Category: Uncategorized

Gordon Pape: NFI should be in a sweet spot, but nothing’s going right

At first glance, you’d think that Winnipeg-based NFI Group Inc. (NFI-T -7.53%decrease) is the right company in the right place at the right time. Instead, the company has been hit by Murphy’s law: Anything that can go wrong, will go wrong.

NFI is a leading manufacturer of buses and motor coaches. Its battery-electric and fuel cell-electric vehicles are in more than 110 cities in six countries. The company proudly proclaims on its website that it is “leading the evolution to zero-emission mobility.”

NFI operates in Canada and the United States. Apart from Winnipeg, it has facilities in Ontario and U.S. operations in Alabama, Minnesota, Washington and New York. Product names include New Flyer, MCI, Alexander Dennis and Arboc. The company has 3.5 million square feet of production space and the capability of manufacturing up to 8,000 vehicles a year, powered by everything from clean diesel and natural gas to a range of hybrid and electric products.

The buyers are out there. The company has a near-record backlog of 4,150 units. But it all seems to be falling apart.

As the switch to electric vehicles intensifies, you’d expect a company such as NFI Group to be flourishing. It’s not – quite the opposite. At this point, the firm looks more like a candidate for bankruptcy than an up-and-coming transportation disrupter.

The company’s woes are reflected in its share price. In April, 2018, the stock was trading at almost $60. A year ago at this time it was around $28. It closed Friday at $9.63, down about 65 per cent in the past 12 months.

What’s happening? On Oct. 24, the company released a third-quarter preview that can only be described as dismal. NFI expects adjusted EBITDA in the quarter to be a loss of between $15-million and $17-million. For the full year, the company is guiding toward an adjusted EBITDA loss of between $40-million and $60 million. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.)

Full-year revenue is projected as coming in between $2-billion and $2.2-billion, down from the previous estimate of $2.3-billion and $2.6-billion.

“The third quarter was another very challenging period as we saw strong demand for our products and services, offset by continuing supply disruption resulting in production inefficiencies and the inability to complete and deliver contractually committed buses. In addition, we continued to experience short-term margin pressure from higher inflation and surcharge driven input costs,” Paul Soubry, NFI’s chief executive officer, said in the preview.

In response, the company is implementing a five-part action plan to attempt to stop the bleeding. This includes:

• A two-week freeze on new vehicle starts at New Flyer in hopes that suppliers can deliver the needed parts to complete projects already under way.
• Following the end of the freeze, the company will only increase production once confidence in supply chains has improved.
• NFI will work with suppliers and sub-suppliers to search for alternate or substitute parts where possible, increase production-line parts inventories and develop longer lead times to better support new vehicle output.
• Continue cost cutting initiatives, including reducing overhead. The company has already closed two production facilities, one fabrication facility and nine parts distribution locations.
• Discuss additional financing solutions with its bankers and government partners.

The company says that demand for its products is strong and that is expected to continue into 2023. But strong demand doesn’t translate into revenue if it can’t deliver its products.

NFI described these problems as “near-term headwinds” and reiterated its guidance for 2025 of between $3.9-billion and $4.1-billion in revenue and adjusted EBITDA of between $400-million and $450-million.

Investors are clearly taking this optimistic forecast with a large grain of salt. The stock continued to tumble last week, losing 17 per cent even in the midst of a strong TSX rally.

Despite all this bad news, the stock continues to pay a quarterly dividend of 5.31 cents a share (21.24 cents a year) to yield 2.2 per cent. The dividend was slashed by about 76 per cent last December, but it’s surprising it hasn’t been eliminated completely. That could be the next step in management’s austerity plan. Full third-quarter results will be released Nov. 2. A dividend suspension could come then.

NFI shares could enjoy a huge recovery in the next few years if the company can turn this mess around. Based on what we’ve seen to date, don’t bet on it.

Fed announces third consecutive 75-basis point rate hike

The Federal Reserve once again raised interest rates by 75 basis points on Wednesday. This marked the third consecutive 75-basis point increase and the fifth rate hike this year. 

The move came as the Fed continues to fight high inflation, which hit 8.3% annually in August. This was a slight improvement from July but still remains near the 40-year high set earlier this year and is much higher than the central bank’s preferred 2% annual average.

The increased federal funds rate also raises interest rates on products such as personal loans, mortgages, student loans and credit cards. 

The rate hike brings the federal funds rate to a targeted range of 3% to 3.25%, and the Fed said it anticipates that more rate hikes are on the horizon, as it is “strongly committed to returning inflation to its 2% objective.”

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While the Federal Reserve maintains its monetary policy and forecasts more rate hikes, it indicated that bringing down inflation could take longer than previously anticipated. 

“At 3%, the rate is now above what most FOMC members consider to be the long-term level and should be effective in reducing demand and slowing inflation over time,” Mike Fratantoni, Mortgage Bankers Association (MBA) senior vice president and chief economist, said in a statement.

“The FOMC members’ projections indicate slower growth, slowly decelerating inflation, and a fed funds rate that will likely top out well above 4%,” Fratantoni said. “The surprise for the market might be the median expectation that they could increase rates to 4.4% by the end of this year.”

The Federal Open Market Committee (FOMC) upped its projection for interest rates by the end of the year, showing that bringing down inflation could be a longer process than it originally anticipated. FOMC members increased their projections for year-end interest rates from 3.4% to 4.4%, and expects rates to remain at or above 4% through 2024.

“Focusing on the Fed’s interest rate decision totally misses what’s most important,” Morning Consult Chief Economist John Leer said in a statement. “FOMC members significantly increased their projections for inflation, unemployment and interest rates over the next two years and lowered their GDP growth forecasts. Even the Fed is growing less confident in its ability to achieve a soft landing.”

https://www.foxbusiness.com/personal-finance/federal-reserve-rate-hike-september-inflation?dicbo=v1-3b3c9ee5b125f1efc1729e8199e048d4-00e17b74303517cbe6bf08cea931e9f870-gezdsobqgi4wcljvmnqwiljugzrtcljzmm3tiljrgaydcmdemi2dsmzsmm

Dow closes 800 points higher on Friday, registers fourth straight week of gains

Stocks rose on Friday despite a tumble in Amazon shares after economic data pointed to slowing inflation and a steady consumer.

The Dow Jones Industrial Average closed 828.52 points, or about 2.6%, higher at 32,861.80. The S&P 500 added nearly 2.5%, to close at 3,901.06. The Nasdaq Composite ended up about 2.9%, to close at 11,102.45.

On a weekly basis, the major indexes made notable gains. It was the fourth positive week in a row for the Dow, a first since a five-week streak ending in November 2021. The 30-stock index is up 5.7% this week in its best performance since May. It’s also on track for its best month since January 1976.

The S&P 500 and the Nasdaq are up 3.9% and 2.2%, respectively, for the week.

https://www.cnbc.com/2022/10/27/stock-market-futures-open-to-close-news.html

Teck Resources Reports Q3 Loss On One-Time Charge For Fort Hills Sale

The Canadian Press – Canadian Press – Thu Oct 27, 5:59AM CDT

VANCOUVER — Teck Resources Ltd. reported a loss in its latest quarter as it took a one-time charge related to the sale of its stake in the Fort Hills oilsands project to Suncor Energy Inc.

The company says it lost $195 million or 37 cents per diluted share for the quarter ended Sept. 30.

The result compared with a profit of $816 million or $1.51 per diluted share in the same quarter a year ago.

Revenue in what was the company’s third quarter totalled $4.67 billion, up from $3.97 billion in the same quarter last year.

The results included a $952-million asset impairment charge related to the sale of the company’s 21.3 per cent stake in Fort Hills to Suncor for about $1 billion.

On an adjusted basis, Teck says it earned $923 million or $1.74 per diluted share for the quarter compared with an adjusted profit of nearly $1.02 billion or $1.88 per diluted share in the same quarter last year.

This report by The Canadian Press was first published Oct. 27, 2022.

Companies in this story: (TSX:TECK.B

CANADIAN UTILITIES REPORTS THIRD QUARTER 2022 EARNINGS

CALGARY, AB, Oct. 27, 2022 /CNW/ – Canadian Utilities Limited (TSX:CU.TO) (TSX:CU-X.TO)  

Canadian Utilities Limited (Canadian Utilities or the Company) today announced third quarter 2022 adjusted earnings of $120 million ($0.45 per share), $32 million ($0.12 per share) higher compared to $88 million ($0.33 per share) in the third quarter of 2021.

https://www.newswire.ca/news-releases/canadian-utilities-reports-third-quarter-2022-earnings-889619964.html

ALTAGAS ANNOUNCES THIRD QUARTER 2022 RESULTS

HIGHLIGHTS
(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

• Normalized EPS¹ of $0.10 and GAAP EPS² of $(0.17) in the third quarter of 2022 compared to $0.01 and $0.09 in the third quarter of 2021, respectively.
• Normalized FFO per share¹ of $0.60 and GAAP FFO per share³ of $(1.37) in the third quarter of 2022 compared to $0.59 and $0.75 in the third quarter of 2021, respectively.
• Normalized EBITDA¹ of $233 million and income before income taxes of $48 million in the third quarter of 2022 compared to $239 million⁴ and $89 million in the third quarter of 2021, respectively. Strong Utilities results were offset by a lower contribution from the Midstream segment.
• The Utilities segment reported normalized EBITDA of $115 million and income before income taxes⁵ of $54 million in the third quarter of 2022 compared to $62 million and income before income taxes of $102 million in the third quarter of 2021, respectively. Strong Utilities growth was driven by strong asset optimization activities, strong margins within the Retail Marketing Business and continued capital investments across the network.
• The Midstream segment reported normalized EBITDA of $108 million and income before income taxes of $71 million in the third quarter of 2022 compared to $181 million and $100 million in the third quarter of 2021, respectively. Strong Global Export volumes of approximately 110,000 Bbls/d of liquified petroleum gases (LPGs) were more than offset by a combination of mainly short-term factors, including lower realized Asian-to-Canadian butane spreads, high commodity price volatility, and higher rail and ocean freight costs.
• On May 26, 2022, AltaGas announced an agreement to sell its Alaskan Utilities to TriSummit Utilities Inc. (“TriSummit”) for US$800 million (approximately CAD$1.1 billion). Cash proceeds will be used to fund long-term growth opportunities and continue to strengthen the Company’s balance sheet, while concentrating AltaGas’ Utilities platform in the high growth Eastern U.S. region. AltaGas continues to progress the work required to gain all State and Federal approvals to close the divestiture and expects the transaction to close during the first quarter of 2023.
• On July 5, 2022, AltaGas purchased the remaining 25.97 percent of Petrogas Energy Corp. (“Petrogas”) from Idemitsu Canada Corporation (“Idemitsu”), for total cash consideration of $285 million. The acquisition provides AltaGas the ability to further integrate and optimize the west coast LPG export platform and solidifies the Company’s position as the leading provider of North American LPGs from the west coast.
• Subsequent to the quarter-end, AltaGas, along with its partner Whitecap Resources Ltd. (“Whitecap”), were selected by the Government of Alberta to enter into an agreement for continued evaluation work on the Rolling Hills Carbon Sequestration Hub (“Rolling Hills”), northwest of Calgary, AB.
• On August 17, 2022, AltaGas closed its offering of $250 million of 7.35 percent Fixed-to-Fixed Rate Subordinated Notes, Series 2, due August 17, 2082. AltaGas used the net proceeds of the offering to redeem the cumulative redeemable five-year rate reset preferred shares, series C.

https://www.newswire.ca/news-releases/altagas-announces-third-quarter-2022-results-867209341.html

Fortis: Q3 Earnings Snapshot

AP – Fri Oct 28, 8:47AM CDT

ST. JOHN`S, Newfoundland (AP) _ Fortis Inc. (FTS) on Friday reported third-quarter net income of $249.9 million.

On a per-share basis, the St. john`S, Newfoundland-based company said it had net income of 52 cents. Earnings, adjusted for non-recurring costs, came to 54 cents per share.

The results exceeded Wall Street expectations. The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 50 cents per share.

The electric and gas utility posted revenue of $1.96 billion in the period.

Key inflation gauge for the Fed rose 0.5% in September, in line with expectations

• The core personal consumption expenditures price index in September increased 0.5% from the previous month and 5.1% from a year ago.
• Including food and energy, PCE inflation rose 0.3% for the month and 6.2% on a yearly basis.
• Personal spending rose 0.6%, more than expected amid the rise in prices.
• Compensation costs increased 1.2% in the third quarter, in line with estimates.

An economic gauge that the Federal Reserve follows closely showed that inflation stayed strong in September but mostly within expectations, the Bureau of Economic Analysis reported Friday.

The core personal consumption expenditures price index increased 0.5% from the previous month and accelerated 5.1% over the past 12 months, the report showed. The monthly gain was in line with Dow Jones estimates, while the annual increase was slightly below the 5.2% forecast.

Including food and energy, PCE inflation rose 0.3% for the month and 6.2% on a yearly basis, the same as in August.

The report comes as the Fed is prepared to enact its sixth interest rate increase of the year at its policy meeting next week. In an effort to combat inflation running at its fastest pace in nearly 40 years, the Fed has been raising rates, with increases totaling 3 percentage points thus far.

Markets widely expect the Fed to enact its fourth straight 0.75 percentage point increase at the meeting, but possibly slow down the pace of hikes after that.

The BEA also reported that personal income increased 0.4% in September, one-tenth of a percentage point above the estimate. Spending as gauged through personal consumption expenditures increased 0.6%, more than the 0.4% estimate.

However, when adjusted for inflation, spending rose just 0.3%. Disposable personal income, or what is left after taxes and other charges, rose 0.4% on the month but was flat on an inflation-adjusted basis.

The personal saving rate, which measures savings as a share of disposable income, was 3.1% for the month, down from 3.4% in August.

A separate release Friday showed that employment costs rose 1.2% for the third quarter, in line with estimates, according to the Bureau of Labor Statistics. On an annual basis, the employment cost index increased 5%, slightly lower than the 5.1% pace in the second quarter.

Fed officials watch Friday’s data points closely for clues about where costs are headed, particularly with a tight labor market in which there are 1.7 jobs per every available worker, according to recent BLS data.

The Fed prefers the PCE price reading to the more widely followed consumer price index from the BLS. The BEA measure adjusts for consumer behavior, in particular substitution of less expensive goods, to determine cost-of-living increases rather than simple price moves.

Markets think the Fed might downshift the pace of its rate hikes ahead. Futures pricing Friday morning indicated a nearly 60% chance that the central bank will increase rates 0.5 percentage point in December.

Covid cases, controls spread in China

• “Since the 20th National Party Congress kicked off on 16 October, domestic Covid case numbers have been clearly on an upward trajectory,” Nomura’s chief China economist Ting Lu and a team said in a report Thursday.
• The Nomura analysts said they expect China’s stringent Covid controls will remain at least until March, “when the political reshuffle will be fully completed and the new leaders fully take over the cabinet.”
• On Wednesday, Premier Li Keqiang headed a State Council meeting that called for promoting a pickup in growth in the fourth quarter, from the third, state media said

BEIJING — Covid controls in China have tightened in the last two weeks after more cities reported virus outbreaks.

The restrictions on business and social activity affected 9.2% of China’s gross domestic product as of Thursday, up from 7% on Oct. 16, according to Nomura’s model.

“Since the 20th National Party Congress kicked off on 16 October, domestic Covid case numbers have been clearly on an upward trajectory,” the firm’s chief China economist Ting Lu and a team said in a report Thursday. “The national lockdown situation has been getting … significantly worse.”

https://www.cnbc.com/2022/10/28/covid-cases-controls-spread-in-china.html