We’re approaching the end of earnings season, with most companies featured here having reported earnings.
Remember, we update all of our stock reports on a quarterly basis, and there is an extensive amount of content and commentary available on the stocks we highlight here that is accessible on our website.
If you combine this with the frequent activity on the Q&A (if you don’t use it, you should start!), along with my weekly portfolio moves, logging into your member dashboard frequently is wise.
This week’s newsletter will go over the last bit of earnings commentary from highlighted stocks. Next week, however, is often one of the more anticipated newsletter releases of the quarter, which is Canadian bank earnings.
We had Toronto Dominion report this week, but the bulk of the banks will report throughout next week. So, stay tuned next Tuesday (the long weekend is the Monday) for our comprehensive overview of all the major financial institutions here in Canada and their overall health.
First, let’s go over my portfolio moves for this week. For members who don’t know, my positions, portfolio moves, and overall returns are listed on your dashboard on the website.
My portfolio moves
The week consisted of many “small” moves for me. If you have been reading the newsletter the last few weeks, you’ll know that I sold off a reasonably sized chunk of my Starbucks position after I added aggressively in the low $70 range, and the stock returned to mid $90 levels off news of a CEO transition.
I used the proceeds of my Starbucks sale to add to my Alphabet (GOOG), Amazon (AMZN), Berkshire (BRK.B), and Blackrock (BLK) positions in my TFSA.
I also added to my Savaria (TSE:SIS) position with dividends inside my TFSA. My reasoning for adding to Savaria is simple. I believe the market didn’t react as positively as it should have to a strong quarter by Savaria.
With that said, let’s dive right into earnings reports, with Savaria coming first.
Earnings
Savaria (TSE:SIS)
Savaria posted one of its stronger quarters in a while. Revenue of $221M topped expectations of $213M, and earnings per share of $0.22 came in well ahead of estimates for $0.19.
Arguably, the most substantial aspect on the quarter for the company was its continued margin expansion. Gross margins improved by 370 basis points (3.7%) and now sit at 37.5%. These are some of the highest margins Savaria has posted since the early 2000’s. It is clear that rising material prices that impacted the business during the COVID pandemic have somewhat settled, and the company has been able to offset those increases with higher prices.
When we look to the first 6 months of this year compared to last, we are seeing significant growth in almost all areas. Although revenue has only grown by 5.1%, operating income has increased by 27.3%, and adjusted earnings per share by 52%. Adjusted EBITDA also came in 26.7% higher than last year.
The company’s leverage ratio now sits at 1.88X versus 2.07X at the start of the year. Its ratio is calculated by taking the company’s Adjusted EBITDA and comparing it to net debt. We expect this to continue to decline as the company pays down more debt related to the Handicare acquisition. The company has now reduced its overall debt levels from $390M during the peak of the pandemic to just $270M today.
Most of its segments reported strong organic growth. One of the stronger performers on the quarter was its Accessibility segment, which produced a 15.1% increase in revenue, practically all of it being organic growth. Of note, this segment of the business makes up more than 78% of the company’s total revenue, so it is certainly the one we want to see driving strong results.
The company maintained its overall guidance, expecting to generate more than $1B in revenue and 20% EBITDA margins in 2025.
As mentioned, I added to my position after the quarterly results.
You can view our full report on Savaria here
Jamieson Wellness (TSE:JWEL)
Jamieson put up another strong quarter and is off to an exceptional start in 2024. Revenue of $184.5M topped expectations of $182M, and earnings per share of $0.35 beat estimates of $0.325.
The company’s Jamieson Brand segment is putting up strong growth, with 17.2% year-over-year revenue growth. The bulk of this is coming from the backbone of our overall thesis for Jamieson, which is aggressive growth in China. Revenue in China more than doubled year over year, up 106%, and its International segment has returned to 30%+ growth after its labour dispute was settled.
Its Canadian arm, what we would consider the “moaty” part of the business, put up 10.1% revenue growth. This segment is not going to grow as fast as its other verticals, but it doesn’t necessarily need to. Jamieson already holds a dominant market share in Canada when it comes to vitamins and supplements.
The company’s gross margins increased to 40.4%, up 130 basis points (1.3%) year-over-year. The growth in gross margin was primarily due to higher-than-expected growth in China, where sales are typically higher margin.
If you remember, the company’s acquisition of youtheory, a US-based vitamin and wellness company, came with a lower margin mix on its products. Over the short term, it caused a dip in overall company gross margins. As a result, any outsized growth in China is going to boost those margins moving forward.
As mentioned, the company announced a double-digit increase to its dividend, and it reiterated its outlook of revenue in the $720M-$760M range and earnings per share of $1.55-$1.65.
At the high end of guidance, this puts Jamieson trading at just 19.3X 2024 earnings, which, in our eyes, is a discount for a company growing at a double-digit pace.
You can read our full report on Jamieson Wellness here
Exchange Income Corp (TSE:EIF)
Exchange Income Corp’s second-quarter results generally missed the mark. Although revenue of $661M was a record for the company, it fell shy of the $675M expected, and earnings per share of $0.80 came in 3 cents short of estimates.
Although the company missed expectations, it was still a relatively solid quarter on nearly all fronts. The company’s Aviation segment grew revenue by 15% year over year, and Adjusted EBITDA grew by 27%. The company attributed most of this growth to the previously mentioned additional capital expenditures it was expecting, which are now looking to be paying dividends.
The company’s Manufacturing segment reported an 8.2% decline in revenue, which was largely expected. The company is currently seeing some of its major projects come to completion, and the overall seasonality of this end of the business makes revenue and earnings a bit rocky. The company mentioned that activity levels are starting to improve in this segment of the business. As a result, despite lower revenue, the company’s backlog continues to grow, which should provide additional tailwinds in the future.
The company made an acquisition of Duhamel in late June. Duhamel owns and operates a sawmill operation that manufactures products for customers in Quebec, Ontario, and Atlantic Canada. It was a relatively small acquisition, coming in at only $19M. The purchase was funded with $3M of Exchange Income Shares and $16M off of their revolving credit facility.
Overall, Exchange Income’s business diversity is certainly starting to shine here. While its Aerospace segment is posting record results, its Manufacturing segment is a bit sluggish due to lower economic activity and overall uncertainty from many businesses it deals with. Once the economy improves, there should be plenty of tailwinds for the Manufacturing side of the business, and the Aerospace business should continue to flourish.
Patient investors have a good chance of realizing solid returns while accumulating shares at lower prices.
Click here to read our full report on Exchange Income Corporation
Brookfield Asset Management (TSE:BAM)
Brookfield reported another mixed quarter. Revenue of $1.26B was right in line with expectations, while earnings per share of $0.468 missed estimates by around a penny.
The more accurate measure of growth for Brookfield is going to be its distributable earnings and fee-related earnings, which sit at $2.4B and $2.5B, respectively. This represents double-digit year-over-year growth on both ends.
When we look to fee-bearing capital, which would be the capital that is committed, pledged, or invested in Brookfield’s funds and strategies, it now sits at $515B, a 17% increase on a year-over-year basis. When we look to total capital raised on the quarter, it sits at $68B. Over the last 12 months, the company has raised over $140B, representing the highest amount of capital raised over a 12-month period in the company’s history.
The company made a few notable acquisitions on the quarter, purchasing a majority stake in Neoen, which is a renewable energy development business, GEMS Education, a private education provider in the Middle East, and nVent Electric, which is an electrical company that primarily focuses on the development and production of heat trace.
Overall, it was a relatively strong quarter for Brookfield, which is continuing to make significant investments that should allow the company to turn out double-digit distributable earnings growth in the future. The stock has gone through a bit of a downturn over the last 3 months or so, but we’re still bullish on the Brookfield spinoff for the long term.
You can read our full report on Brookfield Asset Management here
Constellation Software (TSE:CSU)
Constellation Software continues to post strong results in Q2. As I’ve mentioned numerous times before, analyst estimates are not really all that important for Constellation as it tends to trade relative to its free cash flow generation and acquisition activity and not necessarily top and bottom line estimates, which tend to hit or miss the mark by massive margins.
The company reported revenue growth of 21% on a year-over-year basis, with 3% of this coming organically. Remember, Constellation drives most of its growth via acquisitions, typically acquiring slower-growing sticky subscription businesses. So, to see organic growth in the low single digits is not all that surprising.
Speaking of acquisitions, the company spent over $450M on the quarter, with additional deferred payments potentially totalling over $624M. Over the last few years, Constellation has been deploying capital into new acquisitions at the fastest pace in its history, and it is showing no signs of slowing down.
Free cash flow available to shareholders now sits at $628M through the first six months of the year, representing a 34% increase to the first six months of 2023. Every one of the company’s business segments is showing growth year-over-year, and the company’s maintenance and recurring revenue segment is where it is shining, with 25% year-over-year growth.
As we’ve mentioned before, the company does not host quarterly conference calls and it summarizes its earnings in a succinct way. This is a company that relies on faith in its management team to deliver without a ton of commentary. Thus far, we have zero reason to believe they’re faltering. Constellation remains one of the best technology companies in North America.
