Making sense of the markets this week: May 5, 2024
Amazon and Apple surprise to upside, oil sands welcome Trans Mountain, fast food’s mixed results, and Cameco slips.
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Amazon and Apple surprise to upside, oil sands welcome Trans Mountain, fast food’s mixed results, and Cameco slips.
Michael McCullough is a financial writer and editor in Duncan, B.C.
Diluted bitumen started flowing through the expanded Trans Mountain Pipeline on Wednesday (even at a brisk walking pace, it’ll take weeks to reach its destination). This is raising hopes that at last Canada’s oil sands producers will be able to narrow the discount paid by a now-larger cohort of refiners for their product. Meanwhile, two of the largest shippers on the pipeline reported first-quarter earnings sans that hoped-for revenue bump.
Cenovus output and profits both surprised on the upside, and the company further sweetened the pot by hiking its base dividend by 29% and announcing a variable dividend of 13.5¢ a share for this quarter. Production for the quarter exceeded 800,000 barrels of oil equivalent per day. At the same time the company modestly reduced its overall debt level.
Results for Canadian Natural Resources suffered from lower-than-expected production and realized prices, especially on the natural gas side. Output came in at 1.33 million barrels of oil equivalent per day.
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Two more technology mega-caps reported first-quarter results this week, helping keep the Magnificent 7 bandwagon rolling.
All amounts in U.S. dollars
Amazon reported continued strong demand for its Web Services, as corporate customers signed longer-term deals with bigger commitments. Generative artificial intelligence (AI) components added to the overall spend, the company said. Advertising revenue also enjoyed strong growth, although there are signs consumers are turning more cautious with retail spending. Following the earnings release, the stock rose 3% Wednesday morning.
Amazon rival Walmart, meanwhile, opted to close 51 health clinics at U.S. stores and discontinue its virtual health services, the company announced Tuesday. It blamed high operating costs and “a challenging reimbursement environment” for poor profitability in the division first launched in 2020.
Apple’s revenues fell less than expected and earnings surpassed Wall Street estimates. The company also said it would boost its dividend to 25¢ a share and authorize $110 billion worth of share buybacks. Services revenue grew to nearly $24 billion, offsetting declines in sales of iPhones and other devices. Sales fell 8% in Greater China (including Taiwan, Singapore and Hong Kong), but that drop-off was not as severe as analysts anticipated. Apple shares surged nearly 6% before markets opened Friday, and more than a dozen analysts raised their target price on Apple.
There’s no accounting for taste as fast-food purveyors moved in divergent ways in the first quarter; some were squeezed between cost inflation and consumer austerity while others continued to super-size their sales.
All figures in U.S. dollars.
Restaurant Brands hosted better-than-expected traffic at both of its signature brands in the first quarter. The company’s Burger King outlets in the U.S. showed a comparable sales increase of 3.9%, while Tim Hortons same-store sales, world-wide, were up 4.6%.
It was a similar story for Domino’s Pizza, where U.S. same-store sales rose 5.6% year over year, thanks to promotions and heightened use of food delivery platforms such as Uber Eats.
That contrasts with McDonald’s, which missed analyst estimates as sales growth slumped to just 1.9%. The company raised prices on some of its menu items in response to inflation in the price of ingredients but experienced some pushback from consumers. In addition, international sales suffered as a result of conflict in the Middle East.
Starbucks stock likewise slumped nearly 16% Wednesday after the coffee giant revealed global comparable sales had fallen 4% over the quarter. American coffee drinkers are rejecting recent price hikes, while a recovery in China has yet to materialize, the company said. Starbucks also reported negative war fallout in the Middle East.
Meanwhile on this side of the border, Canadian grocery king Loblaw Companies Ltd (L/TSX) enjoyed a rise in profits of almost 10%, and raised its quarterly dividend by 15% to 51.3¢ per share, up from 44.6¢.
In a sobering slap to the growing commodity-boom mentality, uranium miner Cameco Corp. (CCO/TSX) reported a loss of $7 million, equivalent to 2¢ per diluted share. The Saskatoon-based company attributed the setback to charges related to its acquisition of a 49% stake in nuclear contractor Westinghouse Electric Co. (Brookfield Renewable Partners owns the remainder.)
Cameco—which is the world’s largest publicly traded uranium company—earned $119 million over the same quarter a year ago. Even on an adjusted basis (excluding the charges) earnings per share were less than half the level from the same quarter in 2022. Revenues were $634 million, compared to $687 million the year previous.
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