A survey of North American equities heading in both directions
On the rise
Bombardier (BBD.B-T) jumped 8.3 per cent after it reported a higher-than-expected cash burn in the first quarter on Thursday as the Canadian planemaker builds up inventory to support increased production of business jets amid resilient demand for private flying.
Cash burn for the quarter through March rose 57 per cent to $387-million, above analysts’ estimates of $361-million, according to LSEG data.
“While we continue to require more working capital investment in the near term, we will be well placed in the second half of the year and well beyond,” CEO Eric Martel told analysts.
Bombardier granted exemption from Canadian sanctions on Russian titanium
Montreal-based Bombardier is ramping up production this year of its super mid-sized Challenger jets which seat about 10, and will grow manufacturing of its large-cabin Global aircraft in 2024, Mr. Martel said.
Bombardier is facing a challenge from rival General Dynamics’ Gulfstream, which is starting deliveries of its flagship G700 luxury jet that was certified last month.
Business jet makers are reporting sustained demand for their aircraft, although industry data shows private flying has been leveling off after years of growth spurred by the pandemic.
Bombardier on Thursday reported 20 aircraft deliveries in the first quarter, down from 22 a year earlier. Bombardier said it is still on track to handover 150 to 155 jets this year.
Revenue declined 12 per cent in the quarter due to a delivery mix favoring Challengers which are priced below the Globals. But margins improved and orders for Bombardier’s jets rose 60 per cent in the first quarter, pushing the company’s backlog to $14.9-billion.
Revenue from the company’s services business rose 13 per cent to $477-million.
Total revenue for the first quarter was $1.3-billion, below estimates of $1.5-billion.
Quarterly profit fell to $110-million from $302-million. On a per share basis, adjusted profit was 36 cents per share, above estimates of 28 cents per share.
In a research note, Desjardins Securities analyst Benoit Poirier said: “We expect a positive trading reaction this morning given the stronger-than-expected bookings in the quarter, despite the slight miss on financials due to lower deliveries and a change in mix to Challengers (we calculate that the book-to-bill ratio would still have been 1.4 times if BBD had delivered the consensus number of jets in the quarter). For FCF, we believe the Street was expecting far worse than where consensus was sitting, so the slight miss will likely not be seen as a concern by investors, in our view. For EBITDA, the margin outperformed despite the slight miss due to lower deliveries—this should be the focus.”
Shares of Canadian miner Teck Resources (TECK.B-T) were higher by 8.7 per cent despite missing first-quarter profit estimates on Thursday, pulled down partly by lacklustre steelmaking coal sales volumes and lower zinc prices.
Teck, one of the leading producers of steelmaking coal, last year announced the sale of the business to Swiss miner Glencore Plc, and said it was shifting its strategy towards building its copper business.
The miner reported a 74-per-cent rise in copper production at 99,000 tons in the first quarter, helped by ramp-up in output at its Quebrada Blanca (QB) mine in Chile.
“We had strong first quarter performance...with steadily increasing quarterly copper production as QB ramp-up advances,” CEO Jonathan Price said in a statement.
The company reiterated full-year copper production of between 465,000 tons and 540,000 tons, above 296,500 tons produced in 2023.
All outstanding major construction at QB operations was completed and the molybdenum plant will be ramped up in the second quarter, it added.
“The investment case for Teck is very much dependent on the company hitting the revised ramp-up timeline and capex guidance at QB2..the completion of construction and reiterated guidance is encouraging,” as per Jefferies analysts.
Steelmaking coal production in the first quarter came in at 6 million tons, the same levels seen in the year-ago period, impacted by extreme freezing temperatures in mid-January that resulted in frozen plant components and unplanned downtime.
Teck’s first-quarter steelmaking coal sales were 5.9 million tons, compared with 6.2 million tons last year.
The Vancouver-based company reported an adjusted profit of 75 cents per share, for the quarter ended March 31, compared with analysts’ average estimate of 85 cents per share, according to LSEG data.
Newmont Corp. (NGT-T) jumped 12.1 per cent after it beat Wall Street estimates for first-quarter profit on Thursday, as the world’s largest gold miner benefited from strong production.
On an adjusted basis, the company posted a net income of 55 US cents per share for the quarter ended March 31, compared with the average analyst estimate of 36 US cents per share, according to LSEG data.
The Denver, Colorado-based Newmont’s quarterly attributable gold production rose to 1.7 million ounces from 1.27 million ounces a year earlier, boosted through sites acquired following its acquisition of Australia’s Newcrest A$26.2 billion (US$17.09-billion) in November.
Newmont also saw higher average gold price at US$2,090 per ounce in the January-March quarter from $1,906 a year earlier, as prices of the precious metal have increased by about 8.2%.
All-in-sustaining cost for gold, an industry metric that reflects total expenses associated with production, rose to US$1,439 per ounce of gold from US$1,376 a year earlier.
Aecon Group Inc. (ARE-T) was up 2.4 per cent in the wake of reporting a loss of $6.1-million in its first quarter, compared with a loss of $9.4-million a year earlier.
The Toronto-based company says revenue for the quarter ended March 31 totalled $846.6-million, down from $1.1 billion during the same quarter last year.
Diluted loss per share was 10 cents, compared with 15 cents a year ago.
President and CEO Jean-Louis Servranckx says the company is focused on achieving improved profitability and margin predictability.
He says the company has a backlog of $6.3-billion and a strong bid pipeline.
Aecon says it’s still dealing with negative impacts stemming from four large fixed-price legacy projects that are affecting its results.
In a research note, Desjardins Securities analyst Benoit Poirier said: ”ARE reported stronger-than-expected 1Q24 results. While revenue of $847-million came in significantly below consensus of $997-million and our forecast of $998-million, adjusted EBITDA (including IFRS 16; investors’ main focus) of $33-million (3.9-per-cent margin) was above consensus of $23-million and our estimate of $21-million. Fully diluted EPS of a loss of 10 cents was also better than consensus of a 20-cent loss and our forecast of an 18-cent loss. We are not overly concerned with the revenue miss as both we and the Street were likely on the high side, underestimating the year-over-year drop in divestitures/project completions/seasonality.”
“From a trading standpoint, we expect a positive reaction considering the EBITDA and EPS beats, lack of charges and sequential reduction in the problematic backlog. Having said that, we do not believe this quarter should be viewed as an inflection point for problematic project writedowns, especially with the potential unknowns surrounding the CGL legal arbitration (scheduled to commence in 3Q.”
Precision Drilling Corp. (PD-T) closed 1.2 per cent higher after it reported a first-quarter profit of $36.5-million, down from $95.8 -n a year ago, as its revenue also edged lower.
The company says the profit amounted to $2.53 per diluted share for the quarter ended March 31, down from $5.57 per diluted share in the same quarter last year.
Revenue totalled $527.8-million, down from $558.6-million in the first quarter of 2023.
The drop came as it averaged 38 active drilling rigs in the U.S. for the quarter compared with 60 for the first quarter of 2023.
Meanwhile, Precision averaged 73 active drilling rigs in Canada for the quarter, compared with 69 a year earlier. The company’s international operations averaged eight active drilling rigs for the quarter compared with five in the first quarter of 2023.
Service rig operating hours for the quarter rose nearly 28 per cent compared with a year earlier.
Ford Motor Co. (F-N) posted first-quarter earnings late Wednesday that beat Wall Street’s expectations, bolstered by a strong performance in its commercial vehicle division and an increase in its hybrid vehicle sales.
The company said it expects to achieve the higher end of its projected annual guidance of US$10-billion to US$12-billion in earnings before interest and taxes. Ford shares were higher on the news.
Still, Ford is grappling with what CEO Jim Farley called “a huge drag not just on Ford, but on our whole industry”: electric vehicle production.
The carmaker recorded a US$1.3-billion operating loss for its EV and software division in the first quarter. More broadly, executives expect this section of the company to sustain a pre-tax loss of between US$5-billion to US$5.5-billion for the year.
In the near term, hybrids are a top priority for Ford to ease customers into a battery-powered future, and the auto company aims to increase hybrid sales by 40 per cent this year and quadruple them in the coming years.
Mr. Farley said he has walked back some of the Ford’s EV ambitions to better match consumer demand. This month, Ford delayed the planned launches of three-row EVs in Canada and its next-generation electric pickup truck built in Tennessee. Executives have said they will not launch the next generation of Ford’s EVs until they can be profitable.
The EV business has proven tough not just for legacy automakers like Ford, but also for pure EV players like Tesla.
Ford expects EV production costs to come down, but to be largely offset by intense pricing pressure from industry competitors, said Chief Financial Officer John Lawler.
“The last 12 to 18 months, it’s just been a continuous march down on the top line, which is offsetting any of the savings we’ve had from a cost standpoint,” he said of the EV business.
Ford is also shifting focus to producing larger electric trucks and SUVs, as well as affordable and smaller EVs that are being developed by a “skunkworks” team in California.
The company posted a rare 13-per-cent drop in quarterly revenue for its gas-engine business, which the company blamed on the launch of the new F-150 pickup truck.
The automaker will likely have slower, more deliberate launches in the future in its effort to root out costly quality issues, executives said.
Ford posted quarterly adjusted earnings of 49 US cents per share for the quarter ended March 31, compared with 63 US cents per share a year earlier.
Analysts, on average, expected Ford to report an adjusted profit of 40 US cents per share, according to LSEG data.
Some analysts sounded a note of caution on the broader economic environment in which Ford and other automakers are operating.
“With auto inventories now at much higher levels and a higher-for-longer interest rate scenario unfolding, we expect new vehicle prices to remain under pressure and incentives to continue increasing,” CFRA Research analyst Garrett Nelson said in a research note.
American Airlines (AAL-Q) forecast current-quarter profit largely above analysts’ expectations on Thursday amid a rebound in business travel and expectations of strong demand in the upcoming summer season.
Shares of the carrier finished higher by 1.5 per cent.
Major U.S. airlines are experiencing a resurgence in corporate reservations as large companies ramp up their work-related travel expenses - a customer segment that was largely absent from the travel surge following the pandemic.
The International Air Transport Association expects 4.7 billion people to travel in 2024, compared with 4.5 billion in 2019. In the United States, passenger traffic is estimated to reach an all-time high this year, according to trade group Airlines for America.
The company expects adjusted profit to be between US$1.15 per share and US$1.45 per share for the quarter ending June 30. Analysts had estimated earnings of US$1.18 per share, according to LSEG data.
Airline executives have also highlighted robust travel demand across both domestic and international routes in the summer.
However, Fort Worth, Texas-based American Airlines reported a wider-than-expected first-quarter adjusted loss of 34 US cents per share. Analysts were expecting a per share loss of 29 US cents.
“While we aren’t satisfied with our first-quarter financial results, we have a strong foundation in place, and we remain on track to deliver on our full-year financial targets,” CEO Robert Isom said on Thursday.
The carrier continues to expect its full-year adjusted profit to be between US$2.25 per share to US$3.25 per share.
Merck & Co (MRK-N) on Thursday raised its annual profit and revenue forecasts on the back of strong sales for its blockbuster cancer drug Keytruda, sending the company’s shares up 2.9 per cent.
Keytruda, the world’s top selling drug in 2023, has been Merck’s key revenue driver over the past few years and is expected to top US$30-billion in sales by 2026 before losing exclusivity toward the end of the decade.
The drug is seeing growth from use for additional types of cancers as well as higher patient demand, Chief Financial Officer Caroline Litchfield said.
Sales of Keytruda stood at US$6.95-billion for the first quarter, jumping 20 per cent from the previous year and surpassing analysts’ estimates of US$6.66-billion, according to LSEG data.
Gardasil, Merck’s vaccine that prevents cancers caused by human papillomavirus (HPV), brought in quarterly sales of US$2.25-billion, up 14 per cent and largely in line with estimates of US$2.27-billion.
Merck said Gardasil growth was driven by strong demand in China, where it is seeking approval for use of the vaccine in men.
Sales of Vaxneuvance, a shot that helps protect against infection caused by pneumococcus bacteria, rose 106 per cent to US$219-million for the first quarter.
The U.S. Food and Drug Administration last month approved Merck’s potential blockbuster treatment Winrevair for adults with high blood pressure due to constriction of lung arteries, and the company said doctors had started writing prescription for the drug.
Mr. Litchfield said the company is making good progress on improving access to Winrevair, with several insurers and other payers already establishing coverage for it.
“Overall, we see today’s results as consistent with the recent solid trends seen from Merck’s business,” J.P.Morgan analyst Chris Schott said.
New Jersey-based Merck said it expected annual earnings between US$8.53 and US$8.65 per share, up from its previous forecast of US$8.44 to US$8.59. Analysts had expected earnings of US$8.56 per share.
On an adjusted basis, Merck earned US$2.07 per share in the first quarter, beating estimates of US$1.88.
On the decline
Dye & Durham Ltd. (DND-T) was down over 3 per cent as hedge fund Engine Capital LP stepped up its activist shareholder campaign, laying out its case for the first time publicly Thursday after saying its behind-the-scenes efforts to “work constructively with the board fizzled out.”
Engine, which owns 6.6 per cent of the Toronto company’s stock, released a letter to other shareholders Thursday signed by managing partner Arnaud Ajdler in which he said he was “compelled to publicly raise our concerns about Dye & Durham’s underperformance and strategic missteps.” Those include its underperformance relative to the TSX Composite and Nasdaq Composite Index over the past one and three years and since its initial public offering nearly four years ago.
Mr. Ajdler accused the company of being a poor allocator of capital, saying it had paid too much for acquisitions, bought back shares and months later issued stock at a lower price, mismanaged the refinancing of $345-million in convertible debt and made “unnecessary” expenditures totaling $134-millinon related to acquisition, restructuring and other costs over the last three years. That cumulative cost “is an exorbitant number that reflects the frenetic pace of capital market activity under the current board.”
Engine’s managing director said D&D had set “the wrong long-term operational target” by targeting $1-billion in earnings before interest, taxes, depreciation and amortization (EBITDA), saying that the measure “incentivizes acquisitions – even if they don’t create shareholder value. There should be no pressure on management or the board to reach an arbitrary target.”
- Sean Silcoff
Celestica Inc. (CLS-T) dipped 2.2 per cent in volatile trading after raising its full-year earnings guidance alongside better-than-expected first-quarter results.
The Toronto-based electronics company now expects 2024 revenue of US$9.1-billion, rising from US$8.5-billion. Non-IFRS adjusted earnings per share are projected to come in at US$3.30, up from US$2.70 or more previously.
For the opening quarter of its fiscal year, Celestica reported adjusted EPS of 86 US cents, up from 47 US cents during the same period a year ago topping the Street’s expectation of 72 US cents. Revenue was also stronger than analysts anticipated (US$2.209-billion versus US$2.099-billion).
“Celestica reported strong Q1/24 results with all metrics ahead of consensus,” said Canaccord Genuity analyst Robert Young. “The outlook provided for Q2 was materially ahead of expectations, driven by an expected mid-40-pe-rcent increase in communications, driven by 400G hyperscale switch, and low-20-per-cent growth in enterprise, underpinned by AI/ML compute. In addition to the strong Q2 outlook, F2024 guidance was raised across all metrics. Excluding Q1 results and the Q2 guide, FY24 guidance appears to suggest a deceleration to 11-per-cent growth in H2/24, which may be conservative consistent with Celestica’s past practice. Management expects CCS growth in the mid-20-per-cent range in F2024, with growth across Enterprise (up 72 per cent year-over-year this quarter), Communications and HPS. In the ATS segment, Celestica anticipates F2024 to be flat year-over-year, driven by softness in the industrial business, partially offset by growth in A&D.”
Alberta-based Mullen Group Ltd. (MTL-T’) plunged 9.1 per cent in the wake of reporting its first-quarter profit fell compared with a year ago as it saw a softening in demand, accompanied by competitive market conditions.
Mullen Group chair and senior executive officer Murray Mullen says consumer demand continued to decline, capital investment was noticeably weaker and major project construction activity virtually ground to a halt.
The trucking and logistics company says it earned $22.2-million or 25 cents per diluted share for the quarter ended March 31.
The result was down from a profit of $31.7-million or 33 cents per diluted share a year earlier.
Revenue totalled $462.6-million, down from $497.8-million in the same quarter last year.
On an adjusted basis, Mullen Group says it earned 25 cents per share in its latest quarter compared with an adjusted profit of 34 cents per share a year earlier.
Shares of Meta Platforms (META-Q) sank 10.6 per cent on Thursday, sparking a selloff in big tech stocks after the social media giant signaled its costly bet on AI would take years to pay off.
The drop was set to erase more than US$170-billion from the company’s market value and triggered a drop in shares of AI-focused firms Microsoft (MSFT-Q), Alphabet (GOOGL-Q) and Snap (SNAP-N).
Meta CEO Mark Zuckerberg, who floored Wall Street last year with his cost-cutting drive, said on a post-earnings call that costs would grow “meaningfully” over the coming years before the company makes “much revenue” from some of its AI products.
That stoked investor fears that Mr. Zuckerberg was plunging Meta into another costly endeavor at a time when its augmented and virtual reality business was losing billions of dollars each quarter.
“Investors were caught off guard by higher capital expenditure, exacerbated by slightly softer second-quarter revenue guide. As such, shares are entering the ‘penalty box,’” Baird Equity Research analysts said.
Meta forecast April-June revenue below estimates and raised the bottom end of its 2024 total expense forecast by US$2-billion on Wednesday. It also raised the top end of its capital expenditure view as it invests in data centers essential to its efforts to catch up with AI frontrunners OpenAI and Microsoft.
The dour expectations follow a series of smash-hit earnings that helped Meta nearly triple its stock in 2023 and powered the biggest one-day market value gain by any company in Wall Street history, of US$196-billion, in February after its maiden dividend.
Still, several analysts were positive on the investments, pointing to AI-driven engagement on content such as Instagram Reels and the warm reception for its virtual assistant Meta AI and early versions of its latest large language model, Llama 3.
“We think this time it is different,” said Evercore ISI analysts. “This investment cycle comes from a position of strength, as management continues to see a healthy ad demand environment into Q2 and improving user engagement.”
Overall, 17 analysts lowered their price targets on the stock, while eight raised their view, according to LSEG data. The median price target now stands at US$525, which is about 6 per cent higher than its previous close.
The stock has a 12-month forward price-to-earnings ratio of about 23.12, compared with Microsoft’s 31.17 and Alphabet’s 22.07. It has gained nearly 40 per cent so far this year, comfortably above the benchmark S&P 500 index’s 6-per-cent gain.
“Being on the offensive with investment spending is generally great, but in internet it’s very hard to underwrite which of those investments will pay back and when,” Bernstein analyst Mark Shmulik said.
“All of this culminates with investors wondering just how long this investment cycle will last, whether the opportunity and payback is real, all against a backdrop of decelerating growth.”
Shares of International Business Machines (IBM-N) fell 8.3 per cent on Thursday, as its consulting business faces pressure from enterprises tightening their budgets to cope with an uncertain economy and high interest rates.
Weakness in smaller discretionary projects affected the consulting segment, but analysts at J.P.Morgan said the backlog could help reaccelerate the business through 2024.
“Although software acceleration is encouraging, this was offset by more significant-than-expected deterioration of Consulting, along with incremental FX headwinds expected for the rest of the year,” analysts at J.P.Morgan said.
IBM’s software business grew 5.5 per cent in the quarter and the company announced a US$6.4-billion deal to buy cloud software company HashiCorp (HCP-Q), aiming to make the most of an AI-led boom in demand for the data storage capabilities of the cloud.
It reported total revenue of US$14.46-billion, lower than estimates of $14.55 billion, according to LSEG. Its consulting segment sales were flat.
Shares of the company were down 9.3 per cent at US$166.98 on Thursday. If losses hold, its market valuation is set to fall more than US$15-billion.
“This was a noisy quarter driven by consulting slowdown offset by hardware growth,” analysts at Evercore said.
“Focus now will be on how does IBM execute on revenue acceleration across both consulting and software segments.”
Caterpillar (CAT-N) warned of a sales fall in the current quarter after reporting a small decline in first-quarter revenue on Thursday, sparking worries that a months-long boom in machinery demand may be coming to an end.
Shares of the global economy bellwether fell over 7 per cent after the company reported weak construction equipment sales in all regions except North America, which gained from President Joe Biden’s US$1-trillion 2021 infrastructure law.
Coming off of a strong 2023 where supply chain concerns and soaring demand prompted dealers to bulk up on tractors, combines and construction equipment, U.S. machinery makers are now seeing a moderation in product stocking at dealers, forcing them to tighten their inventories.
Caterpillar said sales at its construction equipment business, which makes its ubiquitous yellow cranes, fell 5 per cent, while its segment that caters to natural resources industries reported a sales decline of 7 per cent.
“I do think we have to kind of re-evaluate and think through what execution would look like. (Machines sales) came in a bit weaker and that doesn’t give me great confidence as we head through the year ... we definitely are walking away with more questions,” M Science senior analyst Alex Prudhomme said.
Caterpillar had raised prices over the last two years as Biden’s push to upgrade roads, bridges and other transportation infrastructure in the U.S. powered demand for its equipment.
The higher prices offset the impact from lingering supply chain constraints and higher costs of steel, helping Caterpillar’s quarterly adjusted profit of US$5.60 per share surpass estimates of US$5.14, according to LSEG data.
But the company forecast roughly flat sales for the year. For the first quarter ended March 31, revenue fell to US$15.80-billion from US$15.86-billion a year ago, missing estimates of US$16.04-billion.
Southwest Airlines (LUV-N) slashed its estimates for new aircraft deliveries from Boeing (BA-N) in 2024 for the third time on Thursday and said it plans to undertake cost-cutting measures to ease the resultant blow.
The airline said it will limit hiring and offer voluntary time off programs and expects to end the year with about 2,000 fewer employees compared to 2023. Shares of the carrier fell in response to the news.
Boeing has been under heavy regulatory scrutiny following a Jan. 5 Alaska Airlines mid-air panel blowout that led to probes into the manufacturer’s safety and quality standards in its production processes.
Southwest, a loyal Boeing customer, expects to receive 20 aircraft this year, compared with its previous estimate of 46, pressuring the budget carrier’s plans to expand capacity to tap into a robust demand environment.
It was originally supposed to receive 85 jets in 2024.
Reuters had exclusively reported the delivery cuts earlier this month.
The U.S. FAA has also barred Boeing from expanding the production of its bestseller 737 MAX jet, while uncertainty looms over the certification timelines for its MAX 7 and 10 models.
“The recent news from Boeing regarding further aircraft delivery delays presents significant challenges for both 2024 and 2025,” Southwest CEO Bob Jordan said on Thursday.
The carrier also trimmed its operating revenue expectations for 2024 and now expects a high-single-digit growth, compared with its previous expectation of double-digit growth in operating revenues compared to last year.
Southwest reported a loss of US$231-million, or 39 US cents per share for its first quarter ended March 31, compared to US$159-million, or 27 US cents per share a year earlier.
The airline will also close operations at four airports to address cost and capacity headwinds.
It has cut its annual capacity forecast and now expects available seat miles to be up about 4 per cent, compared with its previous estimate of about a 6-per-cent growth.
Southwest Airlines’ operating revenue rose 10.9 per cent, to US$6.33-billion, compared with last year.
With files from staff and wires
David Leeder