A survey of North American equities heading in both directions
On the rise
Shares of Gildan Activewear Inc. (GIL-T) were higher by 1.3 per cent in the wake of reporting its third-quarter profit and sales rose compared with a year ago.
Gildan’s chief executive also brushed off concerns Thursday that a recent merger between two of its biggest customers will spell trouble for his business.
Glenn Chamandy positioned the August deal uniting Pennsylvanian wholesale apparel supplier Alphabroder with Illinois-based garment distributor S&S Activewear as a good thing for his business, even though analysts have wondered if the new company will be able to put pressure on Gildan’s margins.
“I think that we’re going to be the beneficiary of consolidation,”Mr. Chamandy said on a call with analysts, noting consolidation has been a reality in the market for at least 20 years. “This is not new.”
The deal that combined two major players in the apparel business which Montreal-based Gildan specializes came together as a flurry of changes were taking shape across the sector.
Delta Apparel has filed for bankruptcy protection in the U.S. and Mr. Chamandy said Fruit of the Loom is pulling out of the printwear market.
Neither move appeared to worry Mr. Chamandy, who argued the changes gave Gildan “a competitive advantage.”
The clothing maker says it earned $131.5-million or 82 cents per diluted share for its latest quarter compared with a profit of $127.4-million or 73 cents per share in the same quarter last year.
Net sales for the quarter totalled $891.1-million, up from $869.9-million a year earlier.
On an adjusted basis, Gildan says it earned 85 cents per diluted share in its latest quarter, up from an adjusted profit of 74 cents per share in the same quarter last year.
In its guidance, Gildan says it now expects revenue growth for the full year to be up low-single digits, compared with earlier guidance of flat to up low-single digits.
The company also says it now expects adjusted diluted earnings per share for the year in a range of $2.97 to $3.02, compared with previous guidance of $2.92 to $3.07.
Citi analyst Paul Lejuez said: “GILL reported a solid quarter with adj EPS of $0.85 vs. our estimate of $0.82 and consensus of $0.85 with sales up 2.4 per cent vs cons up 1.5 per cent and our est of up 2.0 per cent. The top-line beat was driven by strong results within Activewear (up 5.9 per cent vs cons up 3.3% per cent). Importantly, Hosiery & Underwear would have been +LDD [up low double digits] (vs down 18 per cent reported) excluding the UAA sock license business that was terminated in March 2024. POS was positive in North America and GIL is seeing momentum with National account customers. GIL updated their F24 guidance for sales +LSD (vs flat to +LSD previously) and EPS of $2.97-3.02 (vs 2.92-3.07 previously). F24 guidance implies 4Q EPS of $0.79-0.84 vs cons $0.80. Overall 3Q was strong and 4Q guidance (at the mid-point) is above cons, which we believe will be enough to drive shares higher today.”
On the decline
Shares of Canadian Natural Resources (CNQ-T), the country’s largest oil and gas producer, lost 0.3 per cent on Thursday after it said it would drill fewer dry natural gas well this year than originally planned due to the decline in prices.
The country’s natural gas prices slumped to their lowest in more than two years in the July-September quarter as storage levels in Alberta reached full capacity due to weak demand across North America.
Months of subdued prices had already prompted a number of major producers, including Canadian Natural, to shut in or delay completing natgas wells.
In August, Canadian Natural said it would delay completing some new wells due to weak market conditions. It now said it plans to drill a net total of 74 wells in 2024, 17 fewer than its original target for the year.
However, it maintained its forecast of natgas production of 2.12-2.23 billion cubic feet per day (bcfpd) for the year.
That was despite a 4.7-per-cent drop in natgas production to 2.05 bcfpd in the latest third quarter, which led to a 2-per-cent drop in overall production to 1.36 million barrels of oil equivalent per day (boepd).
Canadian Natural’s natgas realized price plunged 55.5 per cent to $1.25 per thousand cubic feet in the quarter, while realized prices for synthetic crude oil fell 7 per cent to $100.93 per barrel.
Global oil prices dropped during the quarter, hurt by sluggish demand from top importer China and oversupply concerns.
The Calgary-based company posted adjusted net earnings from operations of 97 cents per share for the quarter ended Sept. 30.
That was higher than analysts’ average estimate of 90 cents per share, according to data compiled by LSEG.
In a note released before the bell titled Looks Like Another Flawless Quarter, RBC analyst Greg Pardy said: “CNQ reported strong third-quarter results that came in 11 per cent above on AFFO/shr. and in line on production, amid 4 per cent lower capital spending vis-à-vis Street consensus. Shareholder returns totalled circa $1.9 billion in the third-quarter. CNQ is our favorite senior producer and on our Global Top 30 and Global Energy Best Ideas lists.”
Canadian oil and gas producer Cenovus Energy (CVE-T) was down 3.4 per cent after it posted a 56-per-cent slump in third-quarter profit on Thursday due to a decline in production and throughput volumes following oil sands and U.S. refinery maintenance, as well as lower commodity prices.
Global benchmark Brent crude futures averaged US$78.30 a barrel in the reported quarter, nearly 9 per cent lower than a year earlier, while Canadian natural gas prices also slumped.
Cenovus said total upstream production was 771,300 barrels of oil equivalent per day (boepd) in the quarter, down from 797,000 boepd a year earlier, primarily because of maintenance at its Christina Lake oil sands facility in northern Alberta.
The company shuttered an estimated 42,000-47,000 bpd of upstream production in the third quarter, compared with 11,000-14,000 bpd in the previous three months.
Total downstream throughput for the quarter ended Sept. 30 fell 3% year-on-year to 642,900 barrels of crude oil per day (bpd) due to a major turnaround at its 183,000 bpd Lima, Ohio, refinery.
Some analysts noted that Cenovus’s U.S. refining margins were weaker than expected.
CEO Jon McKenzie said completing the turnarounds puts Cenovus in a position to boost its performance over the rest of the year and into 2025 and the company was making progress on optimizing oil sands production at its Sunrise and Foster Creek projects.
Cenovus is also close to completing a project bring on 20,000-30,000 bpd of new production from its Narrows Lake site.
“We expect to see material growth in the oil sands business over the next two years,” McKenzie told analysts on an earnings call.
On the natural gas side, the company is deferring the completion of some new gas-weighted wells due to low prices.
The Calgary-based company’s net income fell to $820-million, or 42 cents per share, in the three months ended Sept. 30, from $1.86-billion, or 97 cents per share, a year earlier.
TMX Group Ltd. (X-T) slipped 0.9 per cent after saying it earned $82.7-million in its third quarter, slightly down from $85.3-million a year earlier.
Revenue for the company that operates the Toronto Stock Exchange totalled $353.8-million.
That’s up 23 per cent from $287.3 million during the same quarter last year.
Diluted earnings per share were 30 cents, down from 31 cents a year earlier.
CEO John McKenzie says the company has delivered three consecutive quarters of organic revenue growth.
He says positive momentum in high-growth areas of the business coupled with strong performance in more traditional markets were partially offset by challenging capital-raising conditions.
“TMX beat our forecast (and consensus) due to higher-than-expected revenue, and lower expense growth,” said TD Cowen analyst Graham Ryding. “All sources of revenue were either stronger than expected, or largely inline (although Vettafi was a bit light). FCF was a bit light, but leverage ticked down quarter-over-quarter. Fundamentals remain strong, but valuation appears fair, to full, in our view.”
After the late Wednesday release of weaker-than-anticipated third-quarter results and a reduction to its full-year guidance, Parkland Corp. (PKI-T) was lower.
The Calgary-based company reported adjusted EBITDA for the quarter of $431-milllion, down from $585-million during the same period a year ago and 4 per cent below the recently lowered estimate of the Street ($451-million).
On Thursday, Parkland lowered its full-year earnings forecast, as sluggish market conditions continue to take a bite out of margins at the company’s Burnaby, B.C. refinery.
The Calgary-headquartered company is experiencing similar challenges to refiners worldwide, as the industry deals with a glut of fuel supply and weak global economic conditions that have reduced demand.
Some U.S. refiners have announced plans to temporarily curb their output as a result of the weak market conditions.
Parkland said Wednesday after the close of markets that it is lowering its full-year 2024 adjusted earnings guidance to between $1.7- and $1.75-billion, down from a previous forecast of between $1.9- and $2.0-billion.
CEO Bob Espey said on a conference call Thursday he expects the challenging refinery market conditions to persist through the remainder of the year.
For the third quarter, Parkland reported its earnings declined by 60 per cent year-over-year, from $230-million in 2023 to $91-million in the third quarter of 2024.
“Weak Refining capture rates left Q3 earnings short of already reduced estimates, while low crack spreads and International wholesale volumes led PKI to cut 2024 adj. EBITDA guidance to $1.70-$1.75-billion (from $1.9-$2.0-billion),” said TD Cowen analyst Michael Van Aelst. “Our estimate drops to $1.72-billlion and consensus (currently 1 per cent above the top end) should follow.”
Open Text Corp. (OTEX-T) declining after reporting first-quarter profit of US$84.4-million, up from US$80.9-million a year earlier, as its revenue fell 11 per cent following the sale of its AMC business to Rocket Software.
The business software company says its profit amounted to 32 US cents per diluted share for the quarter ended Sept. 30, up from 30 US cents per diluted share in the same quarter last year.
Revenue for the first full quarter after the AMC sale totalled US$1.27-billion, down from US$1.43-billion a year earlier.
Open Text said total revenue was down 1.8 per cent when adjusted for the AMC divestiture.
On an adjusted basis, Open Text says it earned 93 US cents per diluted share in its latest quarter, down from an adjusted profit of US$1.01 per diluted share a year ago.
Analysts on average had expected a profit of 80 US cents per share, according to LSEG Data & Analytics.
BMO analyst Thanos Moschopoulos said: “OTEX reported Q1/25 results that were light on revenue and a beat on EBITDA, while providing weak Q2/25 guidance (implying negative 5 per cent to negative 8 per cent organic growth, due in part to a tough comp stemming from patent settlements in Q2/24) and reiterating its full-year 2025 guidance. While OTEX continues to execute well on margins and valuation remains undemanding, we believe OTEX will need to demonstrate better organic growth in order for the stock to work.”
Kinaxis Inc. (KXS-T) turned lower despite the late Wednesday release of better-than-expected third-quarter results and raise to its full-year subscription term license guidance.
The Ottawa-based supply chain management and sales and operation planning software company reported consolidated revenue of $121.5-million, up 12.4 per cent-over-year but narrowly below the Street’s $122.5-million estimate. However, adjusted EBITDA jumped 31.6 per cent to $30-million, topping the consensus forecast of $24.5-million.
“Management reiterated FY24 revenue guidance of $483-$495-million, representing year-over-year growth of 15-17 per cent,” said ATB Capital Markets analyst Martin Toner. “Management also reiterated FY24 SaaS revenue growth guidance of 15-17 per cent, while increasing FY24 subscription term license guidance from $9-$11-million to $11-$12-million. We view the EBITDA margin and subscription term license guidance increases positively. Incremental ARR was $8-million this quarter, down from $11.0-million in Q3/23 and below our estimate of $12-million. We will look for updates on the earnings call [Thursday] morning around the outlook for topline growth, SaaS backlog growth and the state of the enterprise spend environment heading into 2025.”
Toronto’s Spin Master Corp. (TOY-T) slid after saying it earned US$140.1-million in its third quarter, down 15 per cent from a year earlier.
The toy company known for Paw Patrol and other popular brands says revenue totalled US$885.7-million, up from US$710.2-million during the same quarter last year.
Diluted earnings per share were US$1.32, down from $1.45 during the third quarter of 2023.
President and CEO Max Rangel says though the softer economic environment is still a challenge for Spin Master, the toy segment helped drive growth in the third quarter.
Toy revenue was up almost 35 per cent, while the company saw declines in revenue from entertainment and digital games.
Revenue growth year over year was helped by revenue from Melissa & Doug, a toy brand that Spin Master acquired early in 2024.
In a research note, Stifel analyst Martin Landry said: “Spin Master reported Q3/24 results, which were slightly lower than our Street-high expectations and consensus estimates. However, the company maintained its annual guidance, suggesting a shift out of Q3/24 and into Q4/24 vs consensus estimates. Management also reiterated its annual revenue guidance for Melissa & Doug of $372.5 millions at the midpoint, which may reassure some investors. As with previous quarters, the Entertainment and Digital Games segments continue to weigh on the results as revenues from toys were up 9 per cent organically, when excluding the contribution from Melissa & Doug. Shares of Spin Master performed well recently, up 5 per cent in the last week. Given the unchanged guidance, and good POS performance, we believe that Spin Master’s shares could maintain their recent gains. In addition, comments from peers, and indications from our consumer survey, suggest that the holiday period could generate higher sales year-over-year, supporting management’s implied Q4/24 guidance.”
Rogers Communications Inc. (RCI-B-T) lost ground after Blackstone Inc. (BX-N) was revealed as the mystery investor bidding $7-billion for a minority stake in its cellphone infrastructure business, after the Wall Street asset manager won a hotly-contested auction of the business this fall.
On Oct. 24, Rogers announced it had struck a non-binding agreement to sell a portion of its wireless backhaul network, which connects cellphone towers to the company’s core network, to an unnamed “leading global financial investor.”
New York-based Blackstone is the potential buyer, according to two sources familiar with the transaction. The Globe and Mail agreed not to name the sources because they are not authorized to speak for the companies. Rogers and Blackstone declined to comment.
Blackstone and Rogers are using a financing structure modelled on a series of deals done by asset manager Apollo Global Management Inc.. The transactions create stand-alone businesses out of internal operations which generate reliable cash. When Rogers announced its plans earlier this month, chief executive officer Tony Staffieri said: “This structured financing transaction is the first of its kind in Canada.”
In 2020, New York-based Apollo paid US$3-billion for a 49 per cent stake in the beer can manufacturing division of Budweiser parent Anheuser-Busch InBev SA/NV. In June, Apollo invested US$11-billion for a 49 per cent holding in Intel Corp.’s computer chip manufacturing operations. In a news release, Apollo and Intel described the deal as “a funding approach designed to create financial flexibility to accelerate the company’s strategy.”
- Andrew Willis
Veren Inc. (VRN-T) saw its share price plunge more than 15 per cent as of mid-day trading Thursday, on news that the company is lowering its production forecast for 2024 and grappling with “under-performance” from some of its wells.
The company, which has operations in Alberta and Saskatchewan and used to be known as Crescent Point Energy Corp., said Thursday it now expects total annual average production of 191,000 barrels of oil equivalent per day, down from earlier expectations for between 192,500 and 197,500 boe/d.
It also announced disappointing results from the Gold Creek area of Alberta’s Montney oil-and-gas-producing region, where it was testing a new type of well design in an effort to improve efficiencies.
The “plug and perf” well design, as it is referred to in industry terms, is used to create multiple hydraulic fractures in a horizontal well. Veren had been enthusiastic about the potential for this type of well design to produce the same output at a lower cost than single-point-entry fracturing.
But at Gold Creek, production results from its test wells failed to meet Veren’s expectations, and the company reported Thursday it will stick to single-point-entry well design in the region after all.
On a conference call with analysts, Veren CEO Craig Bryksa fielded multiple questions about the disappointing well test results and lowered production forecast. He emphasized that it is only a few well pads in one specific region that have under-performed, and said he believes the stock price impact Thursday was an “overreaction.”
“I think this will filter through in the next couple days,” Mr. Bryksa said, adding that testing the “plug and perf” design in the area was a learning experience that has served to increase the company’s understanding of the region.
“I think the market will start to see the opportunity in front of them, and I’m excited when we start to look into 2025, knowing we’re so much smarter going into that year than we were going into 2024.”
In recent years, Veren has spent significant energy and capital on the Montney region. The company has been one of the most active Canadian oil and gas companies in recent years on the mergers and acquisitions front, as it sought to restructure its portfolio of assets to focus on the Montney and the adjacent Kaybob Duvernay shale gas play.
A series of blockbuster deals — which included the 2021 purchase of Shell Canada’s Kaybob Duvernay assets for $900 million, the 2023 purchase of Spartan Delta Corp.’s Montney assets for $1.7 billion and the purchase of Hammerhead Energy Corp.’s Montney assets for $2.55 billion shortly after that — has established Veren as the dominant player in two of North America’s most important petroleum plays.
Approximately 85 per cent of the company’s 2025 budget is allocated to its Alberta Montney and Kaybob Duvernay plays.
“We continue to expect 2024/25 to be operationally focused with minimal M&A,” said RBC Capital Markets analyst Michael Harvey in a note.
Mr. Harvey called Veren’s third-quarter results “negative” and pointed out that in addition to trimming its 2024 forecast, the company also unveiled a 2025 forecast that came in five per cent below what analysts had been expecting.
Microsoft (MSFT-Q) predicted increased spending on artificial intelligence this quarter but slower growth in its cloud business Azure, signaling that big AI investments were not enough to keep pace with capacity constraints at its data centres.
Shares of the Redmond, Washington-based company dipped on Thursday despite beating Wall Street’s estimates for first-quarter revenue and profit.
Brett Iversen, Microsoft’s vice president of investor relations, reiterated that Microsoft will not be able to address AI capacity constraints until the second half of its fiscal year.
Microsoft forecast second-quarter Azure revenue growth of 31 per cent to 32 per cent, lagging the 32.25-per-cent growth expected on average by analysts, according to Visible Alpha. Azure revenue rose 33 per cent in its fiscal first quarter ended Sept. 30, slightly ahead of estimates.
AI contributed 12 percentage points to Azure’s growth in the first quarter, compared with 11 percentage points in the prior three-month period.
Microsoft has been pouring billions into building its AI infrastructure and expanding its data-center footprint. For the quarter, Microsoft said capital expenditures rose 5.3 per cent to US$20-billion, compared with US$19-billion in the previous quarter. That was higher than Visible Alpha estimates of US$19.23-billion.
Its hefty spending has raised concerns among some investors.
The company has been the worst performer among Big Tech names this year, having gained just over 15 per cent, while Meta has surged 68 per cent and Amazon climbed 28 per cent.
Microsoft will spend over US$80-billion this fiscal year, which began in July, according to analyst estimates from Visible Alpha. That is an increase of more than $30 billion from its last fiscal year.
“Microsoft is escalating a CapEx war that it may not be able to win. That level of investment is very high, it created a very big drag on free cash flow and will create a very big drag on margins going forward,” said Gil Luria, head of technology research at D.A. Davidson.
The quarterly earnings are Microsoft’s first since it restructured the way it reports its businesses to align them more closely with how they are managed. That move has, however, made it harder to estimate the quarter’s performance.
Earnings per share stood at US$3.30, compared with analysts’ average estimate of US$3.10, according to LSEG data.
Revenue rose 16 per cent to US$65.6-billion in the fiscal first quarter ended September, compared with analysts’ average estimate of US$64.5-billion, according to LSEG.
The company is seen as the leader among Big Tech peers in the AI race thanks to its exclusive partnership with ChatGPT maker OpenAI. Microsoft’s Azure customers get access to OpenAI’s latest models, such as its o1 models, capable of answering challenging math, science and coding problems.
Facebook owner Meta Platforms (META-Q) warned of “significant acceleration” in artificial intelligence-related infrastructure expenses next year, while beating analysts’ estimates for third-quarter revenue and profit.
The results sent mixed signals to investors about whether digital ad sales from Meta’s core social media business would continue to cover the cost of its massive AI buildout.
Shares of the Menlo Park, California-based firm were down in Thursday trading.
“Meta needs to prove that it can continue to cover its AI costs as they rise next year, and any weakness in its core ad business could make investors nervous as they continue to wait for a return on Meta’s bigger AI bets,” said Emarketer principal analyst Jasmine Enberg.
Like its Big Tech peers, Meta has invested heavily in data centres to capitalize on the generative AI boom. Unlike providers of cloud services, however, it does not expect to earn money from those investments right away and therefore is more subject to scrutiny from investors around its spending.
Meta CEO Mark Zuckerberg acknowledged in a conference call with analysts that more infrastructure spending “is maybe not what investors want to hear in the near term,” but said the company nonetheless would continue to invest.
“I just think that the opportunities here are really big,” he said. Mr. Zuckerberg added that Meta AI, a generative AI chatbot assistant that can generate images and answer questions, now has more than 500 million monthly active users. That represents a substantial jump from the 400 million users the company said were using Meta AI as of its last disclosure in September.
The world’s biggest social media company kept costs in check in the third quarter, with total expenses of US$23.2-billion and capital expenditure of US$9.2-billion. It projected a slightly improved expense picture for the year as well, narrowing its total expense forecast to US$96-billion to US$98-billion.
In its press release, however, it warned of “a significant acceleration in infrastructure expense growth next year as we recognize higher growth in depreciation and operating expenses of our expanded infrastructure fleet.” Investors have been wary of Meta’s spending in recent months. Its shares sank in April after it disclosed a higher-than-expected expense forecast, knocking US$200-billion off its stock-market value. That ended a run of strong quarters for Meta, which has climbed back from a share-price meltdown in 2022 by slimming its workforce, leaning in to investor excitement about AI and earlier this year issuing its first-ever dividend.
The company’s shares are up around 500 per cent from the bottom and about 67 per cent so far this year.
Meta reported third-quarter profit of US$6.03 per share, compared with estimates of US$5.25 per share, according to data compiled by LSEG. Third-quarter revenue stood at US$40.59-billion, compared with analysts’ estimates of US$40.29-billion.
The company also forecast between US$45-billion and US$48-billion in fourth-quarter revenue, compared with analysts’ estimates of US$46.31-billion, according to data from LSEG.
Uber Technologies (UBER-N) pointed to a further slowdown in its mainstay app-based taxi business as it forecast fourth-quarter gross bookings below Wall Street estimates, sending its shares down.
Bookings growth, a key measure of ridership for online taxi operators, slowed to a more than one-year low in the third quarter and also fell short of analysts’ forecasts.
Shares of rival Lyft (LYFT-Q), which is set to report quarterly results next week, also fell.
Uber’s outlook underlined concerns about weakening demand in the ride-hailing industry in recent quarters as an uncertain economy and high inflation weigh on commuters.
“High interest rates have taken their toll on consumers, who’ve also had to cope with higher prices right across their finances and some are now looking to cut back on unnecessary spending,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“It’s likely that there’s been a bit of a shift towards cheaper modes of transport.”
The company, the dominant player in the North American ride-sharing market, sees suburban areas both in the U.S. and elsewhere as a next growth driver amid worries about market saturation.
“It’s a common misconception that almost everyone already uses Uber,” CEO Dara Khosrowshahi said in prepared remarks.
He said the company plans to capture suburban markets through better pricing strategies for longer distances and by focusing on features that allow people to wait and reserve rides in these areas.
Gross bookings for Uber’s mobility business grew 26.4 per cent, with user engagement hitting an all-time high. Overall revenue for the third quarter came in at US$11.19-billion, beating the average analyst estimate of US$10.98-billion.
Net income attributable to Uber stood at US$2.61-billion in the third quarter, including a US$1.7-billion pre-tax gain related to the company’s equity investments, while operating profit was a record $1.06 billion.
Adjusted earnings before interest, taxes, depreciation and amortization - a closely-watched profitability metric - came in at US$1.69-billion, compared with analysts’ average estimate of US$1.64-billion.
The company forecast fourth-quarter adjusted EBITDA to come in between US$1.78-billion and US$1.88-billion versus analysts’ expectation of US$1.84-billion.
With files from staff and wires