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A look at North American equities heading in both directions

On the rise

Barrick Gold Corp. (ABX-T) rose 0.9 per cent after it beat Wall Street expectations for first-quarter profit on Wednesday, as higher prices of the metal outweighed a decline in production.

Average prices of gold rose 7.8 per cent and peaked over the US$2,000-mark during the reported quarter on its appeal as a safe-haven asset following a banking crisis and fears of a potential recession.

The company’s average realized gold prices stood at US$1,902 per ounce, compared with US$1,876 per ounce a year earlier.

Barrick’s first-quarter gold production fell to 952,000 ounces from 990,000 ounces a year earlier. Its copper production stood at 88 million pounds, down from 101 million pounds a year earlier.

The miner took a hit as harsh winter impacted its northern Nevada operations and annual maintenance weighed on output at its Goldstrike mine.

The Toronto-based miner posted adjusted earnings of 14 US cents per share for the quarter ended March 31, compared with analysts’ average estimate of 11 US cents, according to Refinitiv IBES data.

Canfor Corp. (CFP-T) gained 2.4 per cent after it reported a loss in its first-quarter compared with a profit a year ago as its lumber operations in Western Canada faced lower prices.

Canfor chief executive Don Kayne says it was another challenging quarter for the company’s lumber business.

The Vancouver-based forestry company says strong earnings from its European operations and more modest results from its operations in the U.S. South were outweighed by continued pricing pressure on its western Canadian operations.

Canfor says it lost $142.0-million or $1.17 per diluted share for the quarter ended March 31 compared with a profit of $534.0-million or $4.29 per diluted share a year earlier.

Sales totalled nearly $1.39-billion, down from $2.21-billion in the first three months of 2022.

On an adjusted basis, Canfor says it lost $1.20 per diluted share in its latest quarter compared with an adjusted profit of $4.25 per diluted share a year earlier.

Eli Lilly and Co. (LLY-N) jumped almost 7 per cent after its experimental Alzheimer’s drug slowed cognitive decline by 35 per cent in a closely watched late-stage trial, the company said on Wednesday, raising hopes for a second effective treatment for the brain-wasting disease.

The drug, donanemab, met all primary and secondary goals of the trial. It slowed progression of Alzheimer’s by 35 per cent to 36 per cent compared to a placebo in 1,182 people diagnosed with early-stage disease based on scans showing brain deposits of a protein called amyloid and intermediate levels of a second protein known as tau, Lilly said. The trial’s other 552 patients had high levels of tau, suggesting they would be less likely to respond to the treatment.

After combining both groups, donanemab was shown to slow progression of Alzheimer’s by 22 per cent using a Lilly-developed scale to measure cognition and activities of daily living, and by 29 per cent based on a more commonly used scale of dementia progression.

“These are the strongest phase 3 data for an Alzheimer’s treatment to date. This further underscores the inflection point we are at for the Alzheimer’s field,” said Maria Carrillo, chief science officer for the Alzheimer’s Association.

Using the commonly used dementia scale, trial results published last year showed that Eisai Co Ltd and Biogen Inc’s (BIIB-Q) Leqembi reduced the rate of cognitive decline by 27 percent compared to a placebo in patients with early Alzheimer’s.

In the donanemab treatment group, Lilly said brain swelling, a known side effect of drugs of this type, occurred in 24 of the participants, with 6.1 per cent experiencing symptoms. Brain bleeding occurred in 31.4 per cent of the donanemab group and 13.6 per cent of the placebo group.

In the Leqembi Phase 3 trial, the drug was associated with brain swelling in nearly 13 per cent of its study participants.

Lilly said the incidence of serious brain swelling in the donanemab study was 1.6 per cent, including two participants whose deaths were attributed to the condition and a third who died after an incident of serious brain swelling.

Dr. Eric Reiman, executive director of the Banner Alzheimer’s Institute, which is running an Alzheimer’s prevention study of donanemab in presymptomatic patients, said he was “very excited” about the findings. “Clearly, one saw benefits here, but there is some risk that needs to be considered.”

The company said it plans to file for traditional U.S. approval by the end of June and with regulators from other countries shortly thereafter.

Kraft Heinz (KHC-Q) raised its full-year profit forecast after beating first-quarter expectations on Wednesday, as price hikes and resilient demand help the Jell-O maker cushion a blow from higher commodity costs.

Shares of the Philadelphia Cream Cheese maker were up 2 per cent in Wednesday trading.

The packaged food maker, like other U.S. peers such as Kellogg (K-N), Coca-Cola Co (KO-N) and General Mills (GIS-N), has been increasing product prices steadily to protect profits from rising costs of some raw materials like vegetable oils, wheat and dairy.

But even as inflation squeezes household budgets, consumers have refrained from trading down to cheaper alternatives and are still willing to pay more for their favourite snack brands despite multiple rounds of price hikes.

The company expects adjusted earnings between US$2.83 to US$2.91 per share for 2023, above the prior target of US$2.67 to US$2.75 per share. Analysts on an average have forecast US$2.72 per share.

The Lunchables maker’s strong outlook echoes comments from peers PepsiCo Inc. (PEP-Q) and Mondelez (MDLZ-Q), who have lifted their annual forecasts in recent months on the back of price increases.

The company reiterated its target for 2023 organic net sales growth of 4 per cent to 6 per cent, compared to 2022.

Excluding one-off items, Kraft Heinz earned 68 US cents per share, topping analysts’ estimate of 60 UScents per share.

Its net sales rose 7.3 per cent to US$6.49-billion in the first quarter, while analysts on average expected US$6.4-billion, according to Refinitiv IBES data.

On the decline

Shares of Loblaw Companies Ltd. (L-T) fell 3.1 per cent on Wednesday after it reported first-quarter sales rose 6 per cent, helped by strong demand for essential goods including groceries and drugs.

Retailers industry-wide have lately been relying on sales of essential goods including groceries, frozen protein and drugs as inflation-hit consumers prioritize spending on everyday needs.

Loblaw adjusted profit climbs 10% as grocery prices rise, high-margin drugstore sales remain strong

Drug retail sales, however, were led by Loblaw’s higher-margin beauty and cough and cold products, the company said.

Loblaw warned that the cost of materials in its food segment continued to increase faster than the price hikes taken by the retailer to shield its margins.

Net income attributable to the company fell to $418-million, or $1.29 per share, in the first quarter from $437-million, or $1.30 per share, a year earlier.

Loblaw’s first-quarter revenue rose to $13-billion from $12.26 billion a year earlier.

The Brampton, Ont.-based retail chain maintained its annual profit forecast to low double-digit growth.

In a research report, Desjardins Securities analyst Chris Li said: “Adjusted EPS of $1.55 (up 14 per cent year-over-year) was in line with our estimate and consensus, with growth driven by solid sales and cost control leverage. Although food SSSG was a touch below expectations, results showed continued strength in food and drug retail supported by high food inflation, shift to discount, market share gains, and strong Rx and front-store growth. There was no change to management’s 2023 outlook, which calls for low-double-digit adjusted EPS growth. The quarterly dividend was increased by 10 per cent to 44.6 cents (1.4-per-cent yield).”

Aritzia Inc. (ATZ-T) plummeted 20.8 per cent following the release of its fourth-quarter 2023 results after the bell on Wednesday.

The Vancouver-based retailer topped the Street’s earnings for the quarter expectations, but a cautious outlook for the next 12 months prompted a pair of analysts to downgrade it shares and led several others to make substantial cuts to their target prices.

“While we continue to appreciate Aritzia’s unique market positioning and U.S. growth opportunity, the unexpected shift to a period of infrastructure investment is expected to weigh on F2024E EBITDA (we have reduced our F2024E estimate by 26 per cent), with margins only returning to F2023A levels by F2025,” said BMO Nesbitt Burns analyst Stephen MacLeod, who lowered the company to “market perform” from “outperform” previously.

“Combined with moderating sales growth (F202 estimate up 10-14 per cent vs. up 47 per cent in F2023) and an uncertain macro backdrop, we see balanced risk-reward with the stock trading at a premium to historical levels.”

Starbucks Corp. (SBUX-Q) beat Wall Street estimates on Tuesday for quarterly profits, powered by a sharp recovery in business in China, but shares fell 9.2 per cent after the company did not lift its 2023 guidance.

With most of China’s COVID-19 curbs now scrapped, consumer mobility and spending in the region bounced back sharply in March.

Even so, some analysts had expected China sales to remain in the red after tumbling 29 per cent the previous quarter.

Instead, the world’s largest coffeehouse chain posted a 3-per-cent rise in China comparable sales in its second quarter ended April 2, helping boost international sales 7 per cent, more than double the 2.94-per-cent increase of the average analyst’s estimate, according to Refinitiv data.

While the China recovery was better than the company expected, growth in average weekly sales there will be at a more moderate pace in the second half, Chief Financial Officer Rachel Ruggeri said during an earnings call.

“We’ve already seen it start to moderate,” she said, noting uncertainty about consumer behavior and international travel. “So when we take all of that into account, when we look at our guidance for the full year, we believe reaffirming our guidance allows us to continue to convey the momentum, but also for the confidence we have while still navigating a rather uncertain environment globally.”

Restaurant shares broadly have outperformed the S&P 500 Index this year, and McDonald’s Corp. (MCD-N) and others reported a strong quarter.

Some Starbucks investors may have taken profits after Starbucks’ stock jumped 16 per cent in the past five weeks with “a pretty big run” into the earnings report, Edward Jones analyst Brian Yarbrough noted.

Globally, Seattle-based Starbucks’ comparable sales climbed 11 per cent, trouncing analysts’ expectation of a 7.36-per-cent rise.

Customers visited more often and spent more per trip, according to the earnings release. Excluding one-time items, Starbucks earned 74 US cents per share, beating estimates of 65 US cents.

Starbucks, whose customers are typically younger, wealthier and relatively unfazed by inflation, has doubled down on its cold and customizable beverages, boosting traffic in the U.S. and driving a 12-per-cent jump in comparable store sales in its North American market..

Ford Motor Co. (F-N) closed flat after it posted robust first-quarter revenue and profit, thanks to strong demand for trucks and SUVs, but issued a measured full-year outlook tempered by continued losses in its electric-vehicle unit.

In a late briefing, Ford Chief Executive Officer Jim Farley said he hopes the company becomes “boringly predictable” at meeting investor expectations. Ford missed Wall Street estimates for the fourth quarter, leaving US$2-billion on the table, Farley said earlier this year.

Mr. Farley also said Ford does not intend to pursue EV sales volume “at any cost” - after the automaker earlier in the day slashed Mustang Mach E prices for a second time this year.

Ford handily beat analysts’ expectations for first-quarter earnings before interest and taxes, reporting EBIT of US$3.4-billion, compared with consensus of US$2.4-billion.

The automaker reaffirmed guidance for full-year adjusted EBIT of US$9-billion to US$11-billion. Those numbers include an anticipated loss of US$3-billion in Ford’s Model e electric vehicle unit.

Although U.S. vehicles sales in April were much stronger than expected, Ford cautioned that “higher industrywide customer incentives as vehicle supply-and-demand rebalances” will be a “headwind” for profitability.

The company for the first time broke out financial results for its Ford Blue, Ford Pro and Ford Model e units. Ford Blue earnings before interest and taxes doubled to US$2.56-billion, a margin of 10.4 per cent, and Ford Pro EBIT nearly tripled to US$1.4-billion, a margin of 10.3 per cent.

Ford’s overall EBIT margin was 8.1 per cent, after factoring in losses from Model e.

For 2023, the automaker expects full-year EBIT for Ford Blue to climb slightly to US$7-billion, while Ford Pro EBIT could nearly double, to almost US$6-billion.

Ford lost more than US$60,000 per electric vehicle sold in the first quarter. Its combustion-vehicle business, Ford Blue, averaged pretax profit of US$3,715 a vehicle, while the Ford Pro commercial business earned $4,053 per vehicle, based on the company’s financial data.

Ford’s profit in the first quarter was US$1.8-billion, or 44 US cents per share, compared with a loss of US$3.1-billion, or 78 US cents per share, a year ago. Adjusted diluted earnings per share were 63 US cents, compared with 38 US cents a year ago. Analysts had expected 41 US cents.

The Dearborn, Michigan-based company reported revenue of US$41.5-billion for the quarter through March, compared with US$34.5-billion a year ago.

Advanced Micro Devices (AMD-Q) shares slumped 9.2 per cent on Tuesday after the chipmaker forecast quarterly sales below estimates due to a weak PC market, overshadowing the company’s optimism that the chip market would start to recover in the second half of 2023.

The company also missed analyst estimates for PC and data center chips sales for the first quarter, and its shares fell.

That stood in contrast to rival Intel Corp. (INTC-Q), whose shares rose. Intel last week said the PC market would start rebounding in the second half, raising Intel’s margins with it.

While analysts had watched AMD grab market share in the data center after Intel delayed ramping up the shipping of its most powerful data center processor chip code, named Sapphire Rapids, for over a year, some said they were seeing AMD now stall.

“I think AMD’s days of taking large swaths of share will likely be over, and it will probably see a more aggressive market for data center competing with Intel,” said Anshel Sag, analyst at Moor Insights & Strategy. “AMD has great products in data center, but Intel still has a lot of customers who are still using Intel and deep (customer) relationships.”

Still, AMD CEO Lisa Su told investors on a conference call that the first quarter was the bottom of the market for the company’s PC business and the industry.

“We remain confident in our ability to grow in the second half of the year,” she said.

Part of that growth, Ms. Su said, will come from a chip called the MI300, which will compete with Nvidia Corp’s flagship chips for artificial intelligence. Su said customer interest in the chip is growing.

“We do believe that we will start ramping revenue in the fourth quarter with cloud AI customers, and then it’ll be more meaningful in 2024,” Ms. Su said. “Success for us is having a significant part of the AI overall opportunity,” she added.

Nvidia has the bulk of the AI market, and analysts believe it has a strong hold on its position.

“We believe MI300 will be used primarily on special projects or on a case-by-case basis,” said Summit Insights Group analyst Kinngai Chan, adding that the MI300 is likely to be inferior to Nvidia’s latest H100 data center chip for large language model applications, such as ChatGPT.

AMD forecast current-quarter revenue of about US$5.3-billion, plus or minus US$300-million. Analysts polled by Refinitiv were expecting revenue of $5.48 billion.

Revenue in the fiscal first quarter ended April 1 came in at US$5.35-billion, compared with estimates of US$5.30-billion.

Yum Brands Inc. (YUM-N) fell short of Wall Street estimates for first-quarter profit on Wednesday, as the Taco Bell parent doubled down on promotions to attract inflation-hit consumers even as cost pressures lingered.

Shares dropped 3.9 per cent despite the Louisville, Kentucky-based company topping quarterly same-store sales estimates.

Yum Brands has banked on aggressive promotional offers and value meal deals launches across its chains after a slowdown in demand last year, particularly from its lower-income customer base.

While those promotions - including Taco Bell’s $2 burritos and KFC’s $5 Mac & Cheese bowls - have drawn in consumers, they have pinched the company’s profits at a time when cost pressures tied to labor and raw materials persist.

Yum Brands said its net income fell to US$300-million, or US$1.05 per share, in the first quarter ended March 31, from US$399-million, or US$1.36 per share, a year earlier.

On an adjusted basis, the Pizza Hut owner earned US$1.06 per share, missing estimates of US$1.13, according to Refinitiv IBES data.

Total same-store sales rose 8 per cent in the first quarter, beating estimates of a 5.45-per-cent increase, with all three of Yum’s major chains reporting better-than-expected comparable sales.

The company’s downbeat profit contrasts with its peers including McDonald’s Corp. (MCD-N), Burger King parent Restaurant Brands (QSR-T) and Chipotle Mexican Grill (CMG-N), which topped results estimates in recent weeks.

Estee Lauder Cos Inc. (EL-N) on Wednesday forecast a bigger drop in full-year sales and profit, disappointing the Wall Street that was expecting better results on rebounding travel retail after COVID-19 restrictions eased globally and in China.

Shares of the company plummeted 17.3 per cent after Estee cited a slower-than-expected recovery in Asia travel retail and major market China for the latest round of cut to its annual forecasts.

In contrast, European peers LVMH and L’Oreal saw a rise in first-quarter sales, boosted by a rebound in demand in the Chinese region.

Barclays analyst Lauren Lieberman said in a note that Estee’s profit forecast was the “last thing” expected even by the Street and that comments on Asia travel retail raises doubt on how much “control or visibility” the company has in its end-market sales through this channel.

Estee said while major shopping districts such as Hainan and Korea saw more traffic, the conversion of travelers to consumers in luxury beauty lagged.

Even though China relaxed pandemic-related restrictions, the company saw January 2023 pressured by low retail traffic and retailers destocking due to an increase in COVID-19 cases.

The MAC lipstick maker’s sales had also witnessed an impact in earlier quarters from U.S. retailers tightening inventories of its products, but posted a 6% rise in organic net sales in Americas, signaling steady demand for its Jo Malone fragrances and Bobbi Brown foundations.

The company’s profit remains pressured from a stronger dollar since it has sprawling global operations and convert foreign currencies into the greenback.

Estee expects full-year 2023 net sales to fall between 10 per cent and 12 per cent, compared to its prior forecast of a 5-per-cent and 7-per-cent decrease.

It also forecast adjusted profit per share to fall between 50 per cent and 51 per cent, compared with a decrease between 27 per cent and 29 per cent it expected earlier.

However, the company beat third-quarter sales expectations but missed profit estimates.

With files from staff and wires

Follow David Leeder on Twitter: @daveleederOpens in a new window

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