A survey of North American equities heading in both directions
On the rise
Shares of Canada’s largest insurer Manulife Financial Corp. (MFC-T) jumped almost 9 per cent after it beat analysts’ estimate for quarterly core earnings, driven by strong performance at its Canadian and Asia units.
Manulife’s results mirror that of smaller peer Sun Life (SLF-T) , which also beat earnings estimates on strong sales.
Both companies have seen their Asia businesses boom as mainland Chinese visitors have flocked to Hong Kong after pandemic restrictions were lifted.
Annual premium equivalent, a sales metric better known as APE, rose 10 per cent at Manulife, driven by a 11-per-cent rise in Asia and a 44-per-cent jump in Canada, largely helped by group insurance sales.
The insurer, which operates across Asia, and in North America and Europe, is also reshaping its portfolio to focus on more profitable areas for growth, including signing a $10-billion reinsurance deal last year.
“Much of the strength in the quarter for Manulife came from the Asia segment,” Morningstar analyst Suryansh Sharma said.
“Some of the strong results in the profitability for the new business underwritten (within the Canadian segment) were due to the higher rate environment and product decisions made by management in recent years.”
Manulife has also been on the radar after it said last month that customers on its Specialty Drug Care program would be primarily delivered through Loblaw’s (L-T) Shoppers Drug Mart, leading it to roll back the policy to allow customers to fill those prescriptions at any pharmacy.
Total investment income at Manulife rose to $7.2-billion in the quarter from $1.8-billion in the year-earlier period.
It posted a core earnings of $1.77-billion, or 92 cents per share, in the three months ended Dec. 31, compared with $1.54-billion, or 77 cents per share, a year earlier.
Analysts had forecast earnings of 85 cents, according to LSEG data.
The company also announced a 9.6-per-cent dividend increase.
Cenovus Energy Inc. (CVE-T) was higher by 7 per cent despite falling short of analysts’ estimates for quarterly profit on Thursday, weighed down by lower commodity prices and refined product pricing in the U.S.
U.S. crude oil prices declined nearly 10.7 per cent in the quarter from a year earlier, when they were supported by disruptions caused by Russia’s invasion of Ukraine.
Rival Imperial Oil reported a drop in fourth-quarter profit due to lower prices, but surpassed expectations on higher production from its oil sands portfolio.
Cenovus returned $2.8-billion to shareholders 2023, lower than $3.4-billion a year earlier.
The company said it expected capital investments of $4.5-$5.0-billion in 2025 and beyond.
The oil and gas company reported a net income of 39 cents per share for the fourth quarter, compared with 40 cents per share expected by analysts, per LSEG data.
Cenovus said its quarterly upstream production rose to 808,600 barrels of oil equivalent per day (boepd) from 806,900 boepd a year.
The company reported a downstream throughput of 579,100 barrels per day (bpd), compared with 473,500 bpd a year earlier.
Operating costs per barrel in its oil sands segment fell 13 per cent in the fourth from the prior quarter.
The company saw total operating margins drop about 21.4 per cent from last year on a wider light-heavy differential, while margins in the U.S. were specifically hit by $430-million in non-cash write-down of refined product and crude oil inventory.
Revenue fell 7.1 per cent to $13.1-billion, but came above estimate of $12.8-billion.
Lightspeed Commerce Inc. (LSPD-T) has ousted chief executive officer Jean Paul Chauvet, replacing him with founder Dax Dasilva on an interim basis in a management shakeup following the collapse of its stock last week.
“I thank JP for his contributions, service and leadership at Lightspeed over the past 11 years,” Mr. Dasilva said in a release.
Lightspeed stock, which has dropped 30 per cent in the last year, increased 7.3 per cent on Thursday.
Mr. Dasilva, the Montreal company’s 47-year-old original CEO, had ceded the top job to his long time second-in-command two years ago to pursue other interests, including funding conservation projects, and completing his university degree. Mr. Chauvet was an experienced software executive who had joined the 19-year-old company after it raised outside venture capital and was regarded as the operator within Lightspeed, while Mr. Dasilva had more recently focused on specific areas of the company including improving product before his retirement. Mr. Dasilva had held onto most of his stock except for a divestiture to provide $40-million in funding for his conservation non-profit organization, Age of Union.
Lightspeed has also pushed out chief product and technology officer Ryan Tabone, replacing him with John Shaprio, senior vice president of retail technology. Director Patrick Pichette, former chief financial officer of Google and currently the company’s lead independent director, will replace Mr. Dasilva as interim chairman.
“On behalf of the board, we welcome back Dax Dasilva as Lightspeed’s interim CEO,” Mr. Pichette said in the release. “His exceptional track record as the founder of this company speaks volumes about his visionary leadership and dedication to success over the years. Under his guidance we have witnessed remarkable growth and innovation, propelling Lightspeed to the category leader it is today. I am confident that he will continue to steer Lightspeed towards new heights of success.”
- Sean Silcoff
Nouveau Monde Graphite Inc. (NOU-X) enjoyed big gains on news U.S. auto giant General Motors Co. and Japan’s Panasonic Holdings Corp. will buy electric vehicle battery materials from it and invest in the company, buoying the Quebec miner’s prospects in its bid to become a go-to critical mineral supplier for North America.
GM (GM-N) and Panasonic have signed separate commitments to purchase 18,000 metric tons of active anode material each per year over six to seven years, Nouveau Monde said in news releases Thursday. The offtake agreements represent about 85 per cent of the miner’s planned phase-2 production.
The industrial giants have also agreed to make equity investments in Nouveau Monde, starting with a US$25-million stake each. Two of the miner’s existing backers, namely Japanese trading house Mitsui & Co. and European private equity investor Pallinghurst Group, are injecting another combined US$37.5-million.
- Nicolas Van Praet
West Fraser Timber Co. Ltd. (WFG-T) gained 1.8 per cent after saying it lost US$153-million in its fourth quarter, a steeper loss than US$94-million a year earlier.
Sales for the quarter ended Dec. 31 were US$1.5-billion, down from US$1.6-billion.
Loss per diluted share was US$1.87, compared with US$1.13 a year earlier.
“While still weak, Q4 adjusted EBITDA of ($1.2) million was above our estimate of ($5.9) million and the consensus forecast of ($6.7) million. The reported figure included a $9.6 million q/q decrease to the inventory write-down provision — a positive item which was a larger-than-expected contributor. EPS of ($0.04) was also better than our estimate of ($0.05) — we matched consensus,” said TD Securities analyst Sean Steuart in a note.
“WEF’s results were relatively encouraging, and we are comfortable that the earnings have passed a cyclical floor, but, in our view, the company still lacks clear catalysts.”
West Fraser president and CEO Sean McLaren says the fourth quarter saw continued weakness in demand for the company’s North American lumber and European panel products, though demand was resilient for other products.
The company announced in January that it would permanently wind down and close its Fraser Lake, B.C., sawmill because it can’t access economically viable fibre in the region.
The news came after an announcement earlier in January that West Fraser was closing a sawmill in Maxville, Fla., and indefinitely curtailing operations at its Huttig, Ark., sawmill because of high fibre costs and soft lumber markets.
Shares of Shake Shack (SHAK-N) soared 26 per cent on Thursday after the restaurant chain topped quarterly earnings expectations, on the back of higher prices and strong demand for its gourmet burgers and fries.
The stock has gained about 33 per cent over the past 12 months.
The company also saw traffic growth through the fourth quarter, defying an industry-wide slowdown in visits that has hurt major fast-food players, including McDonald’s (MCD-N).
Shake Shack has been rolling out new initiatives, including self-service ordering kiosks, to speed up service and improve customer experience at its restaurants, while limited-time menu launches have also drawn a bigger crowd.
The company reported total revenue of US$286.2-million for the quarter ended Dec. 27, up 20 per cent from a year earlier and above Wall Street estimates of US$280.3-million, according to LSEG data.
Its adjusted earnings of 2 US cents per share was above estimates of 1 US cent.
On the decline
Canadian Tire Corp. Ltd. (CTC.A-T) fell 0.3 per cent after it reported its fourth-quarter profit and revenue fell compared with a year ago as it said it navigated a challenging economic environment.
The retailer says its normalized diluted earnings per share for the quarter came to $3.38 compared with $9.34 a year earlier. That was well below the Street’s expectation of $4.86.
Canadian Tire profit falls nearly 68% as consumers remain wary amid uncertain economy
Canadian Tire says it earned a profit attributable to shareholders of $172.5-million, or $3.09 per diluted share, for the 13-week period ended Dec. 30.
The result compared with a profit of $531.9-million, or $9.09 per diluted share, in the same quarter a year earlier.
Revenue totalled $4.44-billion, down from $5.34-billion in its fourth quarter of 2022.
The company says consolidated comparable sales were down 6.8 per cent as it saw a softening of consumer demand, compounded by weaker sales due to unseasonable weather across the country in December.
Calling it a “very tough” quarter, Desjardins Securities analyst Chris Li said: “While we had expected results to be challenged by softening consumer spending, the impact was more severe than expected (partly due to a very warm December impacting seasonal categories), resulting in a mid- to high-single-digit SSSG [same-store sales growth] decline and a sharp 15-per-cent decline in Retail revenue (vs our estimate of down 7 per cent). Partial offsets came from lower-than-expected SG&A expenses. Financial Services results were largely in line. 2024 capex is further lowered to $475‒525-million from $550‒600-million. We expect the shares to underperform today. Our current downside valuation is $125‒130.”
Great-West Lifeco Inc. (GWO-T) closed narrowly lower after saying its fourth-quarter net earnings were $740-million, up from $452-million during the same quarter last year.
Net earnings per common share were 79 cents, up from 48 cents for the quarter ended Dec. 31.
However, though net earnings from continuing operations were also up year over year, they were down for the company’s Canada segment, at $166-million, down from $352-million in 2022.
The company says that stronger base earnings in Canada were partially offset by individual insurance mortalities and favourable 2022 tax impacts that weren’t repeated in 2023.
Great-West also noted a leadership transition as of Friday, with Jon Nielsen becoming chief financial officer and Fabrice Morin becoming president and chief operating officer, Canada.
The company announced a seven-per-cent increase to its dividend, at 55.5 cents per share.
In a research note released before the bell, Scotia analyst Meny Grauman called the release “positive,” saying: “GWO delivered a solid Q4 beat, although favorable insurance experience certainly helped the result. That said, we expect a good market response to these numbers after the stock materially underperformed heading into reporting. We were encouraged to see new disclosure from the company this quarter, including a schedule showing the evolution of lifeco cash at the holding company, and a breakdown of market-related experience. The lifeco noted that based on a preliminary assessment of the global minimum tax it expects its effective income tax rate on base earnings to rise by 2-4 per cent. Of the companies we cover this is the most material impact we have seen so far, which does not surprise us. During the quarter the company took a number of actions to enhance capital returns in its European unit including closing its UK onshore wealth unit to new business, and reinsuring a block of annuity business in the UK on what it described as ‘attractive terms.’ GWO noted that when combined with other activities taken during 2023 that these actions will enhance segment earnings over the medium-term, although the expected impact is not quantified.”
Shares of Mullen Group Ltd. (MTL-T) dropped 4.9 per cent after suffering through a decline in earnings from weaker demand in the final quarter of 2023.
The Alberta-based transportation company reported adjusted earnings of 34 cents per share, exceeding the Street’s expectation by 2 cents but down 41.4 per cent (from 58 cents) during the same period a year ago.
“We enter 2024 with a greater sense of optimism than at this time last year for a couple of reasons,” chairman and president Murray Mullen said. “The first is that the North American economy continues to show a resiliency that supports a strong job market, one of the most important factors influencing end consumer demand. Furthermore, if inflationary pressures continue to moderate and interest rates start declining, consumers will have more disposable income, a precursor to increased freight demand. We also believe the inventory rebalancing cycle is basically over, implying that shippers will need to replenish, or at the very least rebuild, inventory levels if they want to capture the ever demanding needs and wants of consumers. And, even though the current over capacity issue in the logistics and trucking industry is limiting growth and profitability, this will change. Many competitors are struggling with high debt levels and shrinking profitability, an unsustainable situation in our view. This leads to the other reason we are optimistic, acquisitions. We believe there will be consolidation opportunities and business failures in 2024, events that will not only drive revenue growth but also lead to tomorrow’s pricing discipline. We will look to add strong brands to our network and will continue to pursue tuck-in acquisitions that drive scale and enhance operating margins”
Montreal-based MTY Food Group Inc. (MTY-T) slid 13.9 per cent after it reported its fourth-quarter profit more than doubled compared with a year ago but fell short of the Street’s expectations.
The restaurant franchisor and operator announced earnings per share of 67 cents, up from 29 cents in fiscal 2022 but below the consensus forecast of 94 cents.
Revenue totalled $280.0-million, up from $242.0-million a year earlier but also missing analysts’ projection ($287.1-million) as same-store sales fell 0.9 per cent with consumers cutting discretionary spending.
It said the comparable store decline came mainly from its pricier brands, while its quick service restaurant business remained solid in Canada and the U-S.
MTY franchises and operates quick-service, fast casual and casual dining restaurants under more than 90 different banners.
Canada’s Aurinia Pharmaceuticals Inc. (AUPH-Q), the kidney therapies developer that was pushed by activist hedge fund MKT Capital to sell itself, dropped after it failed to attract binding offers and will embark on share buybacks and cost cuts instead.
Aurinia announce it will conclude the strategic review it launched at the end of June without a deal, after receiving only one non-binding expression of interest from more than 60 parties it contacted, the sources said. That expression of interest did not result in a formal offer, the sources added.
The outcome reflects the challenges Aurinia faces in scaling up its flagship drug Lupkynis. Held back by the drug’s development cost and slow ramp, the company has yet to turn a profit.
Its shares have dropped 80 per cent from the peak of takeover speculation in October 2021, and the company now has a market value of US$1.1-billion.
Aurinia plans to roll out a US$150-million share buyback program and will stop its research on immunotherapies to focus on Lupkynis, which hit the market in 2021, according to the sources. The move will save it as much as US$55-million annually, the sources said.
Lupkynis is used to treat lupus nephritis. The kidney inflammatory disease is estimated to affect almost 135,000 people in the U.S., mainly of Black, Asian and Hispanic ethnicity, according to Aurinia.
Aurinia generated US$130.4-million in revenue in the first nine months of 2023, up 24 per cent from the first nine months of 2022.
The company operates out of Edmonton and Rockville, Maryland. Its CEO Peter Greenleaf has led the company since 2019 after his two predecessors, Charles Rowland and Richard Glickman, lasted only about one year and two years on the job, respectively.
Mr. Glickman, who founded the company, was in charge the first time Aurinia formally explored a sale without success in 2018, the sources said.
Deere & Co. (DE-N) cut its 2024 profit forecast as farmers remained hesitant about big-ticket equipment purchases due to high borrowing rates and falling crop prices, even as its first-quarter sales and profits topped Wall Street estimates.
Shares of the world’s largest farm equipment maker were down in Thursday trading.
With farmers reassessing expenses, particularly for compact tractors, Deere said it now expects net income for fiscal 2024 in the range of US$7.50-billion to US$7.75-billion. This is below its prior forecast of US$7.75-billion to US$8.25-billion.
Net farm income in the U.S. is set to fall 27 per cent this year to US$116-billion, from its inflation-adjusted total in 2023, according to data from the U.S. Department of Agriculture.
Deere, a barometer of the global economy, has maintained resilient operating profit margins despite depressed crop prices. Demand for new equipment and parts to repair aging machinery bolstered sales in previous quarters, but executives have expressed caution about margin performance amid a weakening farm economy, and said it intends to cut equipment production in 2024.
The company’s precision agriculture division’s retail sales had outpaced other segments in previous quarters but are beginning to slow, declining 7 per cent year-over-year in the fiscal first quarter.
Over the past two years, Deere raised prices across its equipment lines to counter higher material and logistics costs.
Net income fell to US$1.75-billion, or US$6.23 per share, for the quarter through Jan 28, beating analysts estimates of US$5.21 per share, according to LSEG data.
Cisco Systems (CSCO-Q) fell on Thursday after the networking equipment maker reduced its annual revenue forecast and rolled out job cuts as it battles sluggish demand from telcos and cable service providers.
CEO Charles Robbins blamed weak macro environment and said the company was “seeing a greater degree of caution and scrutiny of deals”.
“Things have gone from bad to worse, with Cisco drastically cutting FY24 expectations a 4th time as management overestimated that demand would return in F2H24, when the reality is we are in a networking downcycle ex-AI investments,” said James Fish, analyst at Piper Sandler.
Cisco, which said it would cut more than 4,000 jobs, lowered its annual revenue forecast to US$51.5-billion to US$52.5-billion from its prior projection of US$53.8-billion to US$55-billion.
The company was on track to lose over US$6-billion in market value based on its share price of US$48.75, if losses hold.
Cisco has sought to counter the tepid demand for its networking gear by shifting to AI and cybersecurity. On Thursday, Robbins said AI chip leader Nvidia (NVDA-Q) had agreed to use Cisco’s ethernet with its own technology that is widely used in data centers and AI applications.
“(Cisco) pointed to nearly $3 billion in product ‘pipeline’ associated with projects that incorporate AI, up versus $1 billion a quarter ago,” Jefferies analyst George Notter said in a note.
“The traction is a positive for Cisco. Nonetheless, it’s still relatively small in the grand scheme of things for the company.”
Meanwhile, Cisco said it expects its US$28-billion acquisition of cybersecurity firm Splunk to close in the first quarter or early in the second quarter, compared to the previously estimated third quarter.
Cisco trades at 13.10 times its 12-month forward earnings estimates, versus rivals Juniper Networks’ (JNPR-N) 16.36 and Arista Networks’ (ANET-N) 34.78. A lower PE multiple indicates a more attractive investment opportunity.
Alphabet (GOOGL-Q) dipped after investment firm Third Point dissolved its stake in the megacap, while Apple (AAPL-Q) slipped after Warren Buffett’s Berkshire Hathaway (BRK.B-N) trimmed its large stake in the iPhone-maker and Soros Fund Management dissolved its stake in the company.
Third Point, a New York-based hedge fund, sold 2.02 million shares of in the parent company of Google and also cut it stake in Uber Technologies Inc. (UBER-N) by 76.2 per cent to 1.0 million shares.
This disclosure comes hours after Uber announced its first share buyback plan worth US$7-billion, causing the ride-share platform’s shares to hit a record high.
In a regulatory filing describing its U.S.-listed stock holdings at the end of 2023, Berkshire said it sold 10 million Apple shares in the fourth quarter, but still owned more than 905 million shares worth about US$174-billion.
Though Mr. Buffett has been driving Berkshire’s investment in Apple, the stock sales in the iPhone maker could have been made by one of his portfolio managers Todd Combs and Ted Weschler, who oversee some Berkshire investments.
Berkshire reported no holdings in homebuilder DR Horton , insurer Globe Life, insurance and investment company Markel and Brazilian credit card processor StoneCo, after holding more than $1 billion of those stocks at the end of September.
With files from staff and wires
David Leeder