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A look at North American equities heading in both directions

On the rise

National Bank of Canada (NA-T) gained 1.6 per cent after it reported a first-quarter profit of $881-million, down from $930-million in the first quarter of 2022, as its provisions for credit losses ticked up.

The Montreal-based bank says the profit amounted to $2.49 per diluted share for the quarter ended Jan. 31, down from a profit of $2.64 per diluted share a year earlier.

Revenue totalled $2.58-billion, up from $2.47-billion in the same quarter last year.

Provisions for credit losses in the bank’s first quarter amounted to $86-million compared with a recovery of $2-million in its first quarter of 2022.

On an adjusted basis, National Bank says it earned $2.56 per diluted share, down from an adjusted profit of $2.64 per diluted share in the same quarter last year.

Analysts on average had expected a profit of $2.37 per share, according to estimates compiled by financial markets data firm Refinitiv.

“The bank is starting the year on solid footing with robust results across all business segments and strong margin performance,” National Bank chief executive Laurent Ferreira said in statement.

“In a highly uncertain macroeconomic environment, we are maintaining a defensive positioning. Our credit portfolios continue to perform well, and we have substantial allowances for credit losses.”

National Bank said its personal and commercial banking business earned $331-million in its latest quarter, up from $300-million a year earlier as revenue growth was partly offset by higher provisions for credit losses.

The bank’s wealth management division earned $198-million in the quarter, up from $170-million in the same quarter last year

National Bank’s financial markets division reported a profit of $298-million, down from $305-million a year earlier, while its U.S. specialty finance and international operations earned $147-million, down from $148-million in the same quarter last year.

The bank’s “other” category reported a loss of $93-million compared with a profit of $7-million in the first quarter of 2022.

Enbridge Inc. (ENB-T) rose 1 per cent after saying it expects its earnings per share to grow at a compounded annual rate of four to six per cent through 2025.

In an update of its priorities and financial outlook, the pipeline company says it expects its distributable cash flow per share to grow at an annual rate of about three per cent over the same period.

The guidance came as Enbridge announced plans for $3.3-billion in new investments including the addition of $2.4-billion of new gas transmission modernization and utility spending to its secured capital program.

Enbridge also announced plans to build an oil terminal in Houston at a cost of US$240-million and an agreement with Brookfield Infrastructure Partners and Crestwood Equity Partners to buy natural gas storage company Tres Palacios Holdings LLC for US$335-million.

In addition, Enbridge plans acquire a 10-per-cent stake in Divert Inc., a food waste management company expanding into renewable natural gas, for US$80-million.

It also says it will build a 14-kilometre natural gas pipeline in Ontario to help ArcelorMittal Dofasco’s plan to change the way it makes steel.

Aecon Group Inc. (ARE-T) soared 8.3 per cent after announcing it has signed a deal to sell its road building business in Ontario to Green Infrastructure Partners Inc. (GIP) for $235-million in cash.

Under the agreement, GIP will acquire Aecon Transportation East (ATE), which builds roads throughout Ontario for the provincial government, municipalities and private clients.

Aecon Group CEO Jean-Louis Servranckx says the sale is consistent with the company’s goal of targeting prudent balance sheet leverage and liquidity and also reduces the overall capital intensity of Aecon’s business.

On Tuesday after the bell, Aecon said its fourth-quarter earnings shot up by nearly two-thirds from the same period last year as the construction firm shored up its project backlog.

The Toronto-based company says its net profit jumped to $19.7-million in the quarter ended Dec. 31 from $12.1 million in the same period in 2021.

It posted a revenue of $1.27-billion in its fourth quarter, compared to $1.09-billion a year earlier.

Aecon says its diluted earnings reached 26 cents per share, beating analyst expectations of 20 cents per share, according to financial data firm Refinitiv.

In December, Aecon snagged a $245-million BC Hydro contract to take the lead on an upgrade to the John Hart Dam, buoying its full-year backlog to $6.3-billion in a 29 per cent increase from 2021.

Four fixed-price legacy projects by joint ventures where Aecon is a partner registered an operating loss of $120-million, dragging down its full-year earnings to $30.4-million from $49.7-million in 2021.

In a research report, Raymond James analyst Frederic Bastien said: “We stand as the lone Aecon buy on the Street (per FactSet), however we’re convinced it is the right call for a company that is miles ahead of the competition when it comes to sustainable construction. ARE is not only advancing clean-powered mass transportation networks and delivering clean drinking water for growing communities, but also extending the lifeline of the nation’s nuclear fleet and assembling distribution system for natural gas blended with hydrogen. Then there’s valuation. Its budding utilities business, as a standalone entity, could potentially fetch as much as the company’s entire market cap, while its recovering Bermuda Airport concession is making some infrastructure funds green with envy.”

First Quantum Minerals Ltd. (FM-T) gained 3.4 per cent after Ebrahim Asvat, a lawyer advising the Panamanian government, said the sides are nearing an agreement on their negotiations over the contract to operate a major copper mine.

An agreement could be reached in less than two weeks, Mr. Asvat said, noting there are only three issues left to be solved, with two of them being in the final stage of negotiations.

Mr. Asvat said the third issue was an “economic aspect” which involved the company asking for more tax deductions that would hurt the government’s income from the mine in times of high production and copper prices.

Nevertheless, Mr. Asvat said he believes “an agreement is imminent”.

The company and Panama’s government have been locked in a prolonged contract dispute with tax and royalties at the forefront of the stalemate.

In a latest twist, an order from Panama’s maritime authority banning cargo operations at a port forced the firm to halt its ore processing operations.

Suncor Energy Inc. (SU-T) increased 1.9 per cent amid reports it is nearing a deal to sell its British North Sea oil and gas assets to Norway’s Equinor for around $1-billion.

The deal includes Suncor’s 40-per-cent stake in the Equinor-operated offshore Rosebank oil and gas project, located some 130 kilometres northwest of Shetland Islands, and one of the largest developments in the aging basin.

Equinor and its partners are expected to make a final investment decision on Rosebank’s development later this year.

Equinor, which already owns 40 per cent of Rosebank, had previously estimated the project’s cost at about 4.3 billion pounds (US$5.22-billion). London-listed Ithaca Energy holds the remaining 20 per cent in the Rosebank development.

Equinor and Suncor, Canada’s No. 3 energy company, declined comment. The sources asked not to be identified as discussions are confidential.

The deal follows the British government’s decision late last year to increase a windfall tax on North Sea oil and gas producers to 35 per cent from 25 per cent, bringing the total tax rate to 75 per cent, one of the highest in the world.

The windfall tax led many companies, including Equinor, to warn that they could reduce their UK North Sea investments.

The acquisition of the Suncor assets gives Equinor a large amount of tax losses that it could use to offset future investments in the basin, the sources said.

Suncor flagged plans to divest its upstream assets in Britain last August as the company aims to focus on its core oil sands operations in northeast Alberta.

The deal also includes a 29.9-per-cent stake in the Buzzard oilfield, the largest supplier to Forties, one of North Sea crude oil grades underpinning the Brent crude benchmark, delivering more than 20,000 barrels of oil equivalent (boe) net to Suncor, according to the company’s website.

Last year, Suncor divested its upstream assets in Norway for over $400-million to private equity-backed Norwegian oil and gas firm Sval Energy.

Canfor Corp. (CFP-T) closed up 0.4 per cent following the late Tuesday release of weaker-than-anticipated fourth-quarter results.

The Vancouver-based company reported an adjusted loss of $1.04 per share, below the Street’s expectation of a loss of 44 cents.

Raymond James analyst Daryl Swetlishoff said: “Canfor reported a heavy miss with adj. 4Q22 EBITDA of negative $-million well below consensus at $38-million and Raymond James [estimate] at $12-million as the company recorded an $89-million impairment largely driven bythe Chetwynd/PG closures. However, we note more stable Swedish lumber markets supported margin realizations with the region contributing positive EBITDA of $43.3-million ($107/mfbm). Similarly, Canfor Pulp posted a miss on operational inefficiencies with residual fiber shortages necessitating the restructuring of the pulp platform (see our note here). While muted lumber commodity markets dragged CFP shares lower over the past weeks amid continued apprehensive end user purchasing, we highlight this has left the company boasting an asymmetric risk-return payoff. We note downside protection in the value of the company’s net cash and duties (60 per cent of market cap) along with diversified net asset value and working capital. We also highlight material upside associated with imminent BC capacity shuts, seasonally stronger end user takeaways into the spring, and multiple expansion related to lower relative BC interior exposure following the Chetwynd/Houston shuts (29 per cent vs. peers at 15-22 per cent).”

Eli Lilly and Co. (LLY-N) saw gains after saying on Wednesday it would reduce prices by 70 per cent for its most commonly prescribed forms of insulin.

The U.S. drugmaker said the reduced prices for its branded insulin injections, Humalog and Humulin, will be effective from the fourth quarter of this year.

Lilly also said it was cutting the price for its non-branded insulin injection Lispro to US$25 a vial and will take steps to expand its Insulin Value Program, which caps out-of-pocket costs for patients at US$35 or less per month.

On the decline

Shares of Royal Bank of Canada (RY-T) were lower by 3.6 per cent on Wednesday after it said it expected a softer landing for the economy, but the country’s largest lender reiterated its forecast of a moderate recession this year after setting aside bigger provisions for potential bad loans.

The views come against the backdrop of the Bank of Canada hiking its key interest rate to a 15-year high in January to rein in inflation, with tighter monetary policies at home and abroad fueling economic turbulence and raising recession fears.

The Canadian central bank had also said in January it would hold off on further increases as long as prices eased as expected.

Still, as economic uncertainty persists, banks are building provisions in case of delays or defaults in loan repayments by borrowers who have already been squeezed by high inflation since last year.

“While central banks have successfully reigned in peak core inflation, strong services demand, labor shortages and reopening of China’s economy still present a challenge to getting firm control within stated target ranges,” RBC’s Chief Executive Officer Dave McKay said.

Earlier on Wednesday, RBC reported first-quarter profits ahead of expectations, as demand for loans ticked up.

RBC, which has a large capital markets business in Canada, also saw its results receive a boost from a surge in fixed income trading activity, which cushioned the hit from lower revenues from corporate and investment banking.

Profit at RBC’s capital market segment jumped 9 per cent to $1.22-billion.

“While underlying results (for RBC) were solid, we are concerned that it may not be enough to offset concerns on the outlook for further deterioration in credit,” Barclays analyst John Aiken said in a note.

The ongoing economic uncertainty, lack of easy money and volatile markets have, however, bolstered demand for loans, both among individuals and businesses.

But banks are also preparing for more of such borrowers to fall behind on loan repayments. RBC’s provisions for bad loans jumped five-fold to $532-million.

On an adjusted basis, RBC earned $3.10 per share for the quarter ended Jan. 31, ahead of analysts’ average estimate of $2.93 per share, according to Refinitiv IBES data.

RBC’s rivals – CIBC (CM-T) and Bank of Montreal (BMO-T) – have reported a decline in quarterly profits as they build buffer for loss provisions amid challenging economic conditions.

In a research note, Credit Suisse analyst Joo Ho Kim said: “RY’s Q1 results beat both the Street and our estimates, as strong performance from Capital Markets more than offset higher expenses (which does have a number of moving parts in it), and softer net interest margins. On expenses, the bank reported 17 per cent year-over-year growth, which was 3 per cent higher than what we expected, and even on an adjusted basis, expense growth of 11 per cent still seemed relatively high. The other area that we focus on is net interest margins, which was somewhat softer than what we expected as well (up just 1bp at the all-bank), as a good outcome from Canadian P&C was offset by weaker-than-expected performance from Wealth Management (CNB margins were down 5bps Q/Q). We saw the bank trod on that gradual path of normalization in terms of credit (similar to its peers this quarter), and the capital ratio remained solid (albeit lower than our estimate).”

First Horizon Corp. (FHN-N) plummeted 10.5 per cent after revealing it has been informed by Toronto-Dominion Bank (TD-T) that the necessary regulatory approvals for its pending merger will not be received by the May 27 termination date and “that TD cannot provide a new projected closing date at this time.”

“TD has initiated discussions with FHN regarding a potential further extension of the outside date,” it said in a 10-K regulatory filing. “There can be no assurance that an extension will ultimately be agreed or that TD will satisfy all regulatory requirements so that the regulatory approvals required to complete the Pending TD Merger will be received.”

TD is set to close first-quarter earnings season for Canadian banks on Thursday before the bell.

Lowe’s Cos Inc. (LOW-N) fell 5.6 per cent as it forecast full-year sales below market expectations on Wednesday, hammered by weak demand for home improvement products as customers save up cash for higher-priced everyday essentials.

A pandemic-fueled boom in demand for products such as kitchen equipment and gardening tools is now fading as household budgets shrink, while Americans redirect their attention back to activities such as traveling.

A report from location analytics firm said visits to Lowe’s stores dropped in the fourth quarter, also because spending on services exceed goods following the easing of pandemic-led curbs.

Larger rival Home Depot Inc. (HD-N) had also last week warned of a moderation in demand this year, while struggling with elevated costs and wage raises amid a tight U.S. labour market.

Lowe’s said on Wednesday it has awarded US$220-million in bonuses to its employees, including supply-chain supervisors and hourly workers, in the fourth quarter.

Still, easing shipping and commodity costs helped the company’s adjusted per-share profit of US$2.28 top expectations of US$2.21.

“With Home Depot helping lay the groundwork a week ago, really nothing too surprising here,” Telsey Advisory Group analyst Joe Feldman said, adding the results were in line with expectations.

Lowe’s, which has been trying to catch up with Home Depot, has more room to improve its margins this year, Feldman said. The company is expecting operating margin of 13.6 per cent to 13.8 per cent in 2023.

The company projected full-year total sales of US$88-billion to US$90-billion, while analysts estimated annual revenue of US$90.48-billion, according to Refinitiv data.

Lowe’s also forecast 2023 earnings in the range of US$13.60 to US$14.00 per share, the midpoint of which was slightly ahead of an estimate of US$13.79.

Lowe’s reported a 1.5-per-cent decline in comparable sales for the three months ended Feb. 3, worse than expectations of a 0.01-per-cent drop.

Kohl’s Corp. (KSS-N) reported a surprise quarterly loss and forecast full-year profit well below analysts’ estimates on Wednesday, as steep discounts to boost sluggish demand for apparel shredded the retailer’s margins.

The department store operator’s shares dropped and triggered a fall in shares of rivals Macy’s Inc. (M-N) and Nordstrom Inc. (JWN-N) ahead of their results on Thursday.

Surging costs of rent and food over the last year have forced customers to cut back on spending on non-essential products, pushing Kohl’s and other retailers into steeper discounts and promotions to clear excess stocks of casual apparel.

Those discounts were the major contributor to a more than 10 percentage point decline in fourth-quarter gross margins to 23 per cent, Kohl’s said.

The company is especially hard hit as the lower-income customers it typically caters to are among the worst hit from surging prices.

Kohl’s reported a loss of US$2.49 per share for the fourth quarter ended Jan. 28, compared with estimates for a profit of 98 US cents.

The results reflect “sales pressure driven by the ongoing persistent inflationary environment,” newly appointed Chief Executive Officer Tom Kingsbury said in a statement.

The company expects fiscal 2023 earnings per share of US$2.10 to US$2.70, compared with analysts’ estimates of US$3.20, according to Refinitiv IBES data.

U.S. retailers including Walmart (WMT-N) and Target Corp. (TGT-N) are taking a conservative approach to their expectations for 2023, as accelerating consumer prices amplify fears that the Federal Reserve could further lift borrowing costs to cool demand, likely tipping the economy into a recession.

Comparable sales at Kohl’s fell 6.6 per cent in the fourth quarter, compared with analysts’ estimate of a 3.7-per-cent decrease.

Separately, apparel maker Abercrombie & Fitch (ANF-N) also missed holiday quarter earnings estimates on Wednesday, hit by higher costs of cotton.

Still, the company forecast full-year sales above estimates, saying it was “cautiously optimistic” about consumer demand.

Novavax Inc.’s (NVAX-Q) shares plunged 26.2 per cent a day after the COVID-19 vaccine maker raised doubts about its ability to remain in business.

The company - whose COVID vaccine is its only marketed product after 35 years in business - on Tuesday flagged significant uncertainty around its 2023 revenue, funding from the U.S. government, and pending arbitration with global vaccine alliance Gavi.

Novavax’s shot, a traditional protein-based vaccine, was pitched as an alternative to those from Moderna (MRNA-Q) and Pfizer-BioNTech (PFE-N) in the hope it would win over skeptics of their newer mRNA technology, but manufacturing and regulatory delays led to sluggish uptake in key markets.

In the U.S., where the vaccine was authorized in July 2022, only around 80,000 of its shots have been administered, according to government data.

In Europe, the shot was initially given the green light in December 2021. Altogether, only 219,395 doses have been administered of nearly 13 million distributed in EU/EEA countries, according to data from the European Centre for Disease Control up to Feb. 23.

The shot was also endorsed by UK regulators last year. The Department of Health and Social Care did not immediately respond to a Reuters query on how many doses have been deployed so far.

Novavax, like other COVID vaccine makers, is also gearing up for changes to the way the vaccines are rolled out, with global regulators expecting vaccination campaigns to be conducted once a year, similar to flu inoculations.

As of last close, Novavax’s U.S.-listed shares are down 97 per cent from their February 2021 record high of US$331.68

Tesla Inc. (TSLA-Q) was lower by 1.3 per cent ahead of its Investor Day event after the bell at which Chief Executive Elon Musk is expected to lay out a plan to make a smaller, more affordable electric vehicle in a move aimed at broadening his brand’s appeal and fending off competition.

Capturing the mass market is critical to Tesla’s goal of increasing deliveries 15-fold - to 20 million vehicles - by 2030. To do that, Tesla will have to improve its battery technology, which Mr. Musk has called the “fundamental limiting factor” for the transition to sustainable energy, making it a likely topic for Wednesday’s address.

Mr. Musk could also describe plans to update the company’s best-selling vehicles, after Reuters revealed its “Project Jupiter” plan to revamp its Model Y SUV. The Investor Day event will be webcast from Tesla’s Texas factory and is scheduled to start at 4 p.m. EST.

Mr. Musk also is set to announce the company’s “Master Plan 3″ for a “sustainable energy future.” His previous two master plans - most recently in 2016 - laid out expansion of new models and battery storage.

Tesla has become the world’s most valuable car company by far, and the billionaire CEO has aspirations of cracking the mass market and turning the EV maker into a company that can create a more climate-friendly world.

AMC Entertainment Holdings Inc.’s (AMC-N) shares fell 8.3 per cent on Wednesday after the company’s results underscored fears that theater-going would not return to pre-pandemic levels anytime soon as rising cost-of-living bites.

The world’s largest cinema chain operator saw a 17-per-cent fall in footfall in its theaters in the fourth quarter, despite the release of big-ticket films such as Avatar: The Way of Water. Revenue fell 15.4 per cent in the quarter.

“This is AMC’s fourteenth consecutive quarterly loss and the market is punishing the shares for that fact,” Hargreaves Lansdown analyst Sophie Lund-Yates said.

While more people are returning to the theaters, Hollywood has been releasing fewer movies “of late,” AMC Chief Executive Adam Aron said at a post-earnings call on Tuesday.

“By no means are we out of the woods yet,” Aron said.

In the United States and Canada, box office collection was above US$11-billion in 2019, but since the COVID-19 pandemic, the numbers have fallen drastically, with 2022 box office numbers coming in at US$7.4-billion, the company said.

Wedbush Securities analysts expect 2023 box office to be down 24 per cent from 2019 levels. AMC, however, said it expects box office will not return to pre-pandemic norms before 2024 or 2025 at the earliest.

With files from staff and wires

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