A roundup of some of the North American equities that made moves in both directions
On the rise
Facebook Inc. (FB-Q) rose 5.4 per cent in the wake of beating analysts’ estimates for quarterly revenue on Wednesday and saying it has seen “signs of stability” for sales in April after a plunge in March, in yet another signal that tech giants may weather the coronavirus-induced economic collapse better than other sectors.
The announcement came a day after Alphabet’s Google said a drop in its online ad sales similarly steadied in April. Shares of Facebook, the world’s biggest social network and the owner of WhatsApp and Instagram.
Facebook said advertising revenue was roughly flat in the first three weeks of April compared with the same period last year, a tentative early sign of recovery following a “steep decrease” in revenue in March as lockdowns took effect worldwide to slow the spread of the virus.
Revenue growth was 18 per cent in the first quarter, Facebook’s slowest ever by a wide margin, although it beat analysts’ expectations for growth of 16 per cent, according to IBES data from Refinitiv. Ad sales, which make up nearly all of Facebook’s revenue, rose 17 per cent to US$17.44-billion.
In a research note, Credit Suisse analyst Stephen Ju said: “The April run rate disclosure was better-than-expected, but we believe the more important consideration is that this helps investors quantify and price the COVID-19 impact into FB shares, which similar to its advertising peers have been sharing the overhang of impaired visibility and open-ended potential downside risk. Increased users and engagement did raise the ceiling on ad load, and enabled impression growth of 39 per cent in 1Q20 (vs our estimate of 27 per cent) to help offset a steeper price decline of 16 per cent. Management moderated OpEx growth expectations (range now $52b-$56b vs prior $54b-$59b) - primarily due to more limited travel and marketing – but Facebook intends to take an offensive stance from an engineering and product development perspective as it intends to still hire 11k employees this year. That said, the resulting margin deleverage is consistent with our expectations as the crisis should ultimately be a catalyst for faster adoption of online activity. We maintain our Outperform rating on the following: potential for better-than-expected ad revenue growth on product innovation (Instagram Checkout, Search in Marketplaces, etc.), Street models are too conservative and underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp, optionality for faster FCF growth on greater efficiency on content screening/security costs.”
Microsoft Corp. (MSFT-Q) closed up 1 per cent after it beat Wall Street sales and profit expectations, powered by sharp demand for its Teams chat and online meeting app and Xbox gaming services as the world shifted to working and playing from home because of the novel coronavirus pandemic.
The results reflect Chief Executive Satya Nadella’s focus over his six-year tenure on cloud computing, in which companies tap Microsoft’s data centers for computing power - a growing business dominated by Amazon’s Amazon Web Services.
For the fiscal fourth quarter, Microsoft gave business-unit forecasts that were below analyst estimates, predicting tough times for LinkedIn and some small-business software sales.
“Ultimately, Microsoft is not immune from what is going on broadly in the world in terms of GDP growth,” Nadella said on a conference call with investors.
But results benefited from sales of its Windows operating system and Surface hardware devices as people upgraded personal computers to work or study from home. Microsoft also cited all-time-high engagement on its Xbox Live gaming service, with 19 million active users.
Citi analyst Walter Pritchard said: “MSFT shares, like the sector overall have come roaring back on combination of fundamentals not being 'worst case’ as well as a lack of alternative sectors with strong medium / long-term fundamentals. It’s hard to argue with the later, although it seems that the excitement is premature on COVID-19 impacts that have just begun in this “late cycle” sector. We expect stock performance to hinge on Azure staving off deceleration and stability in gross margins. The former seems safe, the latter is more complicated into FY21 with leaner software mix from server EOL and hardware launches.”
Breakfast cereal maker Kellogg Co. (K-N) was up 0.9 per cent after it reported a 23-per-cent rise in quarterly profit as consumers in North America and Europe stocked up on its packaged foods amid coronavirus-driven lockdowns.
Net income attributable to the Battle Creek, Michigan-based company was US$347-million, or US$1.01 per share, for the first quarter ended March 28, compared with US$282-million, or 82 US cents per share, a year earlier.
Quarterly net sales dropped to US$3.41-billion from US$3.52-billion last year, hurt by the sale of its Keebler cookie business and some other assets to Nutella maker Ferrero SpA.
Precision Drilling Corp. (PD-T) was higher by 13.6 per cent after it reported a loss in its first quarter and warned that it expected a significant and sustained drop in customer demand for oil and gas services well into next year as a result of the recent plunge in oil prices.
The Calgary-based company says the COVID-19 pandemic and the oil price war between Russia and Saudi Arabia has resulted in the deepest downturn the oil and gas services industry has ever experienced.
Precision says it lost $5.3-million or two cents per diluted share for the quarter ended March 31 compared with a profit of $25.0-million or eight cents per diluted share a year earlier.
Revenue totalled $379.5-million, down from $434.0-million in the first quarter of 2019.
Analysts on average had expected a loss of three cents per share for the quarter and $379.4-million in revenue, according to financial markets data firm Refinitiv.
AltaCorp Capital analyst Waqar Syed said: “We deem the Company’s results to be positive, owing to: (1) Significant EBITDA beat, (2) Receipt of covenant relief from lenders, and (3) Availability of $800-million of liquidity. These positives are offset slightly by the increase in total debt in C$, but we view that to be an issue with the US$ appreciation against the C$, as its debt is denominated in US$, but also note that the majority of its EBITDA and revenue is also generated in US$, and hence the Company has a natural hedge.”
Resolute Forest Products Inc. (RFP-T) was up 0.6 per cent after saying it’s “cautiously optimistic for sustained volume and improving pricing.”
Before the bell, Montreal-based Resolute reported a first-quarter loss of US$1-million, or 1 US cent a share, versus a profit US$42-million, or 45 US cents, during the same period a year ago.
The company announced an operating loss of $8 million in the first quarter, compared to $69 million in the fourth quarter of 2019.
“The first quarter’s results reflect a resurgence in market prices for lumber that began late in 2019 together with lower maintenance costs in pulp and paper, but they were unfavorably affected by lower newsprint prices,” said Yves Laflamme, president and chief executive officer, in a statement. “The tissue business is progressing well in the current context as we grow our customer base with the increase in demand and we demonstrate our products and capabilities. While we continue to operate across all of our business segments, we’ve had to take a number of measures in the face of the dramatic reduction in economic activity due to the coronavirus pandemic, such as reducing our operational footprint to demand levels consistent with essential needs, drawing on our credit facilities to keep higher levels of cash, reducing SG&A expenses and suspending or deferring capital spending. We are well-positioned financially and operationally to face this challenge, but this situation contains a very high degree of uncertainty and the extent of the potential consequences are impossible to predict.”
EBay Inc. (EBAY-Q) was up 2.1 per cent in the wake of forecasting current-quarter revenue above Wall Street estimates on Wednesday, as the e-commerce company benefited from a surge in online orders with people staying indoors because of the COVID-19 pandemic.
The rapid spread of the coronavirus forced millions of Americans to shelter indoors, leading to a huge increase of online shopping and orders for e-commerce companies including eBay, Amazon.com Inc and Walmart Inc’s online business.
The company said it expects second-quarter revenue in the range of US$2.38-billion to US$2.48-billion, while analysts were expecting US$2.32-billion, according to IBES data from Refinitiv.
EBay, which has worked to make its platform simpler to use through grouped listings and personal recommendations, said active buyers grew 2 per cent to 174 million in the first quarter.
Vancouver-based Algernon Pharmaceuticals Inc. (AGN-CN), a clinical stage pharmaceutical development company, jumped over 4 per cent after announcing it has received approval from Health Canada to proceed with a multinational clinical trial for Ifenprodil to be used to treat COVID-19.
The same study protocol is being prepared for submission to the U.S. FDA and Australian regulatory authorities.
“The study is an adaptive pilot to pivotal trial design based on guidance documents from the World Health Organization (WHO) to determine if Ifenprodil can improve clinical symptoms of COVID-19 by reducing the number of COVID-19 diagnosed patients from progressing to mechanical ventilation with intubation and death.” said Algernon CSO Dr. Mark Williams.
On the decline
Twitter Inc. (TWTR-N) was down 7.8 per cent in the wake of saying before the bell its ads sales slightly rebounded in Asia after a plunge due to the coronavirus outbreak and it had accelerated work on tools to attract advertisers, becoming the latest tech company to report a lighter blow from the pandemic than forecast.
The San Francisco-based social media company announced greater first-quarter revenue and a smaller loss than financial analysts had expected. Daily users who can view ads grew 24 per cent to 166 million, about 2 million above estimates, as people looked to Twitter for information related to the virus.
Twitter provided neither its usual guidance on sales for the current quarter nor any comment on whether U.S. ad sales had bounced back as well. It did warn of smaller increases in non-advertising revenue. Making development of ad tools its No. 1 priority also could complicate efforts to maintain user growth late into the year.
But the first-quarter results and signs of recovery mirrored those seen over the last week from Twitter’s main competitors for advertisers, including Facebook Inc, Google parent Alphabet Inc and Snapchat maker Snap Inc.
Shares of those companies, including Twitter, have surged in the last week, erasing most or all their declines for the year.
Qualcomm Inc. (QCOM-Q) lost 0.3 per cent after it beat Wall Street estimates for quarterly results and forecast current-quarter sales largely in line with expectations even though several other chipmakers had flagged concerns of a significant hit from the coronavirus outbreak.
The company forecast total revenue of between US$4.4-billion and US$5.2-billion for its third quarter. Analysts had estimated a revenue of US$4.89-billion, according to IBES data from Refinitiv.
Qualcomm, the world’s biggest supplier of modem chips that connect mobile phones and other devices to wireless data networks, said coronavirus reduced demand for handsets by about 21 per cent in the second quarter from a year earlier, and forecast 30-per-cent reduction in handset shipment in the current quarter.
However, Qualcomm’s revenue outlook was in contrast to many other chipmakers, including Intel Corp and Texas Instrument Inc, who have either withdrawn or cut their revenue forecast, citing impact of the virus on demand and supply channels.
Gildan Activewear Inc. (GIL-T) plummeted 12.8 per cent after it suspended its quarterly dividend and cut executive compensation after losing nearly US$100 million in its first quarter due to the global impact of the COVID-19 pandemic.
The Montreal-based company says it is also suspending share repurchases and deferring non-critical capital spending and expenses.
The company’s board, chief executive and executive vice-presidents are foregoing half their salaries, senior staff face pay reductions of 20 to 35 per cent and most salaried employees are working four days a week.
Gildan says it lost US$99.3 million or 50 US cents per diluted share for the period ended March 29. That compared with a US$22.7 million or 11-cent profit a year earlier.
Excluding one-time items including a US$100-million after-tax charge mainly from impairment for goodwill and intangible assets, Gildan earned an adjusted profit of US$11.2-million or six cents per share. That’s down from US$32.8 million or 16 US cents per share in first quarter of 2019.
Tesla Inc. (TSLA-Q) was down 2.3 per cent after it posted its third quarterly profit in a row, but said the novel coronavirus was hurting deliveries and lockdown restrictions made it impossible for the electric carmaker to provide guidance for the full year.
Tesla said it could not predict how quickly vehicle manufacturing and global supply chains will normalize, saying it would revisit full-year guidance for net income and cash flow when it reports current-quarter results in three months.
Tesla in January said it expected positive quarterly cash flow and positive net income going forward. The company on Wednesday did not update its previous forecast of delivering half a million vehicles by the end of 2020.
The COVID-19 pandemic caused by the new coronavirus has disrupted demand for cars, with automakers including Tesla forced to furlough workers and close factories.
Credit Suisse analyst Dan Levy said: “In addition to providing us with an interesting call, Tesla’s 1Q print provided a gross margin fueled beat, which should continue near-term momentum in the stock. And more importantly, the long-term narrative, which has been central to the stock’s rally, is intact: Elon Musk cited his confidence in 40% CAGR over the next 5-10 years, targeting industry-leading margins, capacity expansion plans intact (Giga Berlin, Shanghai, Fremont, TX Giga), and battery day next month could be a catalyst. That said, we believe the stock has yet to be confronted with coronavirus weakness via volume softness or greater cash burn – we’d expect some impact to the stock. Even if the stock corrects though, we’d expect it to be bought on weakness, as investors continue to look through weakness for companies with secular growth opportunities.”
See also: Wall Street sidesteps Musk lockdown rant as Tesla numbers improve
American Airlines (AAL-Q) fell 4.9 per cent on Thursday after it posted a US$2.2-billion net loss, its first quarterly loss since emerging from bankruptcy in 2013, and warned of a roughly IS$70-million per day cash burn in the second quarter as the coronavirus pandemic halts travel.
The U.S. airline said it would boost liquidity to US$11-billion in the second quarter from US$6.8-billion in the first.
“Never before has our airline, or our industry, faced such a significant challenge,” Chief Executive Doug Parker said in a statement.
The U.S. airline swung to a net loss of US$2.2-billion in the first quarter to March 31 from a US$185-million profit a year earlier.
Excluding items, the net loss was US$1.1-billion, or US$2.65 per share, below analyst estimates of a US$2.33 per share loss, according to IBES data from Refinitiv.
U.S. food producer Kraft Heinz Co. (KHC-Q) declined 0.7 per cent despite reporting higher-than-expected quarterly sales and profit on Thursday, helped by coronavirus-related stockpiling.
The maker of Heinz ketchup, Kraft Macaroni & Cheese and Oscar Mayer lunch meat said first-quarter sales were US$6.16-billion, slightly ahead of analysts’ average estimate of US$6.14-billion, according to IBES data from Refinitiv. Excluding hits from currency fluctuations and divestitures, organic sales rose 6.2 per cent, in line with a forecast the company gave earlier this month.
It warned then that the full benefit from the incremental sales lift would not fall to the bottom line, due to costs related to meeting the higher demand.
About 6 to 7 percentage points of sales growth were due to increased consumer demand related to the COVID-19 pandemic, as shoppers stocked up on pantry staples.
First-quarter net income fell to US$378-million, or 31 US cents per share, from US$405-million, or 33 US cents per share, a year earlier. Excluding items, adjusted earnings were 58 US cents per share, topping analysts’ average estimate of 55 US cents.
Marlboro cigarettes maker Altria Group Inc. (MO-N) was lower by 3.2 per cent after it abandoned its full-year profit forecast for 2020 and beyond, citing “uncertainty” related to the COVID-19 pandemic.
Shares of the company, however, rose about 3% in early trading after it said it would continue to pay dividend.
Altria said it would approach the 2020 dividend by recommending a quarterly rate that reflects its cash position and balance sheet strength.
To save cash, its board rescinded US$1-billion share buyback program that had $500 million remaining.
Revenue, net of excise taxes, rose 15 per cent to US$5.05-billion, helped by shoppers stocking up on cigarettes ahead of coronavirus-related shutdowns around the world. Analysts on average expected US$4.61-billion, according to Refinitiv.
Earnings per share came in at US$1.09, handily beating the average analyst estimate of 98 US cents per share.
McDonald’s Corp. (MCD-N) was missed Wall Street estimates for quarterly profit on Thursday as some restaurants in Europe and elsewhere remained closed to curb the spread of the coronavirus pandemic.
Shares of McDonald’s, a Dow 30 component, fell 0.1 per cent. The stock has lost about 5 per cent so far this year.
Chief Executive Officer Chris Kempczinski also said he believed the world’s largest fast-food company “reached a trough in terms of number of restaurants closed in late March.”
About 75 per cent of its 39,000 restaurants around the world were operational as of Thursday, including almost all of its nearly 14,000 restaurants in the United States.
The company also said it had resumed operations in nearly all of its restaurants in China, where the virus was first detected late last year, although demand remained low as consumers had not fully returned to their routines.
In the United States, the company’s biggest market, drive-thru orders have risen to 90 per cent of sales during the outbreak, up from about 66 per cent normally, and its ability to offer quick, affordable food will be an advantage in coming months, executives said.
“As markets start to open up, this desire to really return to familiar favorites, to brands that are known, is very, very powerful,” Mr. Kempczinski said during an earnings call.
Dow Inc. (DOW-N) slid 1.2 per cent after it posted a drop in adjusted quarterly profit on Thursday as its margins were squeezed by coronavirus-led falls in demand in some end markets and lower selling prices for its chemicals due to the collapse in global oil prices.
While marginally topping analysts’ estimates for net profit and sales, Dow, which makes chemicals for industries ranging from plastics, to paints to building materials, said local prices fell 8 per cent, driven by the decline in global energy prices.
Volumes fell 2 per cent, hurt by lower demand for polyurethanes - a plastic material - and for chemicals used in construction and automobiles, among the markets hit worst by the economic shutdowns to halt the spread of the virus.
To cope with the hit, Dow said it would further cut its spending plans to US$1.25-billion, a US$750-million cut from last year, trim operating expenses by US$350-million, and shore up another US$500-million from working capital.
Zoom Video Communications Inc. (ZM-Q) slid 7.7 per cent after admitting it video conferencing app does not have 300 million daily active users, saying it “unintentionally” referred to daily meeting participants as users in a blog post.
The Zoom blog from April 22, in which the video conferencing app announced a 50-per-cent jump in users over three weeks, has now been edited to say that the company had surpassed “300 million daily Zoom meeting participants” instead of “more than 300 million daily users.”
“When we realized this error, we adjusted the wording to ’participants’,” the company told the Verge, adding, “this was a genuine oversight on our part.”
Zoom, which has been heavily criticized for overstating its encryption capabilities, was not immediately available for a comment.
With files from staff and wires
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