Author: Consultant

Apple shares dip after company warns of a possible $8 billion hit from supply constraints

• Apple’s revenue grew nearly 9% year over year during the quarter ended in March.
• But shares fell nearly 4% in extended trading after Apple CFO Luca Maestri warned of challenges in the current quarter, including supply constraints that could hurt sales by up to $8 billion.
• The tech giant authorized $90 billion in share buybacks.

Apple’s revenue grew nearly 9% year over year in the quarter ended in March, the company said on Thursday, showing strong growth and bucking investor worries about a deteriorating macroeconomic environment affecting demand for high-end smartphones and computers. 

But Apple shares fell nearly 4% in extended trading after Apple CFO Luca Maestri warned of several challenges in the current quarter, including supply constraints related to Covid-19 that could hurt sales by between $4 billion and $8 billion. The tech giant also warned that demand in China was being sapped by Covid-related lockdowns.

Apple CEO Tim Cook added the company was “not immune” to supply chain challenges.

Here’s how Apple did versus Refinitiv consensus estimates:  

• EPS: $1.52 vs. $1.43 estimated 
• Revenue: $97.28 billion vs. $93.89 billion estimated, up 8.59% year over year 
• iPhone revenue: $50.57 billion vs. $47.88 billion estimated, up 5.5% year over year 
• Services revenue: $19.82 billion vs. $19.72 billion estimated, up 17.28% year over year 
• Other Products revenue: $8.81 billion vs. $9.05 billion estimated, up 12.37% year over year 
• Mac revenue: $10.44 billion vs. $9.25 billion estimated, up 14.73% year over year 
• iPad revenue: $7.65 billion vs. $7.14 billion estimated, down 1.92% year over year 
• Gross margin: 43.7% vs. 43.1% estimated 

Apple did not provide a forecast for the current quarter — the company hasn’t provided official revenue guidance since February 2020, citing uncertainty tied to the pandemic.  

In addition, Apple said that its board of directors authorized $90 billion in share buybacks, maintaining its pace as the public company that spends the most buying its own shares. It spent $88.3 billion on buybacks in 2021, according to S&P Dow Jones Indices.  

Canadian banks stocks even more attractive after U.S. bank earnings reports: Scotiabank

CIBC materials analyst Jacob Bout is concerned about a global food crisis,

“The World Bank calculates there could be another 37% jump in food prices if the crisis continues. U.S. corn ($7.9/bu.), wheat ($10.7/bu.) and soybean ($16.9/bu.) are trading near their all-time highs driven by several factors creating the “perfect storm,” including: 1) continued uncertainties surrounding Ukraine’s crop exports, 2) elevated global import demand from China, 3) the rise of food protectionism, 4) potential drought-reduced supplies from the Americas, 5) high energy prices driving increased consumption of ethanol/renewable fuels, and 6) higher costs of fertilizer which may depress yields globally … U.S. Winter Wheat Drought Area Increases To 70%: The amount of U.S. winter wheat considered in drought conditions increased to 70%. Only 30% of U.S. winter wheat is rated in good to excellent condition, a 26-year low.”

Mr. Bout also noted that sky high potash prices are already hitting demand.

“CIBC: “Global Food Crisis Concerns Increase”” – (research excerpt) Twitter

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Scotiabank analyst Meny Grauman argued that Canadian bank stocks look even better after U.S. bank earnings,

“We believe that the most recent US earnings season has been more consequential as it clearly illustrates why Canadian banks are better positioned than their US counterparts across a number of different facets including capital, credit, capital markets, and expenses … While rising rates are generally positive for banks, there is a potential downside that is playing out in the most recent US bank results. This is because left unhedged, rising rates drive mark-to-market losses on banks’ available-for-sale (AFS) securities holdings – securities balances that in many cases grew significantly over the pandemic … However, we know that the Canadian banks hedge these rate moves quite aggressively, and as a result the impact on Canadian CET1 ratios is expected to be very modest… we can clearly see that Canadian banks are better positioned to weather emerging macro tail risks better than their US counterparts. Even putting aside the absence of direct exposure to Russia in the Canadian banking system, the reality is that the Canadian banks have been much more conservative in releasing their pandemic-related credit reserves than their US peers”

Scotia does not think Canadian bank earnings will be as negatively affected by falling investment banking revenue as U.S. banks.

“Scotia: Canadian bank stocks look even better after U.S. bank earnings reports” – (research excerpt) Twitter

Before the Bell: April 27

Equities

Wall Street futures bounced higher early Wednesday after the previous session’s sell off with earnings remaining in focus. Major European markets were mixed after a weaker start. TSX futures futures were up as crude prices edged higher.

In the early premarket period, futures linked to the three key U.S. indexes were up about 1 per cent. A day earlier, all three saw sharp losses with the Nasdaq losing nearly 4 per cent. The S&P/TSX Composite Index finished down 1.53 per cent, marking a fifth day of losses.

“The inability to hold onto the attempted rally is not only worrying but also speaks to a general lack of confidence more broadly about the economic outlook, as well as the ability of central banks to engineer a ‘soft landing’ as they look to tackle inflation,” Michael Hewson, chief market analyst with CMC Markets U.K., said.

Early Wednesday, shares of Google-parent Alphabet were down more than 2 per cent after the company’s latest results disappointed investors. Alphabet said first-quarter sales were US$68.01-billion, 23-per-cent higher than last year but below the average estimate of US$68.1-billion among financial analysts tracked by Refinitiv.

After the closing bell, U.S. markets get results from Facebook-parent Meta Platforms.

In Canada, markets will get results from Canadian Pacific Railway after the close. Cenovus and Teck resources report earlier in the day.

Meanwhile, CN Rail lowered its earnings forecast for the year, now predicting diluted earnings per share growth of between 15 per cent to 20 per cent. It had projected growth of 20 per cent at the start of the year. In its latest quarter, CP posted diluted adjusted earnings per share rose of $1.32 up from $1.23 in the same period last year, but below analyst expectations of $1.38, according to financial data firm Refinitiv. The results were released Tuesday afternoon.

Elsewhere, Cannabis producer Canopy Growth Corp. is laying off 250 people in a cost-cutting plan to save the company $100-million to $150-million within 12 to 18 months in order to reach profitability.

Overseas, the pan-European STOXX 600 edged up 0.07 per cent in morning trading. Britain’s FTSE 100 rose 0.21 per cent. Germany’s DAX slid 0.14 per cent. France’s CAC 40 was up 0.52 per cent. Investors were weighing news that Russian energy giant Gazprom said had halted gas supplies to Bulgaria and Poland for failing to pay for gas in rubles.

In Asia, Japan’s Nikkei closed down 1.17 per cent after a weak handoff from Wall Street. Hong Kong’s Hang Seng rose 0.06 per cent.

Commodities

Crude prices shook off early losses after Russian energy giant Gazprom said it had cut gas supplies to Bulgaria and Poland for not paying in rubles.

The day range on Brent is US$104.41 to US$105.98. The range on West Texas Intermediate is US$101.38 to US$102.99. Prices had sought direction through much of the overnight period but turned higher on the Gazprom headlines.

Gazprom said on Wednesday it halted gas supplies to Bulgaria and Poland marking an escalation in tensions with the West amid Moscow’s invasion of Ukraine.

“If Russia makes little progress in its latest offensive, the Kremlin could lash out and widen those export bans if Europe doesn’t accept the ruble blackmail,” OANDA senior analyst Jeffery Halley said in a note.

“Once Germany is included, we can assume energy prices will be heading higher once again. For now, risk aversion is capping oil’s gains.”

However, the advance was capped by continuing concerns about the impact of COVID-19 restrictions on the Chinese economy. On Tuesday, China’s central bank said it would step up policy support for the economy but the International Monetary Fund also warned that Asia faces a ‘stagflation’ outlook due to a variety of factors.

Later Wednesday morning, markets will get weekly inventory figures from the U.S. Energy Information Administration. Numbers from the American Petroleum Institute showed a rise in crude inventories but a decline in gasoline stocks.

In other commodities, gold prices were lower, weighed down by a rising U.S. dollar.

Spot gold was down 0.6 per cent at US$1,893.70 per ounce by early Wednesday morning. U.S. gold futures slid 0.3 per cent to US$1,898.60.

Currencies

The Canadian dollar was down slightly, continuing recent weakness that saw it hit a six-week low during the previous session, while its U.S. counterpart continues to rally against a group of world currencies.

The day range on the loonie is 77.83 US cents to 78.27 US cents. On Tuesday, the Canadian dollar touched its lowest level since mid-March to mark a fourth straight day of declines, hit by weak global risk sentiment and a stronger U.S. dollar.

Early Wednesday, the U.S. dollar index, which weighs the greenback against a group of currencies, rose 0.3 per cent to 102.6, after touching its highest since the early days of the pandemic, according to a Reuters report.

Meanwhile, the euro fell below US$1.06 for the first time in five years. The euro slipped to a five-year low of US$1.05890 after Russia’s Gazprom said it would cut gas supply to Poland and Bulgaria. It was 0.16% lower at US$1.0616 in the early predawn period.

Microsoft Corp forecast double-digit revenue growth for the next fiscal year, driven by demand for cloud computing services. Microsoft forecast Intelligent Cloud revenue of US$21.1-billion to US$21.35-billion for its fiscal fourth quarter, driven by strong growth in its Azure platform. That compared with a Wall Street consensus of US$20.933-billion, according to Refinitiv data.

Economic news

(8:30 a.m. ET) U.S. goods trade deficit for March.

(8:30 a.m. ET) U.S. wholesale and retail inventories for March.

(10 a.m. ET) U.S. pending home sales for March. Consensus is a decline of 0.5 per cent from February.

(6:30 p.m. ET) Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers appear before the Senate Standing Committee on Banking, Trade and Commerce

Air Canada Reports First Quarter 2022 Financial Results

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NEWS PROVIDED BYAir Canada 

Apr 26, 2022, 06:00 ET

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• First quarter operating revenues of $2.573 billion, or about three-and-a-half times first quarter 2021 operating revenues
• First quarter 2022 operating loss of $550 million compared to an operating loss of $1.049 billion in the first quarter of 2021
• Advance ticket sales grew about $1.2 billion in the first quarter of 2022 from year end 2021
• Airbus A321XLR order increased by four to 30 aircraft with IAE to supply related PW1100G-JM engines

MONTREAL, April 26, 2022 /CNW Telbec/ – Air Canada today reported its first quarter 2022 financial results.

“The substantial year-over-year improvement in Air Canada’s first quarter results is clear evidence that a recovery is underway. Our strong improvement is a testament to our employees, and I thank them for their hard work taking care of our customers throughout more than two years of a global pandemic. Now, our employees are demonstrating this same level of determination, commitment and passion in executing on our recovery strategy,” said Michael Rousseau, President and Chief Executive Officer of Air Canada.

“The year began with weakness brought on by the Omicron variant and travel restrictions. However, we quickly rebounded in March with passenger volumes exceeding the strong December levels and passenger ticket sales in March 2022 over 90 per cent of March 2019 levels, a leading indicator to much stronger 2022 second and third quarter results. For the quarter, Air Canada had operating revenues of $2.573 billion, more than triple that of the same quarter in the prior year.  This was accompanied by a strict cost discipline that reduced adjusted CASM* by over six per cent from the fourth quarter of 2021. Quarterly EBITDA*, while a negative $143 million, improved $620 million over last year and we ended the quarter with $10.162 billion in unrestricted liquidity, close to 2021 year-end levels.

“In anticipation of our recovery, Air Canada has kept the course with key long-term projects to increase and diversify revenue and lower costs. One such program is the expansion of Air Canada Cargo, with quarterly revenue up 42 per cent to $398 million from the first quarter of 2021, and now further expanded with the addition of two new Boeing 767-300 freighters to be delivered in 2022.  The renegotiation of key engine maintenance contracts completed in the quarter, will also yield savings over the remaining life of the contracts.  Aeroplan air redemption bookings in the quarter exceeded those of the same quarter in 2019 by 19 per cent.  The relaunched program saw the highest new member acquisitions and redemptions in a quarter, and generated third-party gross billings exceeding first quarter 2019 levels by 21 per cent,” said Mr. Rousseau.

“Air Canada is rapidly adapting for the post-pandemic world. We are doing our part by contributing to the travel of Ukrainians to Canada, with a substantial donation of 100 million Aeroplan points.  We have also advanced our ESG goals in the quarter by announcing an order for 26 fuel-efficient Airbus A321XLR aircraft, which we have now increased to 30 aircraft. As well, we have recently entered into a long-term agreement with International Aero Engines, LLC (Pratt & Whitney) for the selection of the PW1100G-JM engines, spare engines and related maintenance services for these new aircraft.  We are responding to the evolving competitive landscape through our Rise Higher strategy to elevate all aspects of our business, particularly as it relates to the customer experience. Given pent-up travel demand, the demonstrated loyalty of our customers, and the expected further removal of travel-related government restrictions, Air Canada anticipates its recovery will gain momentum through the balance of 2022 and beyond,” said Mr. Rousseau.First Quarter 2022 Financial Results

• In the first quarter of 2022, Air Canada’s operating capacity, measured by Available Seat Miles (ASMs) increased about 3.4 times from the first quarter of 2021. When compared to the first quarter of 2019, ASM capacity represented a decline of 45 per cent, which was generally in line with the capacity expectations projected in Air Canada’s fourth quarter 2021 earnings release dated February 18, 2022.
• First quarter 2022 passenger revenues of $1.917 billion increased nearly five times from the first quarter of 2021.
• First quarter 2022 operating revenues of $2.573 billion increased about three-and-a-half times from the first quarter of 2021.
• First quarter 2022 total operating expenses of $3.123 billion increased $1.345 billion or 76 per cent from the first quarter of 2021.
• First quarter 2022 cost per available seat mile (CASM) of 21.8 cents compared to first quarter 2021 CASM of 42.2 cents.
• First quarter 2022 adjusted cost per available seat mile* (adjusted CASM) of 15.6 cents compared to first quarter 2021 adjusted CASM of 40.4 cents.
• First quarter 2022 EBITDA (excluding special items)* or earnings before interest, taxes, depreciation and amortization of negative $143 million compared to negative EBITDA of $763 million in the first quarter of 2021.
• First quarter 2022 net loss of $974 million or $2.72 per diluted share compared to a net loss of $1.304 billion or $3.90 per diluted share in the first quarter of 2021.
• First quarter 2022 cash from operations was $335 million compared to cash used in operations of $888 million in the first quarter of 2021, an improvement of $1,223 million driven by improved operating results and strong advance ticket sales. Free cash flow of $59 million in the first quarter of 2022 improved by $1,221 million when compared to the same period in 2021.

* EBITDA, EBITDA margin, adjusted CASM and free cash flow (discussed further below) are non-GAAP financial measures or non-GAAP ratios. Such measures are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for or superior to GAAP results. Refer to the “Non-GAAP Financial Measures” section of this news release for descriptions of Air Canada’s non-GAAP financial measures and non-GAAP ratios and for a reconciliation of Air Canada non-GAAP measures to the most comparable GAAP financial measure.First Quarter 2022 Overview

Over the quarter, and until February 28, 2022, all travellers, regardless of vaccination status, were required to provide a negative pre-entry COVID-19 PCR test result taken within 72 hours of departure or a proof of a positive test result received in the previous 11 to 180 days. On February 15, 2022, the Government of Canada announced changes to certain travel restrictions for fully vaccinated travellers.  Refer to section 4 “Overview & First Quarter 2022 Highlights” of Air Canada’s First Quarter 2022 MD&A for additional information on such changes.

On March 17, 2022, the Government of Canada announced additional changes that came into effect on April 1, 2022, allowing for fully vaccinated travellers to no longer be required to provide a pre-entry COVID-19 test result to enter Canada by air, land or water. Foreign nationals who do not meet the requirements to be considered fully vaccinated are not able to enter Canada unless they meet an exemption set out in the Orders made under the Quarantine Act. Unvaccinated or partially vaccinated travellers allowed to enter Canada remain subject to the federal requirement to quarantine and take a COVID-19 PCR test at the time of arrival and on day eight after arrival

Microsoft earnings beat across the board, stock up on outlook

• Microsoft beat expectations on the top and bottom lines.
• Fourth-quarter revenue guidance for each of the company’s three business segments surpassed the expectations of analysts surveyed by StreetAccount.
• The company announced plans in the quarter to buy Activision Blizzard for almost $69 billion.

Stocks making the biggest moves after hours: Alphabet, Robinhood, Meta and more

Alphabet — Shares tumbled more than 6% in extended trading after Google’s parent company reported an earnings miss. The firm reported earnings of $24.62 per share and revenues of $68.01 billion. Refinitiv analysts were expecting earnings of $25.91 and revenues of $68.11 billion.

Robinhood — Shares of the retail brokerage fell more than 5% in extended trading after Robinhood said it is cutting back on staff, according to a blog post from CEO Vlad Tenev on Tuesday. The company cited “duplicate roles and job functions” after it expanded last year.

Microsoft — Shares dipped 0.4% in extended trading after Microsoft reported earnings that exceeded expectations. The tech giant reported earnings of $2.22 per share, compared to $2.19 earnings per share expected by analysts, according to Refinitiv. Revenues came in at $49.36 billion, versus the $49.05 billion expected.

Enphase Energy — Shares jumped more than 6% in extended trading after the solar tech company reported quarterly results. Enphase reported earnings of 79 cents per share, compared to analyst expectations of 67 cents per share, according to Refinitiv.

Meta Platforms — Meta’s stock price dropped more than 4% in extended trading following sharp declines for the Nasdaq Composite and Big Tech names during the trading session. The social media company is expected to report quarterly earnings on Wednesday.

Qualcomm — Shares of the semiconductor stock dipped 1.8% after hours, extending losses from the regular trading session. Qualcomm is expected to report quarterly earnings after the bell on Wednesday.

Visa — Shares jumped 4.8% after the payments company posted an earnings beat on the top and bottom lines. Visa expects travel recovery will continue to boost growth.

• Officials in Poland and Bulgaria say Russia is suspending their countries’ natural gas deliveries starting on Wednesday.
• The suspensions would be the first since Russian President Vladimir Putin said last month that “unfriendly” foreign buyers would have to pay the state-owned Gazprom in rubles instead of other currencies.
• Poland’s energy supplies are secure, Poland’s climate ministry said on Tuesday.

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Google parent Alphabet Inc on Tuesday reported first-quarter revenue below expectations as YouTube sharply missed Wall Street targets and ad sales were pressured by supply-chain and inflation concerns and the war in Ukraine.

The world’s largest provider of search and video ads has been a big winner of the shift to online commerce over the past two years, but the results suggest it is struggling in the latest economic phase of the pandemic, which is bringing elevated interest rates, higher transport costs and shortages of products from couches to cars to infant formula.

Alphabet shares were down 6.5% in after-hours trading.

“Alphabet has been seen as one of the most insulated companies in the advertising space relative to peers, but sometimes you can still own the best house in the worst neighbourhood,” said David Wagner, portfolio manager at Aptus Capital Advisors.

YouTube advertising sales of $6.9 billion missed Wall Street’s target of $7.5 billion, according to Factset.

Google’s chief business officer, Philipp Schindler, said YouTube direct response ads grew more moderately during the quarter.

Alphabet said first-quarter sales were $68.01 billion, 23% higher than last year but below the average estimate of $68.1 billion among financial analysts tracked by Refinitiv, its first miss since the fourth quarter of 2019 before the pandemic. Alphabet’s total costs also increased 23%.

Analysts said Google’s ad sales were in line with expectations overall, but that YouTube’s advertising growth was less than expected. Cloud sales grew at a slower pace than a quarter ago, and Google’s “other” revenue, which includes app, hardware and subscription sales, were $6.8 billion, below estimates of $7.3 billion.

Last week, Snap Inc warned that inflation, labour shortages and other economic challenges could pressure ad revenue.

Facebook parent Meta Platforms Inc, the second-biggest online advertising platform with an expected 21.4% share of the global market in 2022, reports earnings on Wednesday. Its shares fell 3.3% on Tuesday after Alphabet’s results.

Google is expected to grab 29%, or the leading share, of the $602 billion global online ad market in 2022, at least the 12th straight year it has been on top, according to Insider Intelligence.

Product changes by Google to resolve antitrust concerns and rising competition from companies such as Amazon.com Inc and ByteDance’s TikTok are chipping away at ad sales. Google also cut advertising offerings and other services in Russia following the invasion of Ukraine during the first quarter.

Still, travel and entertainment advertisers are ramping up again, and it is better positioned than rivals to withstand economic shocks because Google’s advertising tools tend to be among the last abandoned by advertisers as they are well known, easy to use and reach more users than alternatives.

Quarterly profit was $16.44 billion, or $24.62 per share, missing expectations of $25.76 per share.

Though Alphabet shares were down over 17% this year entering Tuesday, they have risen nearly 90% over the past two years.

Alphabet bought back over $81 billion in shares over the last two years and on Tuesday said its board had authorized an additional $70 billion in repurchases.

High on the list of risks faced by the company are numerous lawsuits and investigations into whether Google has engaged in anticompetitive conduct through its advertising and other businesses.

The newest scrutiny has been on its pending $5.4 billion acquisition of cybersecurity services provider Mandiant, which the U.S. Department of Justice is reviewing closely. Google has said it still expects to close the deal this year.

Google Cloud, the unit that would contain Mandiant, increased revenue in the first quarter by 44% compared with a year ago to $5.82 billion.

CN Rail profits dip amid supply chain snarls

Canadian National Railway Co. is lowering its earnings forecast for the year after profits sagged in its first quarter.

Citing tough operating conditions and “worldwide economic uncertainty,” the Montreal-based company now predicts adjusted diluted earnings per share growth of between 15 and 20 per cent, versus its target of 20 per cent at the start of the year.

CN is also aiming for an operating ratio – a measure of the railway’s efficiency that divides operating expenses by net sales – of just under 60 per cent, compared to its more ambitious January goal of 57 per cent.

The country’s largest railroad operator says revenues for the quarter ended March 31 rose five per cent year over year to $3.71 billion compared to $3.54 billion a year earlier.

Higher freight rates and coal and U.S. grain export volumes boosted revenue, but a smaller overall grain crop, fewer West Coast container shipments, global supply snarls and harsher winter weather all contributed to a net earnings drop of six per cent to $918 million last quarter.

On an adjusted bases, diluted earnings per share rose to $1.32 from $1.23 in the same period last year, slightly below analyst expectations of $1.38, according to financial data firm Refinitiv.