TSX closes lower amid mixed earnings news, vote to raise U.S. debt ceiling

TORONTO – The Toronto stock market closed lower Wednesday as investors looked to another day of mixed earnings reports and a vote by Congress to raise the U.S. debt ceiling.

The S&P/TSX composite index declined 30.59 points to 12,794.05 while the TSX Venture Exchange edged 0.46 of a point higher to 1,241.53.

The Canadian dollar dropped 0.64 of a cent to 100.1 cents US after the Bank of Canada said economic growth has been weaker than expected and indicated that the anticipated need to raise rates is now less imminent. The bank’s key overnight lending rate remained unchanged at one per cent, as expected.

The change in the guidance from last month likely means the central bank won’t move to tighten borrowing costs until some time in 2014 or until it has more compelling evidence the Canadian economy is ready to re-engage.

U.S. indexes were higher amid solid reports from Google Inc. and IBM Corp., with the Dow Jones industrials up 66.96 points to a fresh five-year high of 13,779.17. The Nasdaq rose 10.49 points to 3,153.67 while the S&P 500 index also closed at its best level in five years, up 2.22 points to 1,494.78.

The House of Representatives overwhelmingly passed a bill Wednesday to permit the government to borrow enough money to avoid a first-time default for at least four months.

Republicans backed away from their previous demand that any increase in the government’s borrowing cap be paired with an equivalent level of spending cuts, a condition that had cast a cloud of uncertainty over markets.

The measure now goes to the Senate for a vote in the next few days.

In Toronto, Celestica (TSX:CLS) reported a sharp drop in fourth-quarter profits as the electronics manufacturer was hit by restructuring and other charges and lower revenue as it wound down work for Research In Motion. Its shares dipped 34 cents to $8.22 even as president and chief executive officer Craig Muhlhauser assured analysts there is a plan to improve profit this year.

In the U.S., McDonald’s reported Wednesday that quarterly earnings were US$1.38 a share, five cents better than analysts’ forecasts. Revenue of US$6.95 billion beat projections of $6.889 billion and its shares were up 54 cents to US$93.49 even as the world’s biggest hamburger chain also warned that a key sales figure is expected to drop this month.

After the close Tuesday, IBM handed in results that beat for earnings and revenue. Earnings per share for the quarter were $5.39, versus the $5.25 that analysts expected. Revenue came in at $29.3 billion against the $29.09 billion expected and IBM shares gained 4.41 per cent to $204.72.

Google’s fourth-quarter earnings rose seven per cent to nearly $2.9 billion, or $8.62 cents per share. If not for the costs of employee stock compensation and certain other accounting items, Google said it would have earned $10.65 per share, which exceeded estimates of $10.54. Revenue surged 36 per cent to $14.4 billion and its stock ran ahead 5.5 per cent to $741.50.

The results added increasing optimism about fourth-quarter earnings.

“So far, things are looking pretty good,” said Luciano Orengo, portfolio manager at Manulife Asset Management.

“One hundred companies out 498 on the S&P 500 have reported — about 20 per cent or so — and 77 per cent of them have come up with positive earnings surprises, versus 22 with negative (which is) better than the historical average.”

Shares Apple Inc. (Nasdaq:AAPL) plunged more than nine per cent to US$514.01 in extended hours trading after the company warned Wednesday that the blockbuster sales growth of the last five years was slowing drastically as iPhone sales begin to plateau.

Apple’s profit growth also hit a wall in the October to December quarter, the company reported after markets closed. Net income in its fiscal first quarter was $13.1 billion, or $13.81 per share, flat with a year ago although it still beat expectations. Revenue was $54.5 billion, up 18 per cent from a year ago. Analysts had been expecting $55 billion.

Netflix (Nasdaq:NFLX), which also reported after markets closed, said its fourth-quarter profit dropped 78 per cent to US$8 million or 13 cents per share even as revenue climbed eight per cent to US$945 million as it added two million subscribers in the period.

However, investors had been braced for a loss as expenses of the Internet video services provider rose and the results appeared to validate recent investor confidence in Netflix Inc., whose volatile stock had surged by more than 30 per cent since early December. The stock jumped another 33 per cent to $137.48 in after hours trading after the fourth-quarter numbers came out.

Traders were also taking in earnings from Apple Inc. after the close on Wednesday. Its stock gained $9.23 to US$514.

The gold sector led TSX decliners, down about two per cent while February bullion on the New York Mercantile Exchange ticked $6.50 lower to US$1,686.70 an ounce. Goldcorp Inc. (TSX:G) faded 81 cents to C$37.22 while Iamgold (TSX:IMG) dropped 14.55 per cent to $9.22, a day after the Toronto-based miner said it has reduced exploration activity in Mali as a precaution due to unrest in the west African country.

The tech sector also contributed to weakness, down 0.5 per cent with Research In Motion Ltd. (TSX:RIM) giving back some of its recent strong gains, down 44 cents to $17.30. It unveils its new BlackBerry 10 product on Jan. 30.

The base metals component fell 0.39 per cent as March copper was down two cents at US$3.68 a pound. First Quantum Minerals (TSX:FM) shed 37 cents to C$20.55.

Oil prices registered the biggest decline in about a month on reports that the amount of oil moving through a key pipeline to the Gulf Coast had been cut in half.

The February crude contract on the Nymex dropped $1.45, or 1.5 per cent, to US$95.23 a barrel.

Analysts say losses picked up in the early afternoon after reports surfaced that the Seaway pipeline, which takes crude from Cushing, Okla., to the Gulf Coast, was constrained and could only work at about half its 400,000 barrel-per-day capacity. That will likely mean growing supplies at Cushing, the trading hub for U.S. benchmark oil, and lower prices.

Last year, Enbridge and partner Enterprise Products Partners reversed the flow of the Seaway pipeline and earlier this month expanded its capacity from 150,000 to 400,000 barrels a day.

The energy sector was flat as Imperial Oil (TSX:IMO) rose 17 cents to C$44.18.

The telecom sector provided lift, with BCE Inc. (TSX:BCE) ahead 35 cents to $43.92.

A major decliner in New York was luxury handbag seller Coach Inc. Its shares plunged 16.36 per cent to US$50.75 after it said a challenging economy and heavy price cutting by competitors weighed on its fiscal second-quarter results. Net income was $352.7 million, or $1.23 per share, while net sales rose four per cent to $1.5 billion. The results were short of expectations for earnings of $1.28 per share on revenue of $1.6 billion.