A look at North American equities heading in both directions
On the rise
Shares of Metro Inc. (MRU-T) were higher by 1.6 per cent on Tuesday after it raised its quarterly dividend as it reported a profit of $231.1-million in its latest quarter, up from $207.7-million in the same quarter a year earlier.
Krashinsky Robertson: Grocer Metro hikes dividend by 10% as high inflation fuels sales gain
Metro Inc., which operates both supermarkets and drugstores, reported a net income of $231.1-million in its first quarter of the year on Tuesday, up 11.3 per cent from $207.7 million in the same quarter a year ago.
The profit amounted to 97 cents per diluted share for the 12-weeks ended Dec. 17, up from 85 cents per diluted share a year earlier, prompting the company to raise its quarterly dividend to 30.25 cents per share, up from 27.5 cents per share.
Grocery inflation during the same period from Sept. to Dec. ping-ponged between 11 per cent and 11.4 per cent, according to Statistics Canada.
Grocers have come under intense scrutiny in recent months for posting strong profits as many Canadians struggle with higher food costs. Critics have accused grocers of so-called greedflation, suggesting they are profiteering at a time of spiralling inflation.
But grocers have said the higher costs are being passed through the supply chain from food manufacturers, wholesalers, processors and producers.
“In 2022, Metro received more than 27,000 price increases averaging more than 10 per cent from suppliers for dry groceries alone — nearly three times the annual average,” Metro CEO Eric La Fleche said during an annual meeting of shareholders on Tuesday.
“This high inflation over the past several months is difficult for everyone to accept, but it is a global reality (and) Canada is faring better than most countries.”
Grocers have also repeatedly said their profit margins on food remain stable.
In fact, La Fleche said Metro is “absorbing some of the (price) increases as our gross food margins are decreasing.”
Desjardins Securities analyst Chris Li said: “Adjusted EPS of $1.00 (up 13.6 per cent year-over-year) is slightly ahead of our estimate of 98 cents and consensus of 97 cents .Overall, we believe the results continue to reflect solid execution against a highly inflationary backdrop. Sales were largely in line and characterized by high food inflation, shift to discount and market share gains, as well as continuing strength in prescription drugs and front-store sales. We expect the decline in gross margin (down 30 basis points vs our estimate of a stable margin) to be topical on the call (1:30 pm ET) as it is in line with management’s comments that the environment is very competitive. Despite inflationary pressures from labour, transportation, energy and supply costs, MRU was able to offset the gross margin pressure with good SG&A cost control. The quarterly dividend was raised by 10 per cent to 30.25 cents. (in line with our expectation). Overall, there is no change to our view.”
Rogers Communications Inc. (RCI.B-T) surged in late afternoon trading after a Canadian court on Tuesday dismissed the competition bureau’s effort to block its $20-billion bid to buy Shaw Communications Inc. (SJR.B-T), in a boost to the companies’ efforts to close a deal struck nearly two years ago.
“It would be pointless to send this case back to the competition tribunal for re-decision,” Justice David Stratas told the court, calling many of the points of law the bureau raised “without merit.”
The proceeding in a Federal Court of Appeal in Ottawa was the antitrust bureau’s latest attempt to kill the deal, saying the transaction will hurt competition in the telecoms industry in Canada, where consumers pay some of the highest mobile phone bills in the world.
Judges spent the morning grilling competition bureau counsel on their case against the transaction and delivered their verdict in the afternoon without hearing from Rogers and Shaw.
The bureau previously failed to convince the competition tribunal, a quasi-court that handles merger disputes, that the deal is harmful for Canadian consumers. It was approved on Dec. 30.
“According to the tribunal, this was not a particularly close case,” the judge told the court on Tuesday. “It found, I would say, on the evidence rather decisively that there was no substantial lessening of competition.
“They also found a number of pro-competitive considerations.”
Telus Corp. (T-T) finished narrowly higher after announcing late Monday it has merged its mobility and home service divisions to create a combined business unit called Telus Consumer Solutions.
Telus says the change, which sees Mobility Solutions and Home Solutions & Consumer Excellence becoming one under the new title, represents the next chapter for the company.
The company says Jim Senko, executive vice-president and former president of Mobility Solutions, is now chief product officer of the consumer solutions unit, a newly created role.
Executive vice-president Zainul Mawji, formerly the president of Home Solutions & Consumer Excellence, is now president of the new unit.
Mr. Senko is set to retire from Telus at the end of 2023, but the company says he and Ms. Mawji will spend the year laying the groundwork for the new unit including its long-term strategy and a succession plan.
Ms. Mawji joined Telus in 2001, the same year Mr. Senko joined the company.
General Electric Co. (GE-N) on Tuesday exceeded expectations for quarterly earnings on robust demand for jet engines and power equipment, but gave a disappointing full-year outlook as problems persisted at its renewable energy business.
The Boston-based conglomerate is grappling with inflationary headwinds, which were also flagged Tuesday by fellow industrials 3M and Raytheon Technologies Corp. In addition, the U.S. economy is cooling, business surveys showed, clouding the corporate outlook for the coming year.
In an interview, Chief Executive Larry Culp said that while demand for freight carriers was slowing, the company was confident a recovery in the aerospace industry and the need to reduce carbon emissions would underpin demand for GE’s products.
“We probably have a level of resiliency that will serve us well,” Mr. Culp told Reuters.
GE’s shares turned positive in Tuesday afternoon trading.
Mr. Culp said the company was still wrestling with inflationary and supply-chain pressures. He expects inflation to be a “test” for GE even as it adjusts its prices to offset higher costs.
GE is not alone. Raytheon expects labour and material inflation to cost it about US$2-billion in 2023, while 3M said inflation was boosting the cost of raw materials and logistics.
Mr. Culp said while GE had not seen any material improvement in supply-chain problems, it has sought to work around them. For example, the company has deployed hundreds of employees at sites of its aerospace suppliers to ease some of the bottlenecks.
GE expects full-year adjusted earnings in the range of US$1.60 to US$2.00 per share this year, lower than analysts’ average forecast of US$2.36 per share, according to Refinitiv.
The company forecast earnings of 10-15 US cents a share for the first quarter, below the 19 US cents a share estimated by analysts. It also expects to burn cash in the March quarter, which tends to be its weakest.
It forecast an operating loss of between US$200-million and US$600-million at its energy business GE Vernova in 2023.
The company’s renewable energy business has been facing challenges due to inflation and supply chain pressures. The unit reported a loss of US$2.2-billion in 2022.
GE is reducing global headcount at the onshore wind unit by about 20 per cent as part of a plan to restructure and resize the business.
Adjusted profit for the fourth quarter came in at US$1.24 per share, beating analysts’ average estimate of US$1.13 per share.
U.S. weapons maker Lockheed Martin Corp. (LMT-N) was up 1.8 per cent as it forecast annual profit below Street expectations, hurt by lingering supply bottlenecks and higher costs, though a generous defense budget helped it beat fourth-quarter estimates.
The defence contractor said it expected a profit of US$26.60 to US$26.90 per share in 2023. The average analysts’ estimate has been US$26.96, according to Refinitiv.
“We signaled way ahead of time that 2023 was going to be kind of a steady state year from a revenue perspective,” Lockheed Chief Executive Jim Taiclet said in an interview, adding that he aimed to grow free cash flow per share by 5 per cent in 2023.
Supply chain snags brought on by the pandemic have squeezed margins at defence suppliers, although those constraints are now easing even as the companies continue to grapple with laboru shortages.
Analysts have warned that defence spending could slow in 2023 after it reached peak levels as the United States and its allies bulked up budgets following Russia’s invasion of Ukraine last year.
The election of Kevin McCarthy as the U.S. House speaker and his promise to curb spending has also raised concerns about the near-term outlook for defence companies such as Lockheed, Raytheon Technologies Corp. (RTX-N) and Northrop Grumman Corp. (NOC-N), which derive much of their revenues from the U.S. government.
Lockheed forecast 2023 revenue between US$65-billion and US$66-billion, compared with market estimates of $65.74 billion.
Net sales at the aeronautics unit - Lockheed Martin’s largest, which makes the F-35 - jumped 7 per cent to US$7.64-billion in the fourth quarter, but the segment’s operating margin shrank to 10.7 per cent from 11.5 per cent a year earlier.
Bethesda, Maryland-based Lockheed Martin posted adjusted net income of US$7.79 per share for the three months ended Dec. 31, compared with analysts’ estimate of US$7.39 per share.
It reported fourth-quarter net sales of US$18.99-billion, above expectations of US$18.27-billion.
Aerospace and defence major Raytheon Technologies Corp. (RTX-N) also rose on Tuesday after it beat analysts’ estimates for fourth-quarter profit, as strong travel demand across the globe boosted demand for its jet engines, parts and services.
Strong travel demand and supply chain disruptions have forced airlines to fly older planes for a longer period, boosting demand for high-margin after-market services at companies such as Raytheon, which counts Boeing Co and Airbus SE among its customers.
Raytheon reported an adjusted net income of US$1.27 per share in the quarter ended Dec. 31, above analysts’ average estimate of US$1.24 per share, according to Refinitiv data.
The maker of Tomahawk missiles forecast 2023 adjusted profit in the range of US$4.90 to US$5.05 per share, compared with analysts’ average estimate of US$5.03 per share at midpoint.
The Arlington, Virginia based company’s avionics unit, Collins Aerospace, reported a 14.6-per-cent increase in its quarterly sales and a 60.7-per-cent jump in operating profit in the reported quarter.
Net sales were up 6.2 per cent at US$18.09-billion, but missed analysts’ average estimate of US$18.15-billion.
The company expects share repurchases of US$3-billion in 2023 and said it will realign its portfolio to three business segments including Collins Aerospace, Pratt & Whitney and Raytheon, down from four segments.
Verizon Communications Inc. (VZ-N) erased an early decline and finished 2 per cent higher after its annual profit forecast fell short of Wall Street estimates on Tuesday, as it grapples with slowing growth in wireless customer sign-ups compared with last year and makes heavy investments in 5G technology.
Verizon, whose plans are the most expensive among U.S. peers, lost subscribers last year to its fast-growing rivals AT&T Inc. (T-N) and T-Mobile (TMUS-Q) that have been doubling down on promotional activity or have more developed 5G networks.
However, thanks to promotional offers and Apple’s flagship iPhone launch during the fourth quarter, the company added 217,000 net new monthly bill paying wireless phone subscribers in the fourth quarter, higher than Factset estimates of 200,400 additions. Analysts reckon the No. 1 U.S. wireless carrier by subscribers has to be careful about lowering plan prices or offering steep discounts so as to not hurt profit and free cash flow, given its substantial 5G investments.
Industry executives have also hinted at weaker growth due to a slowdown in demand for phones with video-conferencing abilities as well as premium postpaid plans that helped people work from home during pandemic-led lockdowns.
Verizon, which added 558,000 subscribers in the fourth quarter last year, expects adjusted profit between US$4.55 per share and US$4.85 per share in 2023. Analysts had estimated a profit of US$4.97 per share, according to Refinitiv data.
The company also expects capital expenditure of US$18.25-billion to US$19.25-billion in 2023.
For the fourth quarter, Verizon earned US$1.19 per share on revenue of US$35.3-billion, both largely in-line with analysts’ estimate
On the decline
Magna International Inc. (MG-T) plummeted 7.2 per cent after saying its margins for 2022 are expected to come in lower than its previous forecast.
The Aurora, Ont.-based auto parts company says its adjusted earnings before interest and taxes (EBIT) margin is expected to be about 4.3 per cent for 2022.
The ratio of adjusted EBIT to total sales is below the range of 4.8 to 5.0 per cent expected in its November outlook for the year.
Based on the preliminary results, Magna says total sales for 2022 were about US$37.8-billion.
The company had expected sales in the range of US$37.4-billion to US$38.4-billion.
Magna is scheduled to report its full financial results for its fourth quarter and full year on Feb. 10.
In a research note released before the bell, Raymond James analyst Michael Glen called the revision “pretty shocking.”
“Magna offered a very depressed 4Q outlook this morning, and we believe this was very unexpected from investors,” he said. “Case in point, the stock is up 16.5 per cent year-to-date versus the S&P500 up 4.7 per cent. The updated guidance calls for a 2022 EBIT margin of approximately 4.3 per cent vs prior guidance of 4.8-5.0 per cent (from November). This would imply that the 4Q22 operating margin is in the 3.4-per-cent range, an extremely difficult result. We were forecasting a 4Q operating margin of 5.7 per cent, and we believe we were roughly in-line with consensus on this metric. Moving down the P&L, we estimate that the implied 4Q EPS is in the $0.80 range, which stands against our current estimate of $1.38 (with consensus at $1.40). The updated sales figure of $37.8-billion was essentially in-line with prior guidance of $37.4- to $38.4-billion.”
“All in all, we would anticipate Magna’s stock to come under considerable pressure today on the back of this guidance revision. While we would expect this to generate concerns among peers (namely Martinrea and Linamar), we would stress that this outcome does appear to have a number of company specific elements tied to it. As such, we would be adding to positions on Linamar and Martinrea on any weakness that stems from this Magna release.”
Element Fleet Management Corp. (EFN-T) was down almost 2 per cent after a late Monday announcement that Laura Dottori-Attanasio will become its chief executive officer.
On Monday, Element announced current CEO Jay Forbes plans to retire after the company’s annual meeting in May. Toronto-based Element, which finances and services 1½ million cars and trucks for corporate clients, said Ms. Dottori-Attanasio will join the company on Feb. 15 as president and take over as CEO in May.
Ms. Dottori-Attanasio is head of personal and commercial banking at Canadian Imperial Bank of Commerce and was considered a candidate to be its next CEO. In mid-January, CIBC announced she plans to step down as a senior executive vice-president on Feb. 1, after 14 years at the bank.
- Andrew Willis
Johnson & Johnson (JNJ-N) was flat after it said it sees the impact from high inflation carrying into 2023 and expects China’s major COVID-19 outbreak to dent sales at its medical devices unit in the first half of the year.
Inflation has hurt demand for consumer health products and driven up costs for the healthcare conglomerate.
The J&J forecast and comments on the COVID disruption to business in China point to issues likely to hurt the entire medical technology sector in the first half of the year, Truist Securities analyst Richard Newitter said in a note.
“Expect this will get called out by other MedTech companies when they issue their 2023 outlooks as well,” he said.
J&J forecast 2023 sales ofUS$96.90billion to US$97.9-billion, putting the midpoint of the range below Wall Street estimates, while fourth-quarter profit came in ahead of expectations due to cost management and strong demand for some prescription medicines despite lower-than-expected medical device sales.
“Given all the macroeconomic uncertainty, geopolitical uncertainty, we thought this was the right approach at this point in time to come out with guidance in the ranges that we did,” Chief Financial Officer Joseph Wolk said on a conference call.
Quarterly sales of the cancer drug Darzalex were US$2.08-billion, beating Wall Street estimates of US$2.02-billion, according to average of two analysts polled by Refinitiv.
J&J said it was expecting to earn between US$10.45 and US$10.65 per share on an adjusted basis for 2023, above analysts’ estimates of US$10.35 per share profit at the midpoint.
The drugmaker expects 2023 sales to grow 3.5 per cent to 4.5 per cent on an adjusted basis, compared with a year earlier.
The healthcare conglomerate also beat estimates for fourth-quarter profit as increased sales of pharmaceutical products helped it weather a hit from a stronger dollar.
Excluding items, J&J earned US$2.35 per share, above analysts’ average estimates of US$2.23 per share, according to IBES data from Refinitiv.
3M Co. (MMM-N) said on Tuesday it would cut 2,500 manufacturing jobs and forecast a gloomy first-quarter as the U.S. industrial conglomerate struggles with slowing demand for consumer and electronic items.
The downbeat outlook and quarterly results pile more pain on the company, at a time it faces separate lawsuits related to defective earplugs and its use of “forever chemicals,” which 3M said in December it plans to discontinue.
3M shares fell 6.2 per cent on the day.
“MMM to some extent had recently lowered investor/Street expectation but weak 4Q22 results and softer 2023 guidance (weak demand environment) should weigh on the stock in the near-term,” Citi analysts wrote in a note.
Demand slowdown has extended into the current quarter as consumers cut discretionary spending and rigorous industrial de-stocking, especially in Asia, 3M said.
“Three weeks into January, we are seeing continued slowing in organic sales volume as we start the year,” Chief Financial Officer Monish Patolawala said.
The company, which has been battling with higher labor and energy costs, said it would continue to adjust its manufacturing levels and maintain spending discipline until volumes bounce back.
3M expects adjusted sales in the first quarter to be US$7.2-billion to US$7.6-billion, down 10 per cent to 15 per cent year-on-year, missing analysts’ expectations of US$8.34-billion, according to Refinitiv data.
The company’s consumer unit, which generated about $5.30 billion in revenue in 2022, is likely to see similar demand trends through the first half of the new year.
“We expect macroeconomic challenges to persist in 2023,” Chief Executive Mike Roman said.
Sales in the fourth quarter fell 6 per cent to US$8.1-billion. Excluding items, the company reported a profit of US$2.28 per share compared to US$2.45 per share a year earlier.
Halliburton Co. (HAL-N) slid 1.8 per cent despite surpassing Wall Street profit estimates for the fourth quarter on Tuesday, wrapping up a mixed start of earnings season for the world’s top oilfield services providers as elevated oil prices boosted drilling activity.
Brent crude averaged US$88.62 a barrel during the fourth quarter, up about 11 per cent from a year earlier, as sanctions on large oil producer Russia for its invasion of Ukraine have upended global supply routes.
Meanwhile, average North America rig count, an early indicator of future output, for the October-December 2022 quarter rose to 965 from 720 the previous year, according to Baker Hughes data.
The Houston, Texas-based firm posted adjusted income of US$656-million, or 72 US cents per share, for the three months ended Dec. 31, compared with an average analyst estimate of 67 US cents per share, according to Refinitiv.
Total company revenue of US$5.58-billion also topped the Wall Street estimate of US$5.57-billion, according to Refinitiv data.
Halliburton also raised its first-quarter dividend by 33 per cent to 16 US cents per share.
“I am confident in Halliburton’s strong outlook and ability to generate increased returns for shareholders,” Chief Executive Officer Jeff Miller said in a statement.
Market leader Schlumberger (SLB-N) beat Wall Street estimates for fourth-quarter profit. Rival Baker Hughes (BKR-Q) missed both quarterly profit and revenue estimates.
With files from staff and wires
David Leeder