A survey of North American equities heading in both directions
On the rise
Royal Bank of Canada (RY-T) jumped 5.2 per cent after it reported higher second-quarter profit that beat analysts’ estimates on a boost from its capital markets business as the lender set aside lower-than-expected provisions for potentially sour loans.
RBC earned $4-billion, or $2.74 per share, in the three months that ended April 30. That compared with $3.68-billion, or $2.60 per share, in the same quarter last year.
Adjusted to exclude certain items, including transaction and integration costs from the HSBC Bank Canada acquisition, the bank said it earned $2.92 per share. That edged out the $2.75 per share analysts expected, according to S&P Capital IQ.
In March, RBC completed its $13.5-billion takeover of British HSBC Holdings PLC’s Canadian subsidiary. This is the first quarter where Canada’s largest lender is reporting earnings that include the contribution from HSBC, and the deal initially reduced the bank’s profit by $51-million as RBC absorbs its provisions for credit losses.
Canada largest lender has seen some slight attrition from HSBC customers since the deal was announced in late 2022, which RBC said was within its expectations. Loan balances were down 4 per cent to $3.5-billion since September 2022.
RBC said that it is on track to meet its target cost savings of $740-million by combining HSBC’s platforms and services with its own.
“This quarter marked a pivotal milestone in RBC’s long-term growth story as we completed our acquisition of HSBC Bank Canada, welcoming thousands of colleagues and clients from across the country,” RBC chief executive officer Dave McKay said in a statement. “This historic acquisition, along with our solid results driven by our strong balance sheet, expense control and volume growth across our premium franchises, shows that RBC has the right strategy in place to continue building the bank of the future and our position as a global competitor.”
The bank raised its quarterly dividend by 4 cents to $1.42 per share.
RBC is the final major Canadian bank to report earnings for the second quarter. Canadian Imperial Bank of Commerce also released earnings on Thursday. Bank of Montreal posted a profit that fell below analysts’ expectations. Toronto-Dominion Bank, Bank of Nova Scotia and National Bank of Canada posted second-quarter results that beat analysts’ estimates.
- Stefanie Marotta
Canadian Imperial Bank of Commerce (CM-T) surged over 7 per cent with the release of second-quarter earnings that beat analyst estimates, helping the lender build on the positive momentum it has established in recent months.
CIBC made $1.7-billion last quarter, or $1.79 per share, and earnings per share were up 2 per cent year-over-year. After adjusting for one-time items, the bank made $1.75 per share, beating analyst estimates of $1.65 per share.
Canadian banks have reported mixed results this quarter, with higher provisions for credit losses at some lenders concerning investors. Interest rates have remained higher for longer, making it more expensive for clients to borrow, which has pushing bankruptcies higher.
CIBC’s provisions for credit losses, however, dropped slightly quarter-over-over, particularly in Canadian personal and commercial banking, which is the lender’s largest division.
CIBC has also focused on expense control in recent quarters, and that continued. The bank reported operating leverage of 3 per cent in Canadian personal and commercial banking, meaning revenues in its largest unit are growing faster than expenses.
- Tim Kiladze
EQB Inc. (EQB-T) was the top performer on the financials index on Thursday, jumping 13.5 per cent, after it beat exceeded expectations with its second-quarter results.
After the bell on Thursday, the Toronto-based bank reported normalized earnings per share of $2.81, topping the consensus projection on the Street by 15 cents.
It also revealed a 7.1-per-cent dividend increase (to $1.80 per share annually).
“We have a slightly positive view of Q2/24 results as EPS was ahead of our forecast with loan growth in line with our forecast, but NIM [net interest margin] yields were up an impressive 10 basis points quarter-over-quarter, said RBC Dominion Securities analyst Geoffrey Kwan in a note. “However, similar to bank peers, certain credit metrics continued to worsen and despite gross impaired loans declining slightly quarter-over-quarter, we expect PCLs to improve exiting 2024. RBC Economics’ forecasts don’t reflect a severe economic recession or housing downturn and as such, with EQB’s shares trading at just above 1.0 times P/BV and our forecast of a mid-teen ROE over the next couple of years, we view the shares as attractively valued.”
Canada’s Brookfield (BN-T) was up 1.3 per cent after it said on Thursday that together with Brookfield Renewable Partners (BEP.UN-T) and Singapore’s Temasek Holdings it has entered into exclusive talks to buy a majority stake in French renewable power producer Neoen, valuing it at around 6.1 billion euros (US$6.6-billion).
The deal marks one of the biggest take private deals in Europe this year and comes amid strong investor interest in renewable energy assets.
Asset manager Brookfield said it is in discussions to acquire a 53.32-per-cent stake for 39.85 euros per share from Neoen’s main shareholders, and then the remainder of the company at the same price, according to a joint statement by the companies.
The offer price was almost 27 per cent higher than Neoen’s last closing price. Shares of Neoen closed at 31.40 euros on Wednesday, giving the company a market cap of about 4.8 billion euros.
“Brookfield’s offer implies an equity value for 100 per cent of the shares of 6.1 billion euros,” Neoen said in a statement.
Brookfield and partners will buy a 42-per-cent stake in Neoen owned by French billionaire Jacques Veyrat’s Impala SAS and the balance from other shareholders of Neoen, an independent producer of renewable energy operating in 16 countries.
HP Inc. (HPQ-N) was higher by almost 17 per cent after it beat Wall Street estimates for second-quarter revenue on Wednesday, signaling a recovery in the personal computer (PC) market as customers upgrade their systems.
Like other PC makers, HP experienced a boom in sales during the pandemic as consumers, businesses and schools stocked up on tech products and then a subsequent two-year sales slump. That slump is just now easing.
HP is hoping to ride a wave of upgrades after Microsoft last week unveiled a bevy of new AI features designed to work on a new generation of PCs.
Chief Executive Enrique Lores told Reuters in an interview that he expects about 10 per cent of HP’s PC sales to come from such “AI PCs” in the second half of the company’s fiscal 2024.
“The AI PCs will be really more meaningful in 2025,” Mr. Lores said on Wednesday.
“Our (fiscal) year finishes (by the) end of October. So we will really be at the very beginning still of the next-generation AI PC space.”
Mr. Lores said education customers drove sales in the second quarter, with schools upgrading their systems after a nearly two-year long demand slump following COVID-19.
HP posted second-quarter revenue of US$12.8-billion, above analysts’ average estimate of US$12.6-billion, according to LSEG data.
In the reported quarter, sales of HP’s personal systems segment — home to its desktop and notebook PCs — rose 3 per cent from a year ago, while its printing segment posted an 8-per-cent fall.
The company now expects fiscal 2024 adjusted profit to be in the range of US$3.30 to US$3.60 per share, compared with its previous outlook of between US$3.25 and US$3.65 per share. The midpoint of the full-year range was US$3.45, above analyst estimates of US$3.43.
It expects adjusted profit per share with a midpoint of 85 US cents in the third quarter ending in July, in line with analysts’ average estimate of 85 US cents.
Best Buy (BBY-N) saw gains of 13.4 per cent after it beat Wall Street estimates for quarterly profit on Thursday as benefits from its membership program and cost-saving efforts helped overcome a steeper-than-expected drop in comparable sales.
While consumers in the United States are still shy on big-ticket discretionary spending, Best Buy is hoping to see sales normalize this year as shopping for electronics gets a boost from consumers looking to upgrade or replace their gadgets after more than two years of restraint on spending on electronics.
The company has also benefited from people signing up for its two-tiered membership program, which it refreshed last year, helping the top electronics retailer in the United States retain shoppers and drive better margins.
Best Buy also maintained its annual comparable sales forecast of flat to a decline of up to 3 per cent, and CFO Matt Bilunas said the company believes it was trending towards the midpoint of that range on sequential improvement in sales.
“The company is managing profitability well with benefits from its paid membership program, services sales growth and expense cuts,” said Wedbush analyst Seth Basham, adding that Best Buy maintaining its annual forecasts was a positive.
Best Buy said in February that it ended fiscal year 2024 with 1.2 million new members and that increased profitability through the program added about 45 basis points of total year-on-year operating income expansion in fiscal 2024.
Best Buy reported a drop in comparable sales for a tenth straight quarter and said its sales were “slightly softer” than its expectations in the reported period.
Best Buy reported a 6.1-per-cent fall in quarterly comparable sales, while analysts expected a fall of 4.94 per cent, according to LSEG data.
First-quarter adjusted earnings per share of US$1.20 beat expectations of US$1.08.
On the decline
AltaGas Ltd. (ALA-T) was narrowly lower after approval of a $1.35-billion terminal that will export energy products such as propane to Asia from British Columbia with partner Royal Vopak NV.
Construction will start this summer on the Ridley Island Energy Export Facility, or REEF, located on 77 hectares of land leased from the Prince Rupert Port Authority.
Reaction from the Street: Thursday's analyst upgrades and downgrades
Calgary-based AltaGas and Netherlands-based Vopak are equal partners in the new venture, with plans for exporting liquefied petroleum gas such as propane and butane, as well as shipping methanol and other bulk liquids.
“AltaGas and Royal Vopak are pleased to announce a positive final investment decision,” the companies said in a joint release.
The port authority previously granted exclusive rights for developing liquefied petroleum gas and bulk liquids on Ridley Island to AltaGas and Vopak, through its Vopak Pacific Canada unit.
“Reaching this critical milestone with Vopak Pacific is good news for Prince Rupert, for B.C. and for Canada, as we continue to deliver responsibly produced Canadian energy to global markets,” AltaGas chief executive officer Vern Yu said in a statement.
“We would not be here without the support and consultation of our Indigenous partners and the community.”
- Brent Jang
Salesforce (CRM-N) shares sank 19.7 per cent on Thursday after its lowest quarterly revenue growth forecast on record raised fears that high interest rates and AI offerings from rivals were hampering demand at the cloud-based software firm.
“Weak bookings in Q1 further test investor patience as the GenAI (generative AI) innovation cycle has yet to inflect top-line results and now increasingly becomes a point of competitive concern,” Morgan Stanley analysts said in a client note.
Some brokerages warned that the forecast also meant software demand had slowed further in April as the U.S. economy showed some signs of cooling.
“It seems like the selling environment got worse from the end of March and more pronounced in April, which could explain why the off-cycle names, like Workday or Salesforce, suffered more than ServiceNow or Microsoft,” Barclays analysts said.
Still, Salesforce’s reiterated fiscal 2025 revenue forecast offered some optimism to Wall Street.
“With a strong focus to build pipeline, there is still some hope for the FY (fiscal year),” Barclays analysts said.
At least ten brokerages lowered their price targets on the stock following the results. D.A. Davidson’s PT of US$230 was the lowest among 49 analysts covering the stock.
So far this year, Salesforce and ServiceNow (NOW-N) have risen more than 3 per cent, Microsoft (MSFT-Q) has gained 14 per cent, while Workday (WDAY-Q) has shed 23 per cent.
U.S. department store chain Kohl’s (KSS-N) cut its annual sales and profit forecast after posting a surprise quarterly loss on weaker consumer demand for its apparel and footwear, dragging its shares down almost 23 per cent on Thursday.
American shoppers are still prioritizing essential purchases over discretionary products like apparel, electronics and home goods, as they face dwindling pandemic-era savings and higher interest rates.
“We recognize we have more work to do in areas of our business. We are approaching our financial outlook for the year more conservatively given the first-quarter underperformance and the ongoing uncertainty in the consumer environment,” Chief Executive Officer Tom Kingsbury said in a statement.
The department store chain’s dismal quarterly report comes in contrast to some of the other retailers including Abercrombie (ANF-N), which reported strong first-quarter sales.
Kohl’s also said that lower clearance sales compared to last year resulted in a more than 600-basis-point drag on comparable sales that decreased 4.4 per cent in the first quarter.
The company forecast fiscal 2024 net sales to fall between 2 per cent and 4 per cent, compared with its previous expectation of between a 1-per-cent drop and a 1-per-cent rise.
It also expects annual earnings per share in the range of US$1.25 and US$1.85, compared with its previous forecast of US$2.10 to US$2.70.
Despite the quarterly loss, Kohl’s gross margin improved by 48 basis points in the quarter due to better inventory management.
The company reported a per-share loss of 24 US cents in the first quarter, while analysts were expecting a profit of 4 US cents per share, according to LSEG data.
Dollar General (DG-N) beat estimates for first-quarter same-store sales and profit on Thursday, as more Americans flocked to its stores for pocket-friendly groceries and essentials at a time when sticky inflation continues to pressure household budgets.
Shares of the Goodlettsville, Tennessee-based company were 8 per cent lower after initial gains.
Dollar General has been focusing on selling relevant merchandise, having more employees at stores and expanding private-label brands, as it looks to attract consumers in the face of rising competition from rivals Walmart, Target and Chinese e-commerce platform Temu.
“These results were driven by strong customer traffic growth and market share gains during the quarter,” said CEO Todd Vasos.
Visits to Dollar General were up 12.6 per cent year-over-year in the first quarter, while rival Dollar Tree (DLTR-Q) saw a 12.4-per-cent rise, according to data analytics firm Placer.ai.
Robust quarterly results from bellwether Walmart (WMT-N) earlier in May have indicated that U.S. shoppers are still resilient, even as rival Target cautioned about shoppers delaying purchases and spending increasingly on out-of-home activities.
Dollar General’s same-store sales rose 2.4 per cent for the quarter, compared with analysts’ average estimate of a 1.61-per-cent increase, according to LSEG data.
The discount retailer posted per-share profit of US$1.65, compared with analysts’ expectation of US$1.57.
Its gross profit as a percentage of net sales, however, came in at 30.2 per cent, down from 31.6 per cent a year earlier, as it resorted to higher markdowns and saw an increase in retail shrink, where inventory is lost or damaged due to theft or breakage.
With files from staff and wires