A survey of North American equities heading in both directions
On the rise
Enbridge Inc. (ENB-T) was higher by 0.4 per cent after it said on Wednesday it had entered a joint venture with EDF Renewables to participate in the construction and operation of the Fox Squirrel solar project in Ohio.
The under-construction ground-mounted solar facility, which is being developed by a subsidiary of French utility EDF, is expected to generate about 150 megawatts of energy initially and will be in service by the year-end.
Fox Squirrel, based in Madison County, Ohio, will be built in three phases and deliver up to 577 MW of solar energy by the end of 2024.
Enbridge said it would invest $149-million for the first phase and plans to reach a final investment decision for the remaining phases throughout 2024.
Target (TGT-N) on Wednesday forecast holiday-quarter profit largely above Wall Street expectations as the big-box retailer benefits from easing supply-chain costs and its efforts to control inventory start to pay off, sending its shares soaring 17.8 per cent.
Target’s stock has lost a quarter of its value in a turbulent year marked by elevated inflation. Shoppers have squarely focused on food and essentials, while showing reluctance to spend on home goods, electronics, toys and apparel that are deemed less essential.
With nearly half of Target’s sales coming from these less essential categories, its sales have fallen in the past two quarters, but the retailer has been about to eke out a higher profit on tighter inventory management and cost controls in other parts of its business, such as logistics.
On Wednesday, the company forecast adjusted earnings to land between US$1.90 and US$2.60 per share. The midpoint of that range topped analysts’ expectations of US$2.22 per share, according to LSEG data.
The Minneapolis-based retailer said the forecast follows a third quarter in which margins improved, helped by fewer discounts, a 14-per-cent reduction in inventories and related costs, and lower freight, supply-chain and delivery expenses. Seasonal merchandise for events such as back-to-school and Halloween outperformed other parts of its business, it added.
Gross margins in the fiscal third quarter ended Oct. 28 rose to 27.4 per cent, from 24.7 per cent a year earlier. The company also posted a smaller-than-expected drop of 4.9 per cent in comparable sales for the quarter, compared with estimates of a 5.25-per-cent decline, helped by demand for beauty products, which generates about 30% of sales.
Excluding items, Target earned US$2.10 per share in the quarter, topping expectations of US$1.48.
“(Target’s) print is better-than-expected nearly across the board, but does not change the fact that the consumer backdrop seemingly deteriorated throughout the quarter,” RBC Capital Markets analysts wrote in a post-earnings note.
The National Retail Federation predicts U.S. holiday sales in 2023 to rise at the slowest pace in five years. Home Depot on Tuesday tightened its sales forecast for the full-year but still expects it to decline between 3 per cent and 4 per cent.
Target said on Wednesday it expects holiday-quarter comparable sales to decline in the mid-single-digit percentage range, compared with expectations of a 3.97-per-cent drop.
The company said it plans to offer more than 10,000 new items for the holidays, which will feature exclusive-to-Target brands and more than 2,500 toys priced below $25.
Target shares are down 25.7 per cent so far this year, in part due to other unique challenges it faced this year including backlash in May over its LGBTQ-themed merchandise and a spike in retail thefts that it said led it to shut nine stores in New York, San Francisco, Seattle, and Portland, Oregon.
By contrast, rival Walmart’s (WMT-N) shares have risen 18.2 per cent. The retailer reports third-quarter results on Thursday.
From September: Gordon Pape: Walmart vs. Target: Investors should pick this giant U.S. retailer
Sirius XM Holdings Inc. (SIRI-Q) enjoyed large gains as Warren Buffett’s Berkshire Hathaway (BRK.A-N, BRK.B-N) took a stake in the audio entertainment company.
Berkshire said on Tuesday it has shed its holdings in General Motors (GM-N) and Procter & Gamble (PG-N), and trimmed its stake in Amazon (AMZN-Q), as the conglomerate controlled by billionaire Warren Buffett boosted its cash pile to a record US$157.2-billion.
In a regulatory filing detailing its U.S.-listed stock holdings as of Sept. 30, Berkshire reported no holdings in GM and P&G, after reporting stakes of US$848-million and US$48-million in June, and said it reduced its stake in Amazon by 5 per cent.
Berkshire also appeared to have shed what had been a $621 million stake in Celanese (CE-N), a specialty materials company.
One new position was an $8 million stake in Atlanta Braves Holdings (BATRA-Q), which indirectly controls the Major League Baseball team and The Battery Atlanta, a mixed-use development next to the Braves’ Truist Park.
Chinese e-commerce company JD.com Inc. ADR (JD-Q) reported a surge in third-quarter profit as supply chain problems eased but its revenue came in below analysts’ estimates.
Its U.S.-listed shares rose 7 per cent in Wednesday trading. The group is also listed in Hong Kong .
The company has faced challenges in China’s rapidly changing e-commerce landscape, such as the emergence of livestream players and short video social networking service providers such as Douyin, which is China’s TikTok, and Xiaohongshu.
JD.com has fewer influential livestreamers than its competitors, such as Austin Li, who exclusively streams on Alibaba Group’s platform.
Also, consumer sentiment in the China is weak amid a slowing economy and high unemployment.
JD.com said that CEO Xu Ran will take up the role of chief executive of JD Retail, the company’s retail business.
Beijing-based independent industry analyst Liu Xingliang said the firm’s core strategy is to focus on the lower-tier market, third-party merchants, and instant retail business.
“Her new appointment ensures that these strategies can be effectively implemented,” Liu said.
Xu told analysts on a call after the earnings report on Wednesday that the retail strategy of the company would remain unchanged.
Third-party data provider Syntun shows that the cumulative gross merchandise volume (GMV) across major traditional e-commerce platforms -- including Alibaba’s Tmall, JD.com and Pinduoduo of PDD Holdings -- was 923.5 billion yuan (US$127.42-billion), during China’s largest shopping festival, Singles Day, which ended at midnight on Saturday. This represented a 1-per-cent decline from the previous year.
“Consumers are more rational when they make purchase decisions,” Xu said. “They attach more importance to price and quality.”
The company’s shares were trading at about US$60 at the beginning of this year but ended at US$26.71 on Tuesday. In October, several banks and brokers including Citi, Daiwa and Jefferies cut price targets and revenue growth forecasts for the company.
JD.com reported net revenue of 247.7 billion yuan (US$34.19-billion) for the third quarter, missing analysts’ average estimate of 249.26 billion yuan, based on LSEG data.
It reported net income attributable to shareholders of 7.94 billion yuan, up 33 per cent from 5.96 billion yuan a year earlier. attributable to the company’s shareholders of 7.94 billion yuan, compared with 5.96 billion yuan.
Walt Disney Co. (DIS-N) gained 3.1 per cent on news activist investor ValueAct Capital has taken a stake in the company
ValueAct built the position in recent months, according to Reuters, adding that the investment firm believes Disney’s theme parks and consumer products businesses alone are worth low US$80s per share.
ValueAct is the second activist investor to arrive at Disney after Nelson Peltz’s Trian Fund Management last month signaled it would be pushing for multiple board seats after having abandoned a proxy fight earlier this year.
The new position was first reported by 13D Monitor.
On the decline
Shares of Loblaw Companies Ltd. (L-T) was lower by 2.2 per cent on Wednesday after it beat third-quarter profit estimates on steady demand for essentials amid surging food prices in the country.
Cost-conscious customers have traded down to cheaper private-label brands, as stubbornly high grocery prices weigh on their cost of living, boosting sales of the Brampton, Ont.-based retail chain.
Same-store sales at Loblaw’s food segment grew 4.5 per cent, benefiting from increased traffic, and that in pharmacy rose 7.4 per cent in the third quarter ended Oct. 7 from a year earlier.
The company maintained its annual target for adjusted net earnings per share to grow in the low-double digits.
Recently, Canada’s large grocery chains including Loblaw agreed to help the government to stabilize rising food prices. They said the price increases have been largely because of higher input costs passed on to the companies by vendors.
Net income attributable to Loblaw rose 11.7 per cent to $621-million in the reported quarter. On an adjusted basis, it earned $2.26 per share, edging past analysts’ average estimate of $2.22, according to LSEG data.
Its revenue rose 5 per cent to $18.27-billion, in-line with analysts’ average estimate of $18.26-billion.
Metro Inc. (MRU-T) dropped 6.8 per cent after it reported a fourth-quarter profit of $222.2-million, up from $168.7-million in the same quarter last year as its sales rose 14 per cent but the impact of a labour dispute weighed on results.
The grocer reported sales of $5.071-billion, up from $4.43-billion a year earlier but narrowly below the Street’s expectation of $5.078-billion. The increase came as food same-store sales rose 6.8 per cent and pharmacy same-store sales gained 5.5 per cent.
Adjusted earnings per share of 99 cents rose 7 cents year-over-year. However, it also missed the consensus projection of $1.07.
Metro says a five-week strike at 27 stores in the Greater Toronto Area during the quarter had a negative impact on its bottom line of about $27-million after taxes or 12 cents per share.
The company said it’s ramping up a new distribution centre north of Montreal and the expansion of its Montreal produce facility. It’s also preparing to launch the final phase of its automated fresh facility in Toronto next spring.
Though Metro said these investments position the company well for long-term profitable growth, it said it’s facing “significant headwinds” in the coming financial year due to “temporary duplication of costs and learning curve inefficiencies, as well as higher depreciation and lower capitalized interest.”
Because of these headwinds, Metro forecasts adjusted net earnings per share next year to be flat to down ten cents, and said it expects to resume profit growth after financial year 2024.
Metro’s outlook for the 2024 financial year was “cautious and unusually specific,” RBC analyst Irene Nattel said in a note. Investors will likely be disappointed in the outlook for the coming year, she said, but noted the company’s strong track record.
“4Q FY23 results were largely in line. Excluding the impact of the GTA store strike ($0.12), adjusted EPS was $1.11, slightly ahead of our estimate of $1.09 and consensus of $1.07,” said Desjardins Securities analyst Chris Li in a note. “The results reflect strong food and prescription drug same-store sales growth. However, management is expecting adjusted EBITDA to increase by less than 2 per cent and adjusted EPS to be flat to down around 2 per cent in FY24 due to temporary duplication of costs and learning curve inefficiencies, as well as higher depreciation and lower capitalized interest from the ramp-up of new automated distribution centre facilities in Montréal and Toronto which management does not expect to fully absorb. While we believe the Street had anticipated some one-time costs, they are higher than expected. Consensus currently expects FY24 EPS to increase by 6 per cent. While the financial outlook is lower than expected, we expect long-term investors to look beyond the near-term investments and focus on the return to 8‒10-per-cent EPS growth in FY25 and beyond.”
Slate Office REIT (SOT-UN-T) fell almost 12 per cent with the release of weaker-than-anticipated third-quarter results and a suspension of its monthly distribution late Wednesday.
The Toronto-based REIT reported funds from operations per unit of 6 cents, below the Street’s projection of 8.7 cents and down from 12 cents during the same period a year ago as higher expenses weighed. Same-property net operating income slid 2.1 per cent due largely to lease termination income.
Slate also announced a “Portfolio Realignment Plan,” which includes an objective of divesting of certain non-core Canadian properties, encompassing approximately 40 per cent its total gross leasable area, to preserve financial flexibility.
“Management and the Board believe that the Portfolio Realignment Plan will ultimately reconstitute the REIT’s portfolio with assets that have higher cash flow, stronger occupancy, and a higher proportion of government and high-quality credit tenants,” it said.
In a research note, RBC analyst Tom Callaghan said: “Slate Office reported Q3 results that were well below Street consensus and RBC estimates, mainly on the back of continued interest cost headwinds. Along with results, the REIT also announced a number of initiatives aimed at strengthening the balance sheet, including planned dispositions. In addition, Slate Office suspended its monthly distribution ($0.12/unit annualized), which will preserve an incremental $10.2 million in cash annually (effective Nov-23).”
TJX Companies Inc. (TJX-N) on Wednesday forecast current-quarter profit below Wall Street expectations, signaling that spiraling costs were weighing on the off-price retailer’s margins even as it saw steady demand from bargain-hungry customers.
Shares of the company, which are up about 16 per cent this year, were down 3.3 per cent on the day.
TJX, like several other U.S. retailers, has been struggling with higher costs linked to supply chain and wages, even as it has seen freight-related expenses come down from its peak.
The company’s downbeat forecast is in contrast to industry peer Target which said on Wednesday that it sees fourth-quarter profit above analysts’ estimates, helped by easing supply-chain costs and a tighter control on inventory.
“TJX is dealing with higher labour costs,” said Insider Intelligence analyst Rachel Wolff, adding that its fourth-quarter outlook is softer than analysts had expected.
In the third quarter ended Oct. 28, TJX saw selling, general and administrative expenses go up by 18 per cent.
TJX now expects fourth-quarter adjusted earnings between 97 US cents and US$1 per share, down from its previous forecast of US$1 to US$1.03. Analysts estimate a profit of US$1.13, according to LSEG data.
However, the company raised its full-year sales and profit forecasts as it benefited from customers shifting to cheaper alternatives amid a higher cost-of-living crisis.
“Customer traffic was up across all divisions,” said CEO Ernie Herrman, adding that the fourth quarter was “off to a strong start.”
The company now expects fiscal 2024 comparable store sales between 4 per cent and 5 per cent, up from its earlier forecast of 3 per cent to 4 per cent.
It expects fiscal 2024 adjusted earnings between US$3.61 and US$3.64 per share, up from its previous outlook of US$3.56 to US$3.62 per share. Analysts expect a profit of US$3.73 per share.
The company posted a quarterly revenue of US$13.27-billion compared with analyst estimates of US$13.09-billion.
Shares of Manchester United PLC (MANU-N) dipped 2 per cent after Richard Arnold stepped down from his role as chief executive of the club on Wednesday.
Mr. Arnold’s departure comes at a time when American owners the Glazers are seeking new investment and British billionaire Jim Ratcliffe is attempting to buy a 25-per-cent stake in the 20-time English soccer champions.
“I would like to thank Richard for his outstanding service to Manchester United over the past 16 years, and wish him all the best for his future endeavors,” said the club’s co-owner and executive co-chairman Joel Glazer.
Patrick Stewart was named as interim CEO, in addition to his existing role as General Counsel.
Mr. Arnold, who became CEO in Feb. 2022, will offer “transitional support” until the end of December, United said.
The club added that it will search for a new permanent CEO.
“Together with my leadership team colleagues, my job will be to ensure that the club’s foundations remain stable while we embrace changes that can make us stronger over the long term, on and off the pitch, and to support the search for a new permanent CEO,” Mr. Stewart said.
The Glazers announced plans in November to seek new investment and instructed U.S. merchant bank Raine to oversee the process, which included the potential of a full sale.
Qatari banker Sheikh Jassim bin Hamad Al Thani withdrew his bid to buy the club in October, paving the way for Ratcliffe, who owns petrochemicals giant INEOS, to purchase a minority stake.
Mr. Ratcliffe also wants to run soccer operations for a club that has endured a period of decline since the retirement of former manager Alex Ferguson in 2013.
Mr. Arnold stepped up to CEO after the departure of former executive vice chairman Ed Woodward.
With files from staff and wires
David Leeder