A look at North American equities heading in both directions
On the rise
Cannabis stocks, including Canopy Growth Corp. (WEED-T), Cronos Group Inc. (CRON-T) and Aurora Cannabis Inc. (ACB-T), surged after The Associated Press reported the U.S. Drug Enforcement Administration will move to reclassify marijuana as a less dangerous drug, a historic shift to generations of American drug policy that could have wide ripple effects across the country.
The DEA’s proposal, which still must be reviewed by the White House Office of Management and Budget, would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the nation’s most dangerous drugs. However, it would not legalize marijuana outright for recreational use.
The agency’s move, confirmed to the AP on Tuesday by five people familiar with the matter who spoke on the condition of anonymity to discuss the sensitive regulatory review, clears the last significant regulatory hurdle before the agency’s biggest policy change in more than 50 years can take effect.
Once OMB signs off, the DEA will take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule.
It comes after President Joe Biden called for a review of federal marijuana law in October 2022 and moved to pardon thousands of Americans convicted federally of simple possession of the drug. He has also called on governors and local leaders to take similar steps to erase marijuana convictions.
“Criminal records for marijuana use and possession have imposed needless barriers to employment, housing, and educational opportunities,” Mr. Biden said in December. “Too many lives have been upended because of our failed approach to marijuana. It’s time that we right these wrongs.”
Shares of Restaurant Brands International Inc. (QSR-T) rose 3.5 per cent on Tuesday after it beat Wall Street expectations for quarterly results, driven by a revival in demand at its Burger King outlets as well as continued strength at the Tim Hortons chain.
Quick service restaurants have turned focus towards offering better promotions and deals on their menu items as consumers increasingly opt for value-oriented meals in the face of sticky inflation.
Separately, the company said on Tuesday it would invest an additional US$300-million towards modernizing Burger King outlets in the U.S., and will provide cash incentives to top performing restaurant operators and support outlet rebuilds and remodels.
Tim Hortons parent Restaurant Brands reports 18% profit boost on strong demand
In January, the company said it would take full control of Burger King’s largest U.S. franchisee Carrols Restaurant Group .
“I don’t want to be limiting Burger King’s performance just to promotions. It’s an accelerating story in a decelerating environment,” said Danilo Gargiulo, senior analyst at Bernstein, adding that the Carrols acquisition acted as a catalyst for plans to revamp Burger King stores in the U.S.
Quarterly comparable sales at U.S. Burger King outlets rose 3.9 per cent, edging past analysts’ estimates of a 3-per-cent rise, as per LSEG data.
Data from Placer.ai showed that foot traffic at Burger King chains in the United States stayed positive in the first quarter, defying a weaker trend in January due to severe cold weather.
On the other hand, Tim Hortons continued to benefit from robust demand for its coffee.
Restaurant Brands reported overall quarterly same-store sales growth of 4.6 per cent beating estimates of 3.78 per cent.
Excluding items, Restaurant Brands’ quarterly profit of 73 US cents per share was ahead of estimates of 72 US cents.
Total revenue of US$1.74-billion also surpassed expectations of US$1.69-billion.
In a note, Citi analyst Jon Tower said: “Investors are likely to breath a sigh of relief post 1Q update and push shares higher in the near term on the back of a strong top & bottom-line beat, with TH driving comp upside and BK providing the majority of the AOI [adjusted operating income] upside. Unit growth remained subdued (up 3.9 per cent year-over-year, well-below the 5-per-cent long-term target) though management stuck to its long-term targets and offered some guidance on ‘24 that suggests Street AOI may need to move higher.”
Eli Lilly (LLY-N) raised its annual revenue forecast by US$2-billion on Tuesday due to strong demand and a steady ramp up of production of its weight-loss treatment Zepbound and related diabetes drug Mounjaro, lifting its shares pver 6 per cent.
Lilly said it expects the drugs to remain in tight supply, but plans for significant production increases in the second half of the year. Sales growth for the weight-loss and diabetes treatments will primarily depend on how much it can produce and ship in the short- to mid-term, the company said.
“Our top priority is making more product and we’re doing everything we can to do that,” CEO David Ricks told CNBC.
Skyrocketing demand for Mounjaro and Zepbound, both chemically known as tirzepatide, has propelled the Indianapolis-based drugmaker’s market value above US$700-billion - surpassing both Tesla and Walmart.
“We expect this increased clarity on production capacity and guidance raise will be well received by the Street,” JP Morgan analyst Chris Schott said.
However, supply for the drugs remains constrained. Most doses of Mounjaro and Zepbound are expected to be available in limited amounts through the second quarter, according to the U.S. Food and Drug Administration’s website.
Mr. Ricks said the production of these drugs was a capital intensive, technically complex and highly regulated process.
“We’re pulling out all stops to produce more, but the lag time is significant.”
Eli Lilly now expects 2024 revenue of $42.4 billion to US$43.6-billion, up from its prior forecast of US$40.4-billion to US$41.6-billion.
Eli Lilly also raised its annual profit forecast by US$1.30 per share to a range of US$13.50 to US$14 per share.
The company reported an adjusted profit of US$2.58 per share, topping analysts’ expectations by 12 US cents.
Fertilizer maker The Mosaic Co. (MOS-N) gained 1.7 per cent after it said on Tuesday that Saudi Arabia’s flagship mining firm Ma’aden would acquire the U.S.-based company’s stake in a phosphate production joint venture by issuing shares worth about US$1.5-billion.
Ma’aden will issue about 111 million shares to buy the 25-per-cent stake Mosaic owns in Ma’aden Wa’ad Al Shamal Phosphate Co, a joint venture between Mosaic, Ma’aden and Saudi Basic Industries Corp.
Mosaic had said in February that a lot of the cash generated from the asset had gone into reducing debt and investing in the joint venture was not at the top of its priority.
The phosphate producer curtailed output after fertilizer prices dropped last year due to lukewarm demand from key markets.
The deal is expected to close by the end of this year.
U.S. industrial giant 3M Co. (MMM-N) posted a better-than-expected quarterly profit on Tuesday as price hikes and cost cuts offset the impact from slow sales, sending its shares up 4.7 per cent.
3M said its dividend payout ratio is expected to be 40 per cent of adjusted free cash flow, with a potential to increase over time following the spin off of its healthcare business.
The company has benefited from steady price increases across categories, which have helped it offset inflation and slow demand in its electronics business.
“We improved performance in our businesses through strong operational execution, completed the spin-off of Solventum, and finalized two major legal settlements,” outgoing 3M CEO Mike Roman said.
The company, last year, cut its global workforce by 10 per cent, transitioned to an export-led business model, closed several facilities and spun off Solventum, which helped it to navigate the slow demand environment, particularly in markets such as China.
Solventum started trading as a separate listed company on the New York Stock Exchange earlier this month.
St. Paul, Min.-based 3M reported an adjusted profit of US$2.39 per share on adjusted net sales of US$7.72-billion for the first quarter, above the average analyst expectation of US$2.10 of profit and US$7.63-billion in revenue, according to LSEG data.
On the decline
McDonald’s Corp. (MCD-N) shares were lower by 0.2 per cent after it missed quarterly profit estimates for the first time in two years as budget-conscious consumers looked past its offers and the Middle East conflict weighed on the burger chain’s international sales.
Global comparable sales growth slid for the fourth straight quarter to 1.9 per cent, with the company saying consumers turned “more discriminating with every dollar they spend”. Analysts had estimated a 2.35-per-cent rise, according to LSEG data.
The company has raised prices by mid- to high-single-digit percentage over the past year in response to a rise in costs of eggs and other raw items even as lower-income budgets remain stretched.
Comparable sales from the company’s international licensees, which made up 10 per cent of its overall revenue in 2023, declined 0.2 per cent, offsetting positive trends from Japan, Latin America and Europe. Analysts had expected a 0.98-per-cent rise for the unit.
In March, McDonald’s CFO Ian Borden had warned of a sequential fall in international sales in the first quarter, pressured by the Middle East conflict and a sluggish Chinese economy, its second-largest market after the United States.
Earlier this year, CEO Chris Kempczinski had flagged “meaningful business impact” due to the conflict as well as “associated misinformation” about the brand.
“The impact of the conflict in the Middle East was likely significant on McDonald’s comparable sales as it was noted by the company as the key reason its (international licensees) segment posted a decline in comparable sales Y/Y,” said Matthew Goodman, an analyst with research group M Science.
McDonald’s results were also in contrast to those from other fast food chains reporting first-quarter numbers.
McDonald’s first-quarter same-store sales grew 2.5 per cent in the United States, sharply lower than a 12.6-per-cent growth last year and slightly below estimates of a 2.55-per-cent growth, signaling that cash-strapped Americans remained picky about offers at fast-food chains amid still-high inflation
Adjusted per-share profit came in at US$2.70, below an estimated US$2.72, according to LSEG data. Total operating costs and expenses increased 2 per cent to US$3.43-billion.
Ag Growth International Inc. (AFN-T) plummeted 13.7 per cent following the late Monday release of weaker-than-anticipated results and second-quarter guidance that disappointed the Street.
The Winnipeg-based company reported headline adjusted EBITDA and revenue of $50-milllion and $315-million, respectively, missing the consensus projections of $55-million and $359-million. Weakness in its Commerical segment weighed in results.
Ag Growth reiterated its full-year outlook calling for Adj. EBITDA of “at least $310-million”, citing “the support of a near-record level order book and strong Commercial activity internationally.” However, it expects “all of the full year 2024 Adjusted EBITDA growth over 2023 to occur in the second half of 2024, with first half 2024 Adjusted EBITDA results generally expected to be down relative to first half 2023.”
“While AFN’s H1/24 results are expected to be impacted by shifting Commercial project schedules and softness in U.S. Farm activity, we believe AFN continues to benefit from longer-term structural tailwinds including product transfers, operational excellence initiatives, and deleveraging that we believe underpin its long-term value proposition for investors,” said ATB Capital Markets analyst Tim Monachello. “Still, AFN shares could face pressure as investors weigh the implications of its weakened near-term outlook.”
Cameco Corp. (CCO-T) fell 7 per cent after swinging to a loss and reporting a weaker-than-anticipated earnings result for its first quarter of the current fiscal year.
The Saskatoon-based company reported a loss of $7-million, or 2 cents a share, down from a profit of $119-million a year ago. Adjusted earnings per share of 13 cents was 12 cents lower than the Street expected, while revenue of $634-milllion was higher than the consensus analyst projection of $556.56-million.
Coca-Cola (KO-N) turned lower and closed down 0.4 per cent after raising its annual organic sales forecast on Tuesday after beating first-quarter revenue and profit expectations as customers shell out more money for its pricey sodas and juices globally.
The soda giant is seeing demand in the U.S. surge mainly in the away-from-home category as consumers venturing out for movies and dining are willing to spend on its higher-priced sodas and juices.
Both Coca-Cola and PepsiCo (PEP-Q) are also enjoying buoyant demand in international markets such as Europe and Latin America where relaunches of Georgia Coffee and Sprite reformulations have helped bump up sales.
Coca-Cola’s organic revenue in Europe, Middle East and Africa rose 15 per cent in the first quarter, while in North America it increased 7 per cent.
The company’s overall average selling price rose 13 per cent, while unit case volumes were up only 1 per cent.
“They are doing good in certain international markets, which are a little bit more used to the effects of inflation, and Coca-Cola has frankly a lot of brand power so they are not seeing that kind of erosion,” said Christian Greiner, senior portfolio manager at F/m Investments, which owns shares of the beverage giant.
Coca-Cola is also heavily promoting, overhauling their existing products and introducing newer items to spur demand among lower-income customers.
The company expects fiscal 2024 organic sales to grow 8 per cent to 9 per cent, compared with its prior forecast of a 6-per-cent to 7-per-cent rise.
Coca-Cola’s first-quarter net revenue rose 2.5 per cent to US$11.23-billion, beating LSEG estimates of US$11.01-billion. On an adjusted basis, the company earned 72 US cents per share, compared with expectations of 70 US cents.
The company maintained its annual comparable earnings per share forecast of 4-per-cent to 5-per-cent growth.
“It is encouraging to see the company guide up but on an underlying dollar basis, it looks like everything is going to remain the same,” Wedbush analyst Gerald Pascarelli said.
Walmart Inc. (WMT-N) slid 1.5 per cent after saying it plans to close all 51 of its health centres across five states in the U.S. as well as its telehealth operations, citing lack of profitability in those businesses.
The big-box retailer said that reimbursement from insurers and other payers has been challenging, which along with escalating operating costs made the businesses unsustainable.
Walmart’s move comes at a time when the healthcare sector has seen stiff competition, with players such as Walgreens Boots Alliance (WBA-Q), CVS Health Corp (CVS-N) and even Amazon (AMZN-Q) trying to get a share in the market.
These companies had expanded their presence especially after the pandemic, as they hoped to get a boost from increased public focus on healthcare, but losses have been mounting.
“We determined there is not a sustainable business model for us to continue,” Walmart said in a blog post on Tuesday.
Walmart launched its health centres in 2019, offering primary care, dental care, behavioral health, labs and X-ray, audiology and telehealth.
Last year, it had announced plans to expand its presence to more than 75 locations by opening 28 new health centers in Texas, Arizona and Missouri.
Tesla Inc. (TSLA-Q) was down 5.6 per cent after The Information reported CEO Elon Musk is thinning its senior management and laying off hundreds more employees, frustrated by falling sales and the pace of layoffs so far, citing an email sent by the CEO to senior executives.
Rebecca Tinucci, senior director of the electric vehicle maker’s Supercharger business, and Daniel Ho, head of new products, will leave on Tuesday morning, The Information reported.
In the email, Mr. Musk also said he would dismiss everyone working for Ms. Tinucci and Mr. Ho, including the roughly 500 employees who work in the Supercharger group, The Information said.
“Hopefully these actions are making it clear that we need to be absolutely hard core about headcount and cost reduction,” Musk wrote in the email, the report said. “While some on exec staff are taking this seriously, most are not yet doing so.”
Tesla’s public policy team, which was led by former executive Rohan Patel, will also be dissolved, according to the report.
Earlier this month, Tesla ordered the layoffs of more than 10 per cent of its global workforce, as it grapples with falling sales and an intensifying price war for electric vehicles (EVs).
U.S.-listed shares of Stellantis (STLA-N) missed expectations with a 12-per-cent drop for its first quarter revenue, sending shares down, but said it was confident new models would support its growth and profitability in the second half of the year.
Net revenue at the Franco-Italian automaker fell to 41.7 billion euros (US$44.6-billion) in the January-March period, short of analyst expectations of 42.6 billion euros, according to a Reuters poll.
Lower volumes, an unfavorable product mix and foreign exchange dynamics weighed on the result, although they were partially offset by a “firm” pricing power, Stellantis said in a statement.
Analysts at Jefferies said in a note the below-consensus revenue was mostly due to the quarterly performance in Europe, where both volume, price and product mix were worse than expected. Net pricing capacity was “more resilient” in other regions, they added.
Stellantis consolidated shipments fell 10 per cent in the quarter to 1.335 million units, although unit sales of fully electric vehicles (EVs) were up 8 per cent.
CFO Natalie Knight said shipments and revenues were impacted by the transition to the group’s new product portfolio, based on new platforms.
“We are reducing inventories to reinforce our strong relative pricing ahead of our new or mid-cycle product launches this year in key regions,” she said.
Stellantis, whose brands include Peugeot, Fiat, Jeep and Alfa Romeo, has launched four new models since the beginning of 2024, out of a total of 25 planned for the full year, including 18 EVs.
Among new launches Knight cited was the RAM 1500 truck, out now, and during the year Stellantis will release models including low-cost EV Citroen eC3, Peugeot E3008 EV SUV and Jeep’s Wagoneer S in the United States.
Stellantis on Tuesday confirmed a 2024 forecast for a double digit margin on adjusted operating income (EBIT) and for a positive industrial free cash flow.
Molson Coors (TAP-N) surpassed Wall Street estimates for first-quarter sales and profit on Tuesday, helped by higher prices and steady demand for brands such as Coors Light and Miller Lite.
However, the company took a more cautious stance on the industry outlook and reaffirmed its full-year sales and profit forecasts, sending its shares down, hitting an over five-month low.
Beer makers such as Molson Coors and peer Constellation Brands (STZ-N) have been consistently hiking prices to protect their margin from rising costs of production, even as some of those expenses are beginning to drop from
Its net sales for the quarter was about US$2.60-billion, ahead of analysts’ average estimate of US$2.50-billion, according to LSEG data.
The company posted an adjusted profit of 95 US cents per share, beating expectations of 74 US cents.
Brand volumes in the Americas segment increased 5.3 per cent in the first quarter, including a 5.8-per-cent increase in the U.S.
“We believe commentary on depletion trends in April and Q2 will be key in driving the stock reaction, given the recent slowdown in scanner data with volumes down mid-single digit percentage in the last few weeks,” said Citi Research analyst Filippo Falorni.
With files from staff and wires
David Leeder