A survey of North American equities heading in both directions
On the rise
Tesla Inc. (TSLA-Q) shares jumped 1.8 per cent after it said it will lay off 2,688 employees at its Texas facility ahead of its quarterly results on Tuesday when CEO Elon Musk is expected to outline the electric-vehicle maker’s strategy to combat slowing demand and falling margins.
Last week, Tesla announced a more than 10-per-cent cut in its global workforce under pressure from dropping sales and an intensifying price war among EV makers, without revealing the number of employees the job cuts would impact.
Some numbers were disclosed in a notice to the state of Texas on Monday under a U.S. labour law that requires companies with 100 or more employees to notify 60 days ahead of planned closings or mass layoffs.
Shares of the Austin, Texas-based automaker were up ahead of the company’s first-quarter results that are due after markets on Tuesday, and set to break a seven-session losing streak that had dragged the stock down 19 per cent.
Tesla said in the notice the layoffs, which represent 12 per cent of Tesla’s total workforce of 22,777 in the greater Austin area, will start on June 14.
The global job cuts would include 285 employees at its Buffalo, New York premises that houses the labeling team for its Autopilot driver assistance software that makes fast-charging equipment.
Tesla’s headcount stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with U.S. regulators.
Reuters in an exclusive report on April 5 said Tesla had canceled a long-promised inexpensive car, expected to cost around $25,000, that investors have been counting on to drive mass-market growth.
Tesla has been slow to refresh its aging models as high interest rates have sapped consumer appetite for big-ticket items, while rivals in China, the world’s largest auto market, are rolling out cheaper models.
Customers are also increasingly choosing to buy less-expensive gasoline-hybrid vehicles as they offer a higher driving range.
General Motors (GM-N) on Tuesday posted quarterly results that topped Wall Street targets and raised its annual forecast, citing stable pricing and demand for its gas-engine vehicles, sending shares up 4.3 per cent.
The Michigan automaker upped its adjusted pretax profit projection to US$12.5-billion to US$14.5-billion, from its previous stated range of US$12-billion to US$14-billion for the year.
“Our consumer has been remarkably resilient in this period of higher interest rates,” GM Chief Financial Officer Paul Jacobson said.
Despite the company’s struggles in China and with electric vehicles, strong vehicle pricing with gasoline-powered trucks pleased investors.
“There ... is the reality that the pricing is staying stronger for longer than anybody anticipated,” said Tim Piechowski, portfolio manager at ACR Alpine Capital Research in St. Louis, which owns GM shares.
“The engine of the company is truck and SUV at this point,” he added. “They’re just generating substantial profit and free cash flow that will continue to fund the initiatives in EV. Full steam ahead.”
The automaker reported that net income in the first quarter rose 24.4 per cent over the year-ago period to US$3-billion, on a 7.6-per-cent rise in revenue to $43 billion.
Adjusted earnings per share of US$2.62 beat the average Wall Street target of US$2.15, according to LSEG data. Revenue topped the Wall Street target of US$41.9-billion in the March quarter.
While the company started 2024 strong, CEO Mary Barra still has two large challenges ahead: turning around GM’s shrinking sales in China, and salvaging Cruise, its robotaxi unit.
Cruise halted operations late last year after one of its self-driving cars dragged a woman down a San Francisco street. Company officials shared earlier this year that GM would cut spending on this unit by US$1-billion. The robotaxi business lost US$2.7-billion last year, not including US$500-million in restructuring costs incurred in the fourth quarter as the unit cut staff. GM spent US$400-million on Cruise in the first quarter.
Spotify (SPOT-N) quarterly gross profit topped 1 billion euros (US$1.1-billion) for the first time after it reined in marketing spending, although that meant the music streaming giant missed its forecast for monthly active users.
The Swedish company has been growing its user base for years by offering promotions and investing in podcasts and audiobooks. But since last year it started to cut costs, including through layoffs and its marketing budget, to boost margins and profits.
Spotify shares, which initially fell on the quarter results, soared 11.4 per cent on Tuesday.
“We are going to add back some marketing spend over the year,” CEO Daniel Ek said in an interview. “Because we want to keep on having the growth and we saw that in some territories, we may have pulled back a little bit too much.”
Gross margins rose to 27.6 percent in the quarter from 25.2 per cent a year earlier, helped partly by profits in its podcast business.
Spotify invested over a billion euros to build up its podcast business, including spending hundreds of millions for popular shows such as the “The Joe Rogan Experience.”
“It (podcasting) was a drag last year. Now it is another profit center for us,” Mr. Ek said.
The company’s quarterly revenue rose 20 per cent to 3.64 billion euros, beating estimates of 3.61 billion euros.
Spotify has raised prices to boost revenue and experimented with different subscription plans.
General Electric Co. (GE-N), doing business as GE Aerospace, raised its full-year profit forecast, citing a “solid start to the year” on strong demand for jet engine parts and services as airlines keep their older planes in the air to tide over a shortage of new commercial aircraft.
The company now expects 2024 operating profit of US$6.2-billion to US$6.6-billion, compared with its earlier forecast of US$6-billion to US$6.5-billion. Adjusted earnings for the year are estimated at US$3.80-US$4.05 per share, compared with US$2.95 per share in 2023.
Shares of the aerospace giant were up 8.3 per cent on Tuesday.
Earlier this month, GE completed its breakup into three companies focused on aviation, energy and healthcare.
Wall Street analysts have been bullish on the prospects of the aerospace business, with some calling it the “most appealing” of mega-cap U.S. aerospace companies.
Analysts say planemaker Boeing’s (BA-N) production challenges are also expected to be a near-term benefit for GE Aerospace as it increases demand for older engines and allows the company to supply more of its LEAP engines in the aftermarket.
The company has a dominant share in the engine market for narrowbody jets and enjoys a strong position in widebodies. More than 70 per cent of its commercial engine revenue comes from parts and services.
The business has been benefiting from a surge in demand for after-market services as a strong rebound in travel and a shortage of aircraft due to production and engine issues has forced carriers to keep older jets in the air for longer.
“We have yet to see a pick up in older GE powered aircraft being retired, as the supply/demand imbalance in new aircraft deliveries is being exacerbated by the 737 ramp halt and the GTF (geared turbofan) engine recall,” Vertical Research Partners analyst Robert Stallard wrote in a note earlier this month.
On Tuesday, GE Aerospace said GE’s first-quarter adjusted profit, which included results for both aerospace and energy businesses, rose 76 per cent to US$1.5-billion, or 82 US cents per share. The energy business GE Vernova (GEV-N) completed its spin-off on April 2.
Danaher (DHR-N) beat quarterly profit and sales expectations on Tuesday, driven by strength in its diagnostics and bioprocessing businesses, sending shares of the life sciences firm up.
However, the company forecast a low single-digit percentage decline in its 2024 adjusted core revenue, as it expects the impact of reduced demand to continue into the second quarter of 2024.
Danaher and rival Thermo Fisher (TMO-N) forecast annual sales below expectations in January on slowing growth in China paired with a funding crunch in biotech.
Rising interest rates have squeezed funding needed for drug development programs, weighing on demand for contract research services offered by these companies.
The company’s biotechnology segment, which provides equipment for the development and delivery of biological medicines, posted sales of US$1.52-billion, compared to a forecast of US$1.47-billion.
CEO Rainer Blair said, “We were especially pleased to see improving order trends in our bioprocessing business and believe we continued to gain market share in our molecular diagnostics business...”
Danaher reported sales of US$5.80-billion for the quarter ended March 29, beating analysts’ forecast of US$5.62-billion, according to LSEG data.
On an adjusted basis, the company reported a profit of US$1.92 per share for the first quarter, beating analysts’ average estimate of US$1.71 per share.
United Parcel Service Inc. (UPS-N) closed 2.4 per cent higher after it reported better-than-expected quarterly profit on Tuesday as cost cuts offset still-soft demand for package delivery.
The world’s biggest parcel delivery firm also is grappling with higher labor costs tied to its new Teamsters contract. In January said it would cut 12,000 non-union jobs as part of a bid to slash US$1-billion in costs this year.
First-quarter adjusted profit slumped to US$1.43 per share, down 35 per cent from last year but above analysts’ estimates for US$1.29, according to LSEG data.
Revenue was US$21.7-billion, missing analysts’ target of US$21.9-billion.
UPS reported a 3.2-per-cent decline in average daily volumes in its key U.S. business and a 5.8-per-cent drop in its international segment, but said volumes “showed improvement through the quarter.”
Revenue in both businesses “fell short of expectations,” Jonathan Chappell, equity analyst at Evercore ISI, wrote in a client note.
To offset lower volumes, UPS is focusing on higher-margin deliveries for small businesses and healthcare companies. In particular, it plans to double its healthcare-related revenue to US$20-billion by 2026.
It reported an adjusted operating margin of 8 per cent for the quarter, down from about 11.1 per cent last year. The company earlier said this quarter’s margin would be its lowest in 2024, with business conditions improving in the second half.
On the decline
PrairieSky Royalty Ltd. (PSK-T) was lower by 1.5 per cent despite the release of stronger-than-anticipated first-quarter production results after the bell on Monday.
The Calgary-based company announced average royalty production volumes of 26,027 barrels of oil equivalent per day, including record oil royalty production of 13,142 barrels per day, an 8-per-cent increase over Q1 2023 and a 2-per-cent increase over Q4 2023. That exceeded the Street’s expectation of 25,700 boe/d due largely from better-than-expected natural gas volumes.
Cash flow per share of 35 cents came in a penny below the consensus projection.
“Although the production beat did not result in significantly stronger-than-expected CF, this should not detract from what was a historically strong quarter, with oil volumes reaching a record high (absolute and on a per share basis),” said TD analyst Aaron Bilkoski.
Further reaction from the Street: Tuesday’s analyst upgrades and downgrades
PepsiCo. (PEP-Q) traded down 2.9 per cent even after beating Wall Street expectations for first-quarter revenue and profit on Tuesday as demand for its sodas and snacks like Cheetos and Doritos in international markets drove growth even as it witnessed a slowdown in the United States.
Consumers across Europe, Asia Pacific and China shelled out money for PepsiCo’s pricey sodas and chips, while customers in the U.S. cut back on the products due to strained budgets.
“We’ve had three years of ... massive consumer inflation and that has to be absorbed and I think the cumulative impact of that put a bit of strain on the consumer. But we expect that to abate as time goes on,” PepsiCo CFO Jamie Caulfield said.
PepsiCo’s average prices jumped 5 per cent in the first quarter. Its organic volume slipped 2 per cent, compared to a 4-per-cent drop seen in the fourth quarter.
The company’s international business accounted for about 40 per cent of its total fiscal 2023 revenue, while its North America businesses accounted for the remaining.
The company also maintained its fiscal 2024 forecasts of organic sales growth of 4 per cent and core profit of US$8.15 per share.
First-quarter sales at PepsiCo’s largest business, its North America beverage unit, rose 1 per cent, while organic volume fell 5 per cebt.
PepsiCo executives said they expect the company’s North America businesses to gradually improve as impacts associated with product recalls moderate.
The company’s first-quarter net revenue rose 2.3 per cent to US$18.25-billion, beating LSEG estimates of US$18.07-billion. PepsiCo’s core profit of US$1.61 per share topped expectations of US$1.52.
“This is going to be another year of price-led revenue growth even though pricing has come down,” Wedbush analyst Gerald Pascarelli said
JetBlue (JBLU-Q) trimmed its annual revenue forecast on Tuesday after reporting lukewarm first-quarter revenue due to bloated capacity in Latin America, sending its shares down.
Struggling to return to profitability, JetBlue last month outlined plans to cut some of its routes and markets that were unprofitable, including Bogota in Colombia and Lima in Peru, and reallocate resources to better-performing regions.
The carrier said on Tuesday there was healthy demand in peak periods during the quarter and noted its premium seating options performed well, but said oversupply in the Latin American market would eat into its business this year.
The Caribbean and Latin American regions represented more than 33 per cent of JetBlue’s overall capacity in 2023, a regulatory filing showed.
JetBlue now expects fiscal 2024 revenue to decline in the low-single-digit percentage range, compared with its prior forecast for revenue to be roughly flat. Analysts had expected full-year revenue to dip very marginally to US$9.61-billion, according to LSEG data.
The company forecast second-quarter revenue to fall between 6.5 per cent and 10.5 per cent, compared to estimates of a near 4-per-cent drop.
“The Q2 and full-year revenue guide looked a little worse than expected ... not nearly as strong as recently reported results from some of the carrier’s full-service peers,” Citi Research analyst Stephen Trent said.
JetBlue’s efforts to cut costs showed signs of bearing fruit, as its adjusted per-share loss of 43 US cents in the quarter ended March 31 came in smaller than estimates of a 52-US-cent loss. Its total operating revenue fell 5.1 per cent to US$2.21-billion, in line with estimates. .
U.S. weapons maker Lockheed Martin Corp. (LMT-N) beat Wall Street expectations for first-quarter sales and profit, as simmering geopolitical tensions prompted some countries to boost their defense spending, driving demand for new weapons.
Shares of the company, which is considered a bellwether for the arms sector, gave back early gains in Tuesday trading.
Sales in Lockheed’s missiles and fire control unit jumped 25.3 per cent to nearly US$3-billion, boosted by strong demand for high mobility artillery rocket system (HIMARS) and guided multiple launch rocket system (GMLRS), key weapons used by Ukraine in its conflict with Russia.
Sales in the company’s aeronautics business, its biggest unit and which makes the F-35 fighter jets, rose 9.2 per cent to US$6.85-billion.
“These first-quarter results reinforce our confidence in our ability to achieve the full-year financial expectations we set in January,” CEO Jim Taiclet said in a statement.
It had forecast full-year net sales of US$68.5-billion to US$70-billion and a profit of US$25.65 and US$26.35 per share.
It started the year with a quarterly profit of US$6.39 per share, which was well above analysts’ expectations of US$5.83 per share, according to LSEG data.
Lockheed’s first-quarter net sales rose 14 per cent to US$17.2-billion, also beating analysts’ expectations of $16.02 billion.
Last week, the U.S. Missile Defense Agency said Lockheed won a US$17-billion contract to develop the next generation of interceptors to defend the United States against an intercontinental ballistic missile attack.
Copper miner Freeport-McMoRan Inc. (FCX-N) saw declines after it beat Wall Street estimates for first-quarter profit on Tuesday, helped by higher production and easing costs.
The mining giant said its quarterly production of copper rose to 1.1 billion pounds from 965 million pounds a year earlier, helped by a 49-per-cent jump in output from its Indonesia operations.
Freeport-McMoRan said it was working with the Indonesian government, which has put a ban on raw material exports, to obtain approvals to continue shipping copper concentrates and anode slimes. Its current license is set to expire in May.
In the reported quarter, the company also benefited from strong prices of gold, which it produces as a byproduct from its key Grasberg mine in Indonesia.
Its total gold sales volume more than doubled to 568,000 ounces in the reported quarter.
The company’s average cash costs per pound of copper in the first quarter were US$1.51, lower than last year’s US$1.76, helped by strong production and are expected to average at US$1.57 for 2024, the company said.
On an adjusted basis, the Phoenix, Arizona-based company earned 32 US cents per share for the three months ended March 31, compared with the average analyst estimate of 26 US cents per share, according to LSEG data.
Nucor Corp. (NUE-N) missed Wall Street estimates for first-quarter earnings on Monday, hit by lower average selling prices and decreased volumes in its steel products segment.
The company has been grappling with easing demand for its products, such as girders, decks, fasteners, wires, fabricated concrete reinforcing steel, from the warehousing sector, which is pulling back from the COVID-19 pandemic highs.
Nucor’s shares fell in Tuesday trading as quarterly revenue also fell short of estimates.
On an adjusted basis, the company reported a profit of US$3.46 per share, missing the average analyst estimate of US$3.66, according to LSEG data.
Last month, Nucor forecast first-quarter adjusted earnings to range US$3.55 to US$3.65 per share.
Downstream steel product shipments to outside customers fell 15 per cent from a year earlier. Earnings before income taxes (EBIT) for the segment plunged 47 per cent to US$511.6-million for the three months ended March 30.
However, steel mills segment EBIT rose to US$1.10-billion from US$838.4-million a year earlier, lifted by higher volumes, particularly at its sheet mills.
“Nucor’s performance continues to be strong even as steel market conditions have come off their post-pandemic record highs,” CEO Leon Topalian said in a statement.
The Charlotte, North Carolina’s revenue of US$8.14-billion also missed estimates US$8.26-billion.
Nucor expects a sequential decline in second-quarter earnings in the mills and products segment, owing to lower average selling prices. It projected a rise in its raw materials segment.
With files from staff and wires
David Leeder