention, ChatGPT’s creator OpenAI and its financial backer Microsoft.

While Google’s cloud revenue growth slightly topped Wall Street targets, boosted by interest in AI, Microsoft’s Azure grew faster.

Rolling out AI and cloud services requires heavy investment in data centers and research. Capital expenditures shot up 45 per cent to US$11-billion, the highest in years, and Chief Financial Officer Ruth Porat told analysts on a conference call that capex would be notably larger this year compared with 2023.

Overall revenue for the quarter ended Dec. 31 stood at US$86.3-billion, compared with estimates of US$85.3-billion, according to LSEG data.

Investors have grown more interested in the fortunes of Google Cloud. Last year the division earned its first-ever quarterly profit, but revenue growth slowed as customers streamlined cloud spending.

Microsoft Corp. (MSFT-Q) beat market estimates for quarterly profit and revenue on Tuesday, as new artificial-intelligence features helped attract customers to its Azure cloud service as they built out their own AI services.

Microsoft shares slid 2.7 per cent as investors absorbed news about rising costs to develop these AI features.

The company forecast operating expenses of US$15.8-billion to US$15.9-billion in the current quarter, up from US$15.4-billion in the previous one. It also said it expects capital expenditures to “increase materially” on a sequential basis.

Megacap stocks keep lifting U.S. market, but worries over their dominance grow

Microsoft, in collaboration with ChatGPT creator OpenAI, has pushed chatbots into its core products such as its Office software and Bing search engine over the past year, attracting business customers eager to try the tech industry’s next breakthrough. Investor buzz over AI helped Microsoft’s shares rise by 57 per cent in 2023.

Total revenue grew 18 per cent to US$62-billion in the quarter ended Dec. 31, compared with the average analyst estimate of US$61.12-billion, according to LSEG data. Adjusted profit of US$2.93 per share beat an average estimate of US$2.78 per share.

In a research note titled A Masterpiece Quarter and Guidance from Redmond Should be Hung in the Louvre, Wedbush analyst Dan Ives said: “Microsoft delivered its FY2Q24 results that featured top and bottom-line beats as the company continues investing heavily into integrating AI into its overall portfolio to accelerate growth while focusing intently on bottom-line expansion. This was another masterpiece quarter and guidance from Nadella that will send a major ripple impact across the tech world tomorrow as the AI Revolution is here.”

“We believe this is the start of a multi-year initiative aimed at generating significant AI use cases for customers across the enterprise landscape to gain further efficiencies while accelerating profitable growth with Redmond leading the charge in this potential $1 trillion opportunity. We maintain our OUTPERFORM rating.”

Edmonton’s Aurora Cannabis Inc. (ACB-T) decreased 1.9 per cent on the announcement of a plan to consolidate its shares on a one-for-10 basis.

The company says it expects the move will restore compliance with Nasdaq listing rules and ensure the company continues to have access to a wide range of institutional investors.

The plan, which is subject to regulatory and stock exchange approvals, is expected to be effective on or about Feb. 20.

Aurora shares closed down a penny at 53 cents in trading on the Toronto Stock Exchange on Tuesday.

The decision comes after the company consolidated its shares on a one-for-12 basis in 2020.

Aurora currently has 475,903,822 common shares outstanding.

High-flying semiconductor stocks slipped in trading on Wednesday after Advanced Micro Devices’ (AMD-Q) disappointing current-quarter revenue forecast added to investor worries over sluggish demand for non-AI chips.

AMD targets revenue of US$5.4-billion, plus or minus US$300-million for the first quarter, below analysts’ estimate of US$5.73-billion, according to LSEG data. That overshadowed the company near doubling its AI processor projections to US$3.5-billion from US$2-billion.

After “expectations for AMD (reached) a fever pitch in recent weeks and months.. resetting those expectations is not necessarily a bad thing,” said Bernstein analyst Stacy Rasgon.

That said, “the uber-bullish expectations for datacenter GPUs are probably out of reach at least in 2024.. making an expensive stock even more so.”

Shares of Santa Clara, California-based AMD dropped on Wednesday. They have climbed more than 137 per cent in the past 12 months.

Nvidia (NVDA-Q), Micron Technology (MU-Q), Qualcomm (QCOM-Q), Broadcom (AVGO-Q) and Intel (INTC-Q) fell, while iShares Semiconductor ETF (SOXX-Q) and VanEck Semiconductor ETF (SMH-Q) also sustained losses.

Shares of Tesla Inc. (TSLA-Q) declined 2.2 per cent after a Delaware judge ruled Elon Musk is not entitled to a landmark compensation package awarded by the company’s board of directors that is potentially worth more than US$55-billion.

The ruling by Chancellor Kathaleen St. Jude McCormick comes more than five years after a shareholder lawsuit targeted Tesla CEO Musk and directors of the company. They were accused of breaching their duties to the maker of electric vehicles and solar panels, resulting in a waste of corporate assets and unjust enrichment for Musk.

The shareholder’s lawyers argued that the compensation package should be voided because it was dictated by Mr. Musk and was the product of sham negotiations with directors who were not independent of him. They also said it was approved by shareholders who were given misleading and incomplete disclosures in a proxy statement.

Defence attorneys countered that the pay plan was fairly negotiated by a compensation committee whose members were independent, contained performance milestones so lofty that they were ridiculed by some Wall Street investors, and blessed by a shareholder vote that was not even required under Delaware law. They also argued that Mr. Musk was not a controlling shareholder because he owned less than one-third of the company at the time.

Starbucks Corp. (SBUX-Q) cut its annual sales forecast on Tuesday as the Israel-Hamas war hurt its Middle East business, while warning that softer demand in January and slow recovery in China were likely to dent its second-quarter performance.

The world’s largest coffee chain also missed market expectations for first-quarter results, also due to slowing demand for its coffee and cold drinks in the United States.

Its shares closed down 1.1 per cent despite Wall Street analysts and investors bracing for a bigger hit to sales following weak store traffic in November and December.

CEO Laxman Narasimhan said on a post-earnings call that the company saw a “significant impact on traffic and sales” in the Middle East due to the conflict.

Its impact also spilled into the U.S., he said, as some consumers launched protests and boycott campaigns asking the company to take a stance on the issue.

The company had in a 2023 statement on its website said it is a non-political organization and dismissed rumors that it had provided support to the Israeli government or army.

While Starbucks was working to mitigate headwinds in the U.S. through efforts including promotional offers, it would take time for its plans to materialize, the company executives said.

The company now expects full-year comparable sales - both globally and in the U.S. - to grow between 4 per cent and 6 per cent, down from its previous range of 5-per-cent to 7-per-cent growth.

While comparable sales in China rose 10 per cent in the quarter ended Dec. 31, improving from a 5-per-cent rise in the preceding quarter, Starbucks said the recovery was still slower than its expectations as consumers turn more cautious in spending.

“Results were better than feared following the stock’s recent selloff ... it sounds like there is a clear plan despite top-line headwinds,” said Stephens analyst Joshua Long.

Electronic Arts Inc. (EA-Q) missed estimates for quarterly bookings on Tuesday, as lower spending and stiff competition hurt demand for its gaming titles.

Shares of the company were flat on Wednesday.

Still-high interest rates causing gamers to tighten spending and stiff competition in the video game industry have hit the sales for EA’s gaming titles such as Star Wars Jedi: Survivor during the holiday quarter.

Amid an uncertain economic outlook, video game publishers are competing for top spots with games such as Call of Duty: Modern Warfare 3, published by Microsoft’s Activision Blizzard, and Nintendo’s Super Mario Bros. Wonder dominating sales for the month of December, according to market research firm Circana.

Wedbush Securities analyst Michael Pachter attributes the results to the lack of big titles released in the December quarter and a tough comparison to the year earlier.

“They had to compare to last year’s (2022) launch of “Need for Speed,” and that creates a $150 million hole in the portfolio... I’d say this is what we should expect without any big new games,” Mr. Pachter added.

However, bookings for the company’s revamped soccer franchise, FC 24, grew 7 per cent year-over-year compared with the previous edition.

It reported adjusted profit of US$2.96 per share compared with estimates of US$2.93 per share.

The company also nudged up its annual profit forecast to US$4.21 to US$4.68 per share from its previous projection of US$4.10 and US$4.66.

Walmart Inc. (WMT-N) dipped 0.2 per cent after it said on Tuesday it will carry out a stock split of its outstanding shares at a ratio of 3:1, as part of its ongoing review of optimal trading and spread levels.

The company said the stock split would increase the number of outstanding common stock to about 8.1 billion from about 2.7 billion.

The additional shares will be payable after market close on Feb. 23, Walmart said.

The retailer said on Wednesday it was planning to open more than 150 stores over the next five years, as it invests heavily in its operations to stay competitive in a fast-changing retail landscape.

The company said in October it was looking to invest more than US$9-billion over a two-year period as it undertakes a massive plan to expand its operations and modernize its stores with new technology, better layouts and wider product selection.

The retailer said it was aiming to revamp 650 stores across 47 states and Puerto Rico during the next 12 months that would likely create tens of thousands of jobs.

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 12/04/24 4:00pm EDT.

SymbolName% changeLast
AMD-Q
Adv Micro Devices
-4.23%163.28
ACB-T
Aurora Cannabis Inc
-3.4%9.08
AVGO-Q
Broadcom Ltd
-2.78%1344.07
BA-N
Boeing Company
-2.2%169.55
GOOGL-Q
Alphabet Cl A
-1.05%157.73
CP-T
Canadian Pacific Kansas City Ltd
-0.02%118.55
EA-Q
Electronic Arts Inc
-1%127.89
GIB-A-T
CGI Group Inc Cl A Sv
-0.36%143.89
GSK-N
Gsk Plc ADR
-0.34%40.66
INTC-Q
Intel Corp
-5.16%35.69
SOXX-Q
Semiconductor Ishares ETF
-3.28%218.07
MA-N
Mastercard Inc
-0.63%465.38
MU-Q
Micron Technology
-3.91%122.52
MSFT-Q
Microsoft Corp
-1.41%421.9
NVDA-Q
Nvidia Corp
-2.68%881.86
QCOM-Q
Qualcomm Inc
-2.19%171.29
SBUX-Q
Starbucks Corp
-1.14%84.92
TSLA-Q
Tesla Inc
-2.03%171.05
SMH-Q
Vaneck Semiconductor ETF
-2.92%220.68
WMT-N
Walmart Inc
+0.08%60.14

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