It’s another jam-packed earnings week with plenty of Stocktrades Premium highlighted companies reporting. The bulk of this newsletter will be focused on those earnings, as I go in-depth on how companies followed here at Premium are doing operationally.
Make sure you are routinely checking the website for updated earnings commentary. I typically only include 3-4 companies in the newsletter. However, there could be a dozen updated reports on the website.
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Canadian Pacific Kansas City (TSE:CP)
For quite a while now, I’ve been expressing the fact that CP Rail is the better operated business out of the railways, the other being of course CN Rail. This quarter certainly continued to confirm that, and I’m fairly happy with my decision to move on from CN a year or so ago and buy CP.
Revenue increased by 3%, earnings by 7%, and free cash flow by 6%. These numbers are in stark contrast to a railway like CN Rail, which is reporting declines in revenue and earnings per share increases that are largely a result of share buybacks.
That said, it is important to acknowledge as well that CPKC has the benefit of the Kansas City Southern acquisition fueling results. So although results are better than its competitor, they’re not as amplified as it seems.
The company’s operating ratio, which is an efficiency metric when looking to railways, came in at 60.7%, which is a 110 basis point (1.1%) improvement over last year.
As I’ve mentioned quite a few times with CP Rail, the company is getting more and more efficient, which is helping cushion results in a soft environment. When the environment improves, investments made into efficiency will end up being tailwinds in overall earnings growth.
When we look to specific segments of the business, it reflects the broad weakness in the economy. Energy volumes were down 5%, likely on the back of weaker commodity prices, and forest products saw revenue decline by 5%, likely because of weaker construction. There is also the added element of tariffs, which is hurting precious metal shipments.
On the automobile side of things, volumes skyrocketed by 58%, likely due to the frontrunning of vehicles purchases by consumers and dealers because of potential tariff impacts in the future.
Revenue Ton Miles, which is arguably the most important key performance indicator of a railway, increased by 7%.
This is the amount of revenue the company generates per volume of freight that is transported. When we look to CN Rail’s revenue ton mile decline of 1%, we can see how differently these two railways are operating, and why I think CP Rail is the superior option at this point in time, despite CN Rail being cheaper.
Now that the company has gotten debt to comfortable levels, it is now buying back shares at a relatively aggressive pace. Again, I like the fact they did not repurchase any shares during a cyclical peak in freight demand (2020-2023) but are now aggressively repurchasing now that we’re at a likely low.
Back in February, the company announced a new buyback program. Fast forward to today, and the company has repurchased 16.4M shares, or around 44% of the buyback allotment already. I would not be surprised to see CP utilize 100%~ of this buyback allotment by years end, as its shares are cheap.
I have mentioned this before, but this is also in stark contrast to what CN Rail has done previously. CN Rail utilized extensive buybacks in 2021/2022 when share prices were at the top of a cyclical peak. On the flip side, CP Rail bought back 0 shares and ceased dividend growth in order to prioritize debt reduction and the Kansas City Southern acquisition.
Patience is required with the railways. When the economy recovers and volumes return, there is practically nowhere for shippers to go except back to the railways. In the meantime, if the company can continue to improve efficiency and operations, it will prove to be a large tailwind when volumes return.
TMX Group (TSE:X)
TMX Group is probably the most under the radar company featured here at Premium. It simply continues to execute, and has provided exceptional returns for shareholders combined with very low volatility.
I love going through the company’s earnings, as it tends to give a barometer on the stock market in general in Canada, considering it holds a 62%+ market share.
Revenue hit record levels and increased by 15% year-over-year. Earnings looked even better, increasing by 21% year-over-year. The company is clearly benefitting from a return in market activity.
Derivatives Trading and Clearing, which would include things like options contracts, saw revenue increase by 33%.
Although this is largely concerning when we think of how speculative derivatives are and the popularity they have in the market right now, it is no doubt pushing the company’s results.
The company’s Insights segment, which would include things like its Trayport platform which is an oil and gas trading platform, grew revenue by 16%, with Trayport actually growing 26%. Trayport now sits at $273M in annual recurring revenue, and has been an outstanding acquisition for the company over the last half decade.
The company’s VettaFi platform, which is a U.S based platform that provides financial data and investing analytics for both stocks and ETFs, grew by 17% year-over-year and now has $65B USD in assets under management.
The surge in popularity of ETFs is driving a lot of VettaFi’s earnings, as it does a lot of work with index creation and ETF licensing.
When we look to the equity side of the markets, volumes increased on the TSX by 17% and the Venture by 15%. The company owns 62% of all trading volume on Canadian exchanges, highlighting how dominant the company’s moat is.
The other trading would have been made on venues like the NEO, Cboe, etc. Although this is down on a year-over-year basis, it is a negligible amount.
As I had mentioned, the company is benefitting significantly from the popularity in exchange-traded funds. The company had 71 listings in the second quarter, and 123 year to date. This is almost reaching levels they had in the entirety of 2024.
On the IPO side of things, it is still struggling, with listing fees continuing to hover around lows.
I had mentioned for numerous years that IPO listings were very poor due to the tougher market environment and higher interest rates. It’s still relatively rough, but it is somewhat recovering.
The only difficulty on this side of the business is out of the 35 listings they’ve had this year, 24 of them were mining companies. With precious metals doing as well as they are, this isn’t all that surprising, but it is also not an environment that can continue on indefinitely, and the IPO market needs to strengthen outside of the mining sector so they can generate income on a consistent basis from this.
One interesting note is that the company did not renew its NCIB, which is the agreement that allows the company to buy back shares. It says it will consider renewing it in 2026, however it is not in the plans for this year. As you can see by the chart below, the company hasn’t bought back any shares for the last 3-4 quarters, but does continue to raise the dividend.
The company likely realizes buybacks at these valuations are not as profitable as they were in the last few years. Or, it could be expecting a bit of a slowdown in the overall equity markets. For long-term shareholders, panicking and believing the company thinks their share price is overvalued is short-sighted.
Yes, one could argue TMX is certainly fully valued here. However, one can also argue that stocks can stay expensive for very long stretches of time. Case in point, TMX has traded at premium valuations for multiple years and has doubled in price over that timeframe. Buy strong companies and hold them long-term. As a retail investor, you are in a much different situation that a multi-billion dollar corporation who needs to be selective of where to put capital.
Overall, it was yet another great quarter from TMX, and I’m still bullish about the future.
You can view my full report on the company here
Amazon (AMZN)
Amazon reported another outstanding quarter, but in the era of perfection among US stocks, the market sent it south on a small miss in terms of AWS revenue.
Overall revenue came in 12% higher than last year, exceeding expectations, and operating income increased by 31%, well exceeding estimates.
The retail side of the business continues to be the “moaty” end of the business, delivering consistent revenue and earnings despite lower margins. For the vast majority of earnings commentary here at Premium on Amazon, I instead focus on the AWS and Advertising segments, as they are the primary thesis to the growth of Amazon overall.
Advertising increased revenue by 22% year-over-year due to some large deals signed with Roku and Disney+. As the company continues to find more and more clients to partner with, it will ultimately be able to deliver more ad inventory and thus higher profits.
It is also important to keep in mind that this is one of the higher-margin segments of the entire business. To give you an idea of Amazon’s scale, outside of its subscriptions, advertising is the smallest segment of the business, and it generates more annual revenue than the largest company in Canada, Royal Bank.
On the AWS side, revenue increased by 17.5%. This revenue growth rate is solid, considering the fact that AWS is one of the largest providers when we compare it to competitors like Azure. However, I don’t think the market liked the slower-than-expected growth rate plus the decline in margin.
As long-term investors, we can let one-off quarters like this roll off our backs and add more shares at discounted prices. The company’s backlog increased by 25% year-over-year, highlighting how much demand for AWS there is, and showcasing how there is still a good chance this segment of the business exceeds the company’s retail segment in terms of revenue over the next 5-7 years.
When we look to the conference call, management made some interesting comments. They stated that, thus far, there has been no material impact on its retail segment in terms of tariffs, despite concerns that there would be.
They then tempered this that they are completely uncertain about the environment in the second half of the year. With Trump changing his mind often, I don’t blame the company for staying muted about the potential impacts moving forward. They’d simply be guessing.
The company spent $31B on capital expenditures on the quarter, and the company stated this is likely to remain the same in further quarters, with the vast majority of that CAPEX going towards artificial intelligence buildouts.
However, this is a company that has consistently invested in its fulfillment network on the retail side of things, and it is highly likely to continue doing so.
Overall, the markets are all about AI and investing in the fastest-growing companies at this point in time. However, Amazon is building out the infrastructure and has the reputation to be one of the leaders in the space over the long term.
I’ll let traders swap around to whatever company is hot at this current time, and instead, I will continue to accumulate shares of Amazon at discounted prices, expecting outsized returns over the long term.
