Kyle Prevost, editor of Million Dollar Journey and founder of the Canadian Financial Summit, reviews this week’s financial headlines and explains what they mean for Canadian investors.
U.S. inflation continues to move in the right direction
Even after a strong April jobs report in the United States, inflation continued to ease in March. The U.S. Labour Department reported that the Consumer Price Index (CPI) rose 0.4% from the previous month and was up 4.9% year-over-year. That result came in slightly below expectations and signaled further disinflation as supply and demand began to rebalance.
However, the picture is mixed. Core inflation, which excludes volatile food and energy prices, remains elevated at 5.5% year-over-year. Because core CPI is still well above the Fed’s 2% target, debate will persist about the timing and extent of future Federal Reserve actions. Bond markets moved slightly lower in response, suggesting investors are cautiously accepting that interest rates may be near their peak. In hindsight, last week’s Fed rate hike may look more aggressive than necessary given the ongoing disinflationary trend.
Price increases for shelter, gasoline and used cars were among the main contributors to the monthly CPI gain, while fuel oil, new vehicles and some food categories saw smaller increases. Internationally, China faces a contrasting challenge: its National Bureau of Statistics reported a small deflationary reading of -0.1% month-over-month, with 12-month inflation only at 0.1%. Wholesale prices fell sharply, highlighting weak demand linked to struggles in the labour and property markets and raising concerns about potential deflationary cycles.
The “best” recession ever for corporate profits
Recession warnings have been a persistent theme across business headlines for months. While GDP growth has been tepid, the resilience of many large corporations has softened the blow for investors. Earnings season this week offered more proof that big companies are still finding ways to deliver profits.
Notable U.S. earnings outperformed estimates (all figures in U.S. dollars):
- PayPal (PYPL/NASDAQ): earnings per share of $1.17 versus $1.11 expected; revenues $7.04 billion versus $6.99 billion expected.
- Airbnb (ABNB/NASDAQ): earnings per share of $0.18 versus $0.09 expected; revenues $1.82 billion versus $1.79 billion expected.
- Electronic Arts (EA/NASDAQ): earnings per share of $1.78 versus $1.31 expected; revenues $1.95 billion versus $1.73 billion expected.
- Disney (DIS/NYSE): earnings per share of $0.93 in line with expectations; revenues $21.82 billion versus $21.78 billion expected.
Despite beating estimates, share prices for these companies fell after earnings releases, reflecting investor concerns about growth prospects and future headwinds. PayPal and Airbnb experienced notable declines even after reporting strong quarters. Still, roughly 80% of U.S. companies have beaten earnings estimates this quarter, underscoring a robust corporate earnings backdrop supported by a resilient labour market and steady consumer demand.
Canadian pipeline profits continue to flow
On the Canadian front, pipeline operators reported largely in line with expectations, and their shares ticked up modestly. Enbridge, TC Energy and Keyera posted results that matched or slightly beat analyst forecasts, supporting short-term stability in their stock prices.
- Enbridge (ENB/TSX): earnings per share $0.85 versus $0.84 expected; revenues $12.08 billion (compared with $16.00 billion reported in another period).
- TC Energy (TRP/TSX): earnings per share $1.21 versus $1.17 expected; revenues $3.93 billion versus $3.84 billion expected.
- Keyera (KEY/TSX): earnings per share $0.60 versus $0.53 expected; revenues $1.79 billion versus $1.80 billion expected.
Near-term results may be affected by Alberta’s wildfire situation, which has forced evacuations and disrupted oil and gas production. With tens of thousands displaced and more than 100 fires impacting operations, energy output and corporate earnings could face pressure in coming quarters.
For additional commentary on Canadian pipeline stocks, I share more thoughts on MillionDollarJourney.com.
Algonquin Power leaves Kentucky, comes back to reality
Algonquin Power (AQN/TSX) has been one of the more surprising names on the Toronto Stock Exchange over the last year. Once viewed as a stable mix of utility assets and renewable generation, the company’s high-growth strategy—funded in part by debt—lost its luster when rising interest rates changed the calculus for acquisitions.
This week Algonquin reported modestly better-than-expected results: earnings per share of $0.17 versus $0.16 forecast and quarterly revenues of $778.6 million versus $733.7 million expected. Despite the small beat, the stock slipped 2.68% following the release.
A pivotal development was Algonquin’s mutual termination of the planned acquisition of Kentucky Power from American Electric Power. The $2.6 billion deal, announced in October 2021, became less attractive as interest rates rose and the cost of debt increased. Algonquin negotiated away a previously agreed $65 million break fee, which appears to have eased investor concerns. Given the company’s January dividend cut of about 40%, shareholders welcomed any reduction in risk and a renewed focus on restoring stability and trust.
With mega-growth through acquisitions less feasible in today’s higher-rate environment, Algonquin’s leadership appears to be shifting toward creating more durable, long-term value for shareholders rather than pursuing aggressive, debt-fueled expansion.
Kyle Prevost is a financial educator, author and speaker. When he’s not on a basketball court or in a boxing ring trying to recapture his youth, he helps Canadians with their finances at MillionDollarJourney.com and through the Canadian Financial Summit.