Growing grocery delivery business and other opportunities
The company also said it’s hitting pause on a new fulfilment centre to help save costs in its grocery delivery business Voilà, among other changes.
“While the market penetration of Voilà continues to be strong, the size and growth of the Canadian grocery e-commerce market is smaller than anticipated, resulting in higher net earnings dilution than originally estimated,” Empire said in its press release. The company says it’s focusing on driving volume and performance at its three existing centres.
Empire also prematurely ended its mutual exclusivity agreement with technology provider Ocado, as part of changes it’s made to lower costs and increase flexibility. The changes “are expected to have a significant, positive impact on Voilà’s profitability in fiscal 2025 and 2026,” Empire said. The company says its profit amounted to $0.86 per diluted share for the 13-week period ended Aug. 3.
The result was down from a profit of $1.03 per diluted share in the same quarter last year when its bottom line was boosted by the sale of 56 gas stations in Western Canada.
Analyst take on Empire’s quarter
RBC analyst Irene Nattel said Empire’s operating results came in “a tick above forecast as consumer value-seeking behaviour stabilizes.” She said in a note that the company continues to execute on its strategy to maximize revenue in its full-service stores, despite the broader momentum in discount stores, though she added Empire is also growing its discount presence. Nattel has previously said Empire is overly exposed to the full-service part of the grocery sector compared with its competitors, giving it a relative disadvantage amid heightened price sensitivity.
Empire earnings highlights
Here’s a breakdown of the results this week.
Empire Company (EMP/TSX): Earnings per share of $0.63 (versus $0.62 predicted). Revenue of $7.41 billion (meeting the prediction).
Sales for what was the company’s first quarter totalled $8.14 billion, up from $8.08 billion a year earlier. Same-store sales for the quarter were up 0.5%, while same-store sales, excluding fuel, increased 1%.
Medline said a year and a half after completing the rollout of loyalty program Scene+ across Canada, the program has more than 15 million members, with those members spending on average 55% more than non-members. “Scene+ has significantly boosted our incremental sales and margin compared to our prior loyalty program,” he said.
On an adjusted basis, Empire says it earned $0.90 per share in its latest quarter, up from an adjusted profit of $0.78 per diluted share in the same quarter last year. Shares in Empire closed up 5.6% on the Toronto Stock Exchange at $40.62.
In July, after several years of prioritizing debt repayment, Cenovus reached its debt reduction target—bringing its total net debt to $4.0 billion. The milestone means Cenovus will no longer be regularly directing a portion of its cash flow towards its balance sheet, a development that frees up funds for other purposes.
Cenovus’s plans for excess cash
But McKenzie said the excess cash will be 100% returned to shareholders, most likely in the form of share buybacks, and won’t be used to embark on any new growth strategies or M&A opportunities.
“It’s going to be good to run this business model at 100% shareholder returns going forward, and that’s really what we’re focused on today—just sticking to our knitting and executing on what’s in front of us, versus trying to take on new challenges or modifying strategies,” McKenzie told analysts and reporters.
Cenovus earnings report highlights
Cenovus(CVE/TSX) reported second quarter earnings of $1 billion Thursday, up from $866 million in the same quarter last year. Earnings worked out to $0.53 per diluted share, up from $0.44 from last year.
The company said its excess free funds flow in the quarter ending June 30 was $735 million, up from $505 million in the same quarter a year earlier. The company reported revenues of $14.9 billion for the second quarter, up from $12.2 billion for the same quarter last year.
In the second quarter, Cenovus loaded its first vessels at the Westridge Marine Terminal in Vancouver following the successful startup of the Trans Mountain pipeline expansion, on which it is a major contracted shipper.
Notes for the rest of 2024
In light of strong year-to-date results, Cenovus revised its 2024 production forecast Thursday. The company now expects total upstream production of between 785,000 and 810,000 barrels of oil equivalent per day, up from a prior forecast of 770,000 to 810,000 boe/d.
McKenzie said Cenovus is now nearly 90% finished construction the Narrows Lake tie-back at its Christina Lake oilsands site. The tie-back project is a 17-kilometre pipeline that connects the Narrows Lake reservoir to the Christina Lake main processing facility, and will result in up to 30,000 barrels per day of additional production from the site starting in late 2025.
The company also continues to work to improve performance at its U.S. refinery operations, which in recent years have been affected by unplanned outages and maintenance issues.
Stocks closed the week with mixed results as debate about when, or if, the Federal Reserve will cut interest rates continued to be top of mind for investors.
For the week, the Nasdaq Composite (^IXIC) rose more than 1%, while the S&P 500 (^GSPC) was near flat. The Dow Jones Industrial Average (^DJI) fell more than 2%. All three indexes were still near record highs.
After a quiet week on the economic data front, a key reading of the Fed’s preferred inflation gauge is set to greet investors in the week ahead. A second update on economic growth in the first quarter and a reading on consumer confidence are also on the economic schedule.
On the corporate front, earnings season is officially winding down, with Salesforce (CRM), Costco (COST), Dollar General (DG), and Best Buy (BBY) highlighting a lighter schedule of quarterly reports.
Markets will be closed on Monday for the Memorial Day holiday.
Rate debate
A hotter-than-expected reading on US economic output, combined with a hawkish tone from Fed officials in the minutes of the central bank’s May meeting, prompted investors to scale back expectations for interest rate cuts again. Investors are now pricing in fewer than two cuts for the year, and debate has shifted to whether or not the Fed will make its first cut by September.
As of Friday, markets were pricing in a 50% chance the Fed doesn’t cut in September, a noted shift from the 70% chance investors had priced in a month ago, per the CME FedWatch tool.
Goldman Sachs’ economics team pushed back its call for the first Fed cut from July to September on Friday but noted the “timing of the first cut remains a difficult question.”
Goldman’s chief US economist David Mericle reasoned that his team still views these cuts as “optional” given the strength of the economy seen in data like last week’s hotter-than-expected business activity reading. All else equal, signs of strength in the economy “lessen the urgency” for the Fed to cut, Mericle reasoned.
Mericle added that while Goldman expects inflation to be “much improved” by September, it will still likely be above the Fed’s 2% target, adding to the optionality.
With earnings season largely over, Truist co-chief investment officer Keith Lerner told Yahoo Finance the discussion around the Fed, inflation, and economic data will once again take center stage for markets in the near term.
“That just makes for a more volatile market,” Lerner said.
Federal Reserve Chair Jerome Powell holds a press conference following the central bank’s two-day policy meeting in Washington, May 1, 2024. (REUTERS/Kevin Lamarque/File Photo) (Reuters / Reuters)
A fresh check on prices
Inflation’s trajectory remains crucial to the Fed’s rate-cutting timeline, and markets will get an update on any progress on Friday with the release of the Personal Consumption Expenditures (PCE) index.
Economists expect April’s “core” PCE, the Fed’s preferred gauge that excludes the volatile food and energy categories, clocked in at an annual gain of 2.8%, flat from March’s increase. Over the prior month, economists expect “core” PCE rose 0.3%, also in line with last month’s change.
Another economic growth update
US economic growth for the first quarter of 2024 came in far weaker than economists had expected. On April 25, the Bureau of Economic Analysis’s advance estimate of first quarter US gross domestic productshowed the economy grew at an annualized pace of 1.6% during the period, missing the 2.5% growth expected by economists surveyed by Bloomberg.
The secondary reading is slated for Thursday, and economists believe after down revisions to retail sales data in February and March, the GDP number will fall to 1.3% in this reading. However, Bank of America US economist Michael Gapen wrote in a note to clients that this shouldn’t be an ominous sign about the health of the US economy.
“Final sales to domestic purchasers (GDP less trade and inventories) should remain strong.” Gapen wrote. “The bottom line is that the economy moderated somewhat in the first quarter, but it remains on a stable footing overall.”
Entering the week, the S&P 500 had been pacing for growth of 5.7%. After Nvidia’s report, the index is now pacing for growth of 6% in the first quarter.
And, importantly, strategists believe Nvidia’s outsized impact on earnings will decline throughout the year, supporting a broadening of the stock market rally.
Bank of America US and Canada equity strategist Ohsung Kwon told Yahoo Finance that the first stage of the AI cycle has already been happening, with earnings growing at companies like Nvidia (NVDA) as tech giants like Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT) invest in the growing technology. But the rewards are starting to expand, with recent rallies in sectors like Utilities and Energy.
“We don’t think it’s just about Nvidia anymore,” Kwon said. “Things are broadening out … to power, commodities, utilities, things like that.”
Kwon noted in a recent research note that Nvidia drove 37% of the S&P 500’s earnings growth over the past month. In the next 12 months, it’s expected to represent just 9%.
The case for S&P 6,000
A solid earnings backdrop for the rest of the year is one of several factors many strategists are citing as they revise up their year-end targets for the S&P 500. But Deutsche Bank chief equity strategist Binky Chadha told Yahoo Finance while people are “talking bullish,” equity positioning hasn’t shifted much in the past three months. Deutsche Bank’s measure of positioning shows investors are “overweight” equities but not to the “extreme” levels seen in 2021 and 2018.
This is one of several reasons Chadha sees “upside risks” to his updated call for the S&P 500 to end 2024 at 5,500. Chadha believes there could be more room to run for stocks, particularly given that he feels consensus isn’t currently pricing in outperformance for the US economy.
Chadha highlights that expectations for the US economy have really just shifted from an incoming recession to at or slightly below normal trend growth. If that consensus continues to move higher, and the US economy once again grows more than expected this year amid what some believe could be a productivity boom for the US labor force, it’s not hard to see the S&P 500 hitting 6,000, per Chadha.
“We’ve come a long way, but we don’t seem to have gone all the way,” Chadha said.
Weekly Calendar
Monday
Markets are closed for the Memorial Day holiday.
Tuesday
Economic data: S&P CoreLogic Case-Shiller National Home Price Index year-over-year, March (+6.38% prior); Conference Board Consumer Confidence, May (96 expected, 97 prior); Dallas Fed manufacturing activity, May (-15 expected, -14.5 prior)
Economic data: MBA Mortgage Applications, week ending May 24 (+1.9% prior); Richmond Fed manufacturing index, May (-7); Federal Reserve releases Beige Book
Earnings: Abercrombie & Fitch (ANF), Advance Auto Parts (AAP), American Eagle (AEO), BMO (BMO), C3.ai (AI), Chewy (CHWY), Dick’s Sporting Goods (DKS), HP (HPQ), Okta (OKTA), Salesforce (CRM)
Thursday
Economic data: First quarter GDP, second estimate (1.3% annualized rate expected, +1.6% previously); First quarter personal consumption, second estimate (+2.1% expected, 2.5% previously); Initial jobless claims, week ended May 25 (218,000 expected, 215,000 previously); Pending home sales, month-over-month, April (-0.6% expected, +3.4% previously); Wholesale inventories month-over-month April preliminary (-0.1% expected, -0.4% previously)
Canada Goose reports $5M Q4 profit, YOY revenue up 22%
Canada Goose Holdings Inc. (TSX:GOOS) reported a profit in its fourth quarter compared with a loss a year earlier as its revenue rose 22%. The luxury parka maker says it earned net income attributable to shareholders of $5.0 million or $0.05 per diluted share for the quarter ended March 31, compared with a loss of $3.1 million or $0.03 per diluted share a year earlier. Revenue for the totalled $358.0 million, up from $293.2 million in the same quarter last year.
On an adjusted basis, Canada Goose says it earned $0.19 per diluted share in its latest quarter, up from an adjusted profit of $0.13 per diluted share a year earlier. The outlook for its 2025 financial year, Canada Goose says it expects total revenue to grow in the low-single-digits year-over-year. It also says its adjusted net income per diluted share for the full year is expected to grow by a mid-teen percentage compared with a year earlier.
Lightspeed reports Q4 revenue up 25%
Photo by The Canadian Press/Christinne Muschi
Photo by The Canadian Press/Christinne Muschi
Photo by The Canadian Press/Christinne Muschi
Three months after Dax Dasilva returned to the helm of Lightspeed Commerce Inc. on an interim basis, the company says he’s staying put. The Montreal-based payments technology business said Thursday that Dasilva, Lightspeed’s founder, has been reappointed as chief executive on a permanent basis, dropping the interim tag from his title.
Dasilva stepped back into the CEO job on an interim basis in February after JP Chauvet left the company. Chauvet joined Lightspeed as chief revenue officer in October 2012 and replaced Dasilva in the top job in February 2022, when the founder became executive chair.
“We’re in a new phase,” Dasilva told analysts on a conference call to discuss the company’s latest results. “This is the profitable growth phase of Lightspeed, so (I’m) thrilled to be leading.”
That new phase, he said, has three objectives:
accelerating software revenue growth,
advancing the adopting of Lightspeed’s financial services products
and controlling costs.
To improve software revenue growth, Dasilva said the company would invest in product innovation, redeploy account managers to upsell clients and focus on customers that tend to adopt more software.
On the financial services front, the company wants to get more clients using not just its payments technology, but also its capital and instant deposit offerings. Dasilva’s final objective is to control costs and find more savings.
Homebuilder stocks fell on Monday after a closely watched housing sentiment index broke a four-month streak of gains amid high mortgage rates.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) stayed at 51 in April, unchanged from March. To be sure, any number over 50 indicates that more builders view conditions as good than poor.
“April’s flat reading suggests potential for demand growth is there, but buyers are hesitating until they can better gauge where interest rates are headed,” NAHB chief economist Robert Dietz said in a statement.
Lennar (LEN), Pulte (PHM), and Toll Brothers (TOL) were all down more than 1% mid-morning, while the SPDR S&P Homebuilders ETF (XHB) was off 0.3%.
The flat confidence level among builders underscores how many prospective buyers and sellers, already dealing with high home prices and limited housing stock, are staying put. It comes after a higher-than-expected inflation print last week prompted investors to scale back the number of rate cuts they see this year to two, less than the median of three projected by the Fed at its March meeting.
“With the markets now adjusting to rates being somewhat higher due to recent inflation readings, we still anticipate the Federal Reserve will announce future rate cuts later this year and that mortgage rates will moderate in the second half of 2024,” Dietz said.
Mortgage rates have stayed slightly higher compared to the beginning of the year, pushing borrowers to the sidelines just as the spring homebuying season kicks into gear. The average rate on the 30-year fixed mortgage rate rose to 6.88%, higher than 6.82% the previous week, Freddie Mac reported.
In April, builders pulled back slightly on cutting home prices, with 22% of builders reporting doing so, down from 24% in March and 36% in December last year.
Meanwhile, the use of sales incentives ticked down to 57% in April from a reading of 60% in March.
(Bloomberg) — The stock market just finished its best week in almost a year, but lurking beneath the euphoric surface are fears about Corporate America’s profit outlook.
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Among companies that have issued guidance this earnings season for next quarter and beyond, more have been providing estimates that trail analysts’ expectations. A gauge of forward guidance that compares corporate forecasts with the Wall Street consensus has been lower only once since 2019, data compiled by Bloomberg Intelligence show.
The equities optimists might look at that and conclude the C-Suite signals will end up being too conservative, setting the stage for eventual investor cheer. But the gloomier interpretation is that companies are quietly building caution as they grapple with a concerning global outlook and the demand headwinds from the Federal Reserve’s aggressive interest-rate hikes.
“If there’s a lot of optimism based on forward projections and suddenly that starts to turn, then it doesn’t bode well for stock prices,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors. “But we’re seeing more signs that cracks are beginning to form from tighter financial conditions and profit outlooks. Some analysts have been slower to come to terms with this.”
Only about a quarter of S&P 500 companies provide quarterly guidance, and just over half offer it on an annual basis, typically the technology and discretionary sectors. Earnings for most Big Tech companies have been in line or above expectations, though the outlook has dimmed along with broadly higher borrowing costs.
The S&P 500 gained 5.9% this week after weaker-than-forecast US jobs data on Friday bolstered bets the Fed is done tightening and caused Treasury yields to dive.
The gauge of earnings guidance momentum — derived in part from the ratio of increased versus reduced guidance — is hovering at the lowest level since the first quarter, and aside from that period is the lowest since 2019, Bloomberg Intelligence data show.
The downbeat signal suggests the profit expansion investors had been banking on may not be as swift as expected. The S&P 500 is on track to post earnings growth of 3.2% in the third quarter, halting a three-quarter streak of contracting profits, according to BI.
There are plenty of reasons for companies to be wary, ranging from a war in the Middle East to stubborn inflation to a lack of clarity on the economy. The Atlanta Fed’s GDPNow model sees fourth-quarter real GDP growth slowing to a 1.2% annual rate, from a 4.9% pace in the three months through September.
Sell-side analysts are taking notice. Since Oct. 6, they’ve cut their fourth-quarter EPS views by 1.9%, data compiled by Deutsche Bank AG show. This far into earnings season the view on the following reporting cycle has typically seen a 1% median drop, according to Deutsche Bank data going back to 2010.
Dim confidence in companies’ profit outlook is the main reason behind a lackluster reaction to third-quarter earnings, according to Justin Burgin, director of equity research at Ameriprise Financial.
The S&P 500 firms that missed analysts’ earnings estimates have trailed the benchmark’s performance by 3.8% on average a day after the results, the worst showing in a year, according to BI.
