A survey of North American equities heading in both directions
On the rise
Suncor Energy Inc. (SU-T) rose 0.4 per cent after Elliott Investment Management revealed it it has nearly doubled the size of its investment in the Calgary-based company, believing ongoing improvements will yield a higher share price that
Elliott now owns a stake of nearly US$3-billion in the company, up from the US$1.6-billion stake, or around 3.4 per cent, it owned in 2022 when it pushed the company to refresh the board, overhaul management and begin a strategic review, Elliott portfolio manager Mike Tomkins said on Tuesday at the 13D Monitor Active-Passive Investor Summit.
Soon after Elliott arrived the company installed a new chief executive, Rich Kruger, who has helped improve the company’s safety record after more than a dozen deaths and improve performance.
Mr. Tomkins called Mr. Kruger and his management team “rockstars” and said that the CEO has helped change the company’s culture so dramatically that investors who had fled are now returning.
But Mr. Tomkins noted that the stock price, even though it has gained 22 per cent since January, has not re-rated.
“This does not surprise us,” Mr. Tomkins said, adding that “these turnaround stories take a while to actually roll into the stock price.”
He remains convinced that the stock price will continue to climb.
General Motors (GM-N) surpassed Wall Street’s expectations in the third quarter, sending its shares up almost 10 per cent on Tuesday thanks to a resilient consumer demand for its trucks and SUVs.
“The consumer has held up remarkably well for us,” Chief Financial Officer Paul Jacobson said, predicting demand would improve next year as financing rates fall.
The automaker once again boosted its pretax profit forecast for 2024, a relief for investors worried about a potential decline in industry earnings due to still-high interest rates.
But with the U.S. job market holding up well, GM’s sales of gasoline-powered SUVs have remained resilient.
Tuesday’s rally pushed the company’s stock to a two-and-a-half year high as it touched US$53.25 in morning trading.
GM said on Tuesday it was on track to deliver between US$14-billion and US$15-billion in pretax profit, an increase from mid-year’s US$13-billion to US$15-billion range due to strong pricing and consumer spending.
Its adjusted earnings per share of US$2.96 for the quarter outpaced market expectation of US$2.43, while revenue of US$48.8-billion beat estimates of US$44.6-billion.
CEO Mary Barra has been focusing on stability, saying earlier this month that GM’s profit next year is expected to look similar to this year.
GM has said pricing could be softer next year, but it expects results to be supported by cost cuts on SUVs and electric vehicles and improvement in China.
The company is still facing challenges in China, the second-largest world economy, where it posted a loss of US$210-million in the first half. GM lost another US$137-million in the region in the third quarter and is planning to restructure its operations there.
On a post earnings call with analysts, Ms. Barra said GM would hold shareholder and joint venture board meetings in the fourth quarter focused on the division’s operations.
“We really haven’t instituted any of the real restructuring yet,” Jacobson said, adding that sales in the region are up and inventory down.
GM’s stock is up 36 per cent this year, outpacing rivals Stellantis and Ford Motor, whose share prices have fallen in the same period.
Ford has struggled with costly quality problems and Stellantis witnessed lower sales and revenue in North America after it raised prices and held back on incentives.
Wedbush analyst Dan Ives called GM’s forecast update and results a “large step in the right direction” as the automaker navigates an uncertain market.
Montreal-based TFI International Inc. (TFII-T) increased 0.7 per cent despite the release of weaker-than-anticipated third-quarter results after the bell on Monday as both its truckload and less-than truckload business felt short of expectations.
The transportation and logistics provider reported revenue of US$2.185-billion, up 14.3 per cent year-over-year but below the Street’s projection of US$2.26-billion. Quarterly adjusted earnings of US$1.60 per share was up 3 US cents from the same period a year ago but 18 US cents below the consensus forecast.
In a research note, RBC Dominion Securities analyst Walter Spracklin said: “Overall, our early take on [Monday’s] results is negative, with EPS coming in well below. Variance to our estimates was in LTL and TL, with management flagging an uncertain macro backdrop and weak conditions in US LTL. More specifically, US LTL O/R came in at 92.2 per cent (vs. 90.8 per cent in Q2/24) - while not totally unexpected given the tough operating backdrop and recent updates from peers, a negative nonetheless in our view and below our expectations coming into the quarter. On the outlook, management flagged that the environment remains uncertain (in line with our view and recent updates form FedEx); however, we continue to see TFII as well positioned for when the freight cycle inflects given its operational focus and recent acquisition on Daseke. Important tomorrow on the call will be color on the company’s LTL O/R outlook as well as on the Daseke integration, and management’s ability to drive further margin improvement if the operating backdrop remains challenged. The Board of Directors also approved an increase to the quarterly dividend to $0.45/share (from $0.40/share), which represents a forward yield of 1.3 per cent on [Monday’s] closing price - the increase was directionally in line with our expectations for a 10-per-cent increase.”
Freeport-McMoRan Inc. (FCX-N) saw gains after it reported a third-quarter profit on Tuesday that beat analysts’ estimates as higher copper prices helped offset a drop in production.
Average copper prices rose in the quarter on signs of better demand in top consumer China, falling inventories and as the country unleashed wide-ranging stimulus measures to boost its flagging economy.
Freeport’s quarterly average realized price for copper was US$4.30 per pound, compared with US$3.80 per pound a year earlier.
The company’s copper production in the quarter fell to 1.05 billion recoverable pounds from 1.09 billion recoverable pounds.
Reuters reported last week that Freeport will postpone sales of refined copper from Indonesia until the second quarter of 2025 as a fire at its new smelter caused a further production delay, according to two sources with knowledge of the matter.
Freeport Indonesia halted copper cathode production at its Manyar smelter after a fire at a sulphuric acid unit at the site in East Java province, which was later extinguished.
Freeport also lowered its full year capital expenditure forecast to US$4.6-billion from US$4.7-billion.
On an adjusted basis, the company earned 38 US cents per share in the third quarter, compared with the average analyst estimate of 35 US cents per share, according to data compiled by LSEG.
U.S.-listed shares of SAP (SAP-N) were up after the German software company raised its full-year targets on a strong cloud business in the third quarter.
Cloud revenue grew 27 per cent, adjusted for currency effects, to 4.35 billion euros (US$4.71-billion) in the third quarter, boosted by a 36-per-cent rise in sales of Cloud ERP Suite resource planning software.
Artificial intelligence was a key growth driver, according to CEO Christian Klein. “Around 30 per cent of our cloud contracts in the third quarter included AI use scenarios,” he said late on Monday.
With its guidance for 2025 unchanged, Barclays analysts wrote in a note that “even the new guide looks conservative.”
They added that management “encouragingly” spoke on this conservatism.
Operating profit grew by 28 per cent to 2.24 billion euros, exceeding expectations, helped by cost-cutting and a comparatively low number of new hires, CFO Dominik Asam said.
The company expects the cost of its restructuring to come at around 3 billion euros as it evaluates up to 10,000 jobs out of its 100,000 total headcount to prepare for the era of AI.
On this basis, the Walldorf-based group nudged up its full-year cloud and software revenue target to 29.5-29.8 billion euros from 29-29.5 billion euros.
It now sees 2024 operating profit at 7.8 billion euros, up from a forecast of 7.6-7.9 billion euros.
Philip Morris International (PM-N) gained 10.5 per cent in the wake of raising its annual profit forecast after beating third-quarter estimates on Tuesday, betting on higher prices and resilient demand for its heated tobacco products and ZYN nicotine pouches.
Growing consumer preference for smokeless alternatives to traditional combustible cigarettes and chewing tobacco products in the United States have supported demand for ZYN, which, according to the company, does not contain tobacco.
The Marlboro maker has been investing to expand production capacity for ZYN, in an effort to meet its strong demand.
U.S. ZYN shipments in the quarter grew 41.4 per cent over the prior-year period, as supply-chain constraints started to ease.
The company’s flagship heated tobacco device, IQOS, also saw strong growth in regions such as Japan, Europe and Indonesia.
Its consolidated shipment volumes for cigarettes rose 1.3 per cent in the quarter, compared with a 0.4-per-cent rise in the preceding three months.
Philip Morris expects its 2024 adjusted earnings per share, excluding currency, to be between US$6.85 and US$6.91, compared with its prior range of US$6.67 to US$6.79.
It reported revenue of US$9.91-billion for the third quarter, versus analysts’ estimate of US$9.69-billion, according to data compiled by LSEG.
Its quarterly adjusted profit of US$1.91 per share also beat estimates of US$1.82 per share.
Last week, Philip Morris said it, along with peers British American Tobacco and Japan Tobacco, would pay $32.5-billion to settle a long-running lawsuit in Canada.
On the decline
Brookfield Asset Management (BAM-T) declined 1.3 per cent as Sky News reported Barclays has re-entered negotiations about a deal to sell a stake in its British merchant payments business to the Canadian asset manager.
A deal would make Brookfield a majority stakeholder in Barclays’ merchant payments business, while providing the capital needed to fund the unit’s growth, the Sky News report said, adding the valuation was unclear.
David Milstead: As Brookfield seeks U.S. stock index membership, it could continue to turn American
Barclays, Britain’s third-biggest bank, had initially hoped to value the business at more than 2 billion pounds ($2.5-billion) but found it difficult to sell a stake at that price, Reuters had reported.
Brookfield, which manages assets worth more than $825-billion, was one of the firms that dropped out of bidding in recent months, mainly due to the price, Reuters had reported.
3M Co. (MMM-N) raised its full-year profit forecast on Tuesday, after strong demand for roofing material, industrial adhesives and electronic equipment helped the U.S. manufacturing giant beat quarterly profit estimates.
Shares closed down 2.3 per cent as 3M announced it was reviewing its portfolio and had initiated a sale process for “a few small businesses.”
CEO Bill Brown, who succeeded Mike Roman in May, said in July he would focus on new product development, which has lagged as the company shifted spending to mitigate legal liabilities and reduce supply-chain costs.
The Saint Paul, Minnesota-based company has posted upbeat results in recent quarters after suffering last year from a slump in consumer demand due to high inflation and weak China market.
In response, 3M initiated thousands of job cuts and spun off its healthcare business into a listed company, to mitigate the impact from a demand slowdown. Investors have responded by sending 3M shares up 47.5 per cent this year.
3M said on Tuesday two of its three main businesses had recorded organic sales increases, while its consumer business suffered from weak demand in areas such as packaging and home and auto care.
The company still faces lawsuits related to water pollution claims tied to Per- and polyfluoroalkyl substances, also known as “forever chemicals.”
“While the 3M story has some new positive momentum with the leadership change, we still believe the ultimate cost of PFAS liabilities remain(s) a sizable risk to cash flow and implied valuation,” RBC Capital Markets analyst Deane Dray said.
3M expects its full-year adjusted profit to be between US$7.20 and US$7.30 per share, compared with its previous forecast of US$7.00 to US$7.30 per share.
The upbeat forecast comes as analysts expect the broader industrial sector to benefit after the U.S. Federal Reserve cut borrowing costs in September.
3M’s third-quarter adjusted profit of US$1.98 per share beat expectations of US$1.90, whereas sales of US$6.07-billion were slightly above expectations.
GE Aerospace (GE-N) raised its full-year profit outlook for the third time this year on Tuesday, but forecast a double-digit decline in LEAP jet engine deliveries due to supply constraints.
The company said demand for commercial air travel remains robust, but material availability and supplier issues continue to cause disruptions and have impacted production and delivery of equipment and services.
It sold fewer LEAP engines, which power Airbus and Boeing narrowbody aircraft, in the September quarter compared with a year ago. It now expects LEAP deliveries this year to decline 10 per cent from a year ago.
Its shares were down over 9 per cent in Tuesday trading.
CEO Larry Culp said the company’s efforts to address supply chain constraints have improved material output from a quarter ago, but added there was more work to do.
“We’re taking steps with our suppliers to increase inputs and within our own operations to expand capacity, ensuring we’re positioned to meet this historic demand,” Mr. Culp told analysts on an earnings call.
GE Aerospace said a strike by factory workers at Boeing (BA-N), thus far, has not had a “significant” impact on its revenues, earnings and cash flows.
The company has started shipping its 9X engines for the U.S. planemaker’s new jet 777X. While Boeing has delayed the plane by a year, GE Aerospace said it expects to increase the deliveries for 9X engines next year. Culp, however, said the ramp-up might be slower than expected.
GE Aerospace has a dominant share in the engine market for narrowbody jets and enjoys a strong position in widebodies. More than 70 per cent of its commercial engine revenue comes from parts and services.
A lack of new planes due to production issues at Boeing and Airbus has forced airlines to keep flying older planes, leading to a surge in demand for after-market services.
Strong demand for services as well as price increases have helped GE Aerospace more than offset the impact of lower engine shipments and increase profits.
As a result, the company raised its full-year profit outlook for a third time in seven months. It now expects an adjusted profit of US$4.20 per share to US$4.35 per share for 2024, compared with its prior forecast of US$3.95 to US$4.20 per share.
Its adjusted profit for the quarter through September came in at US$1.15 per share, compared with US$1.14 a share expected by analysts in a LSEG survey.
GE Aerospace reported US$8.94-billion in adjusted revenue for the third quarter, compared with US$9.02-billion expected by analysts.
Verizon Communications Inc. (VZ-N) projected 2025 capital spending above market estimates on Tuesday as the U.S. telecom giant builds out its high-speed internet business to offset rising saturation in the wireless market, sending its shares down 5 per cent.
The company also missed third-quarter revenue estimates as high interest rates forced customers to lower spending on phone upgrades, pulling down its wireless equipment sales by 9 per cent and offsetting higher-than-expected wireless subscriber additions.
Slowing growth in the U.S. wireless market has prompted Verizon and its rivals including AT&T to sharpen focus on high-speed internet services, an area that has long been dominated by broadband companies such as Comcast.
Verizon said it plans to double subscribers for its fixed wireless service to between 8 million and 9 million by 2028.
The service added 363,000 customers in the September quarter to hit a goal of 4 million to 5 million users 15 months ahead of schedule.
Verizon has also been investing heavily in C-band spectrum, which allows for widespread 5G coverage with better speeds. It expects to add 80 per cent to 90 per cent of its sites on C-band by 2025-end.
It forecast capital spending for 2025 between US$17.5-billion and US$18.5-billion, the midpoint of which was above estimates of US$17.57-billion, according to data compiled by LSEG.
The figure was higher than its 2024 expenditure forecast.
To aid its high-speed internet push, Verizon agreed to buy Frontier Communications last month in a US$20-billion deal. But some of Frontier’s largest shareholders are concerned the offer was too low, Reuters reported earlier this month.
Verizon gave its “best and final” deal and was confident it was “good for all stakeholders,” CEO Hans Vestberg said on Tuesday.
Its total revenue of US$33.3-billion came in slightly below expectations of US$33.43-billion. Adjusted profit per share of US$1.19 was one cent above estimates.
U.S. defence contractor Lockheed Martin Corp. (LMT-N) lifted its annual profit and sales forecasts on Tuesday, but shares slid 6.1 per cent because the company’s F-35 fighter jet program faced payment headwinds stemming from the government contracting process.
The Bethesda, Maryland-based company now expects per-share profit of US$26.65 for 2024, above its earlier forecast of US$26.10 to US$26.60.
Still, shares slid in New York.
Lockheed’s flagship F-35 program has been facing challenges, particularly due to delays in rolling out an upgrade intended to enhance the fighter jet’s processing capabilities.
But drawn-out contract negotiations have meant Lockheed is having to incur procurement costs for the F-35 jets in lots 18 and 19, set to be delivered in 2026 and 2027.
The absence of a contract means Lockheed is having to pay suppliers for long-lead materials such as sensors, radars and other electronics for the jets without being reimbursed by the government. This impacted sales and profit at both the business and company level.
“Had the program been fully funded over this period of time in the third quarter, we would have had sales closer to about 5-per-cent growth.” Jay Malave, Lockheed’s CFO, told Reuters in an interview.
He added that in the quarter, the company’s “profit was up 3 per cent and that would have similarly - with the F-35 impact on that lot 18-19 negotiation - would have otherwise been up 7 per cent.”Mr. Malave told Reuters the company’s boosted annual guidance year anticipated a finalized contract by December 31.
An initial “handshake” deal on a contract is expected next month, a person familiar with the negotiations said on condition of anonymity.
The business that makes the F-35 jet posted a 3-per-cent decline in sales in the third quarter. Lockheed’s overall revenue of US$17.10-billion missed analysts’ estimates of US$17.35-billion, according to LSEG data.
Lockheed also sees full-year sales of US$71.25-billion, slightly above the midpoint of its earlier forecast of US$70.50-billion to US$71.50-billion.
Conflicts in the Middle East and the protracted Russia-Ukraine war have resulted in nations boosting defence spending, which has benefited arms manufacturers.
Lockheed’s per-share profit stood at US$6.80, beating expectations of US$6.50.
With files from staff and wires