We’re getting right into the thick of things when it comes to earnings, and we’re excited to be covering stocks featured here at Stocktrades for our members to keep them in the loop on what we feel are strong opportunities on the market.
But first, lets dig into some commentary on my portfolio
My moves this week
I didn’t end up making any transactions this week as overall market volatility and global tensions caused me to hold off. The last month certainly hasn’t been pretty, with many major indexes losing 4-5% prior to big tech earnings saving the day.
Alphabet’s rock solid earnings have, at least to this point, confirmed my thesis on the company being undervalued and my aggressive adds over the last few months. If you’re a consistent follower of my portfolio, you’d have routinely watched me adding to my Alphabet position on a weekly basis.
It will be interesting to see if Amazon can keep up with the remainder of the technology companies and report strong earnings this week. It is one of my smallest US based positions, and I’ll look to add on any weakness.
Boyd Group Services is another company I’ll be looking to add to throughout the coming months as its stock price has taken a bit of a step back from all-time highs.
After posting returns of 2.2%, 4.8%, and 1.36% respectively through the first three months of the year, unless the last few days of April are green, it looks like my portfolio will finish in the red for the month. However, I’m still on pace to outperform the major indexes in North America in April, so I’m happy with the results.
Earnings
Waste Connections (TSE:WCN)
Waste Connections reported a solid quarter to kick off the year, with revenue and earnings topping expectations. Revenue of $2.83B came in above the $2.8B expected, and earnings per share of $1.42 beat estimates by 5 cents.
The company is continually showing how valuable pricing power is in this environment. Despite lower solid waste volumes, the company has been able to offset this with pricing increases to continue fueling growth.
The company’s revenue came in above its expected outlook and represents 9.1% growth compared to Q1 of 2023. Its adjusted EBITDA of $650.7M also came in above expectations and represents growth of just shy of 15% on the year.
Considering solid waste collection and solid waste disposal represent more than 93% of this company’s business operations, it is vital to monitor the health of the segment. Solid waste core pricing grew 7.8% year-over-year while volumes dipped by 3.8%.
As we can see by the chart below, the company did an outstanding job of outpacing high inflation in 2022/2023. Now, as inflation settles, overall pricing growth has slowed but is still the main driver of growth.
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It is not surprising to see volumes dipping, as lower economic activity leads to lower waste disposal. As mentioned above, if the company can continue to drive strong pricing growth, it will be able to continue to grow its revenue in this segment. When volumes inevitably pick up, it will benefit even further from pricing increases.
Overall, it was yet another strong quarter for this blue-chip waste disposal company, and it is proving it can drive growth in any sort of economic climate. This is precisely why we removed Canadian National Railroad from the Foundational Stock list two years ago and replaced it with Waste Connections. Although CN Rail is an outstanding company and one that I own, it is no doubt more prone to economic cycles than Waste Connections is, and we’re seeing it here.
Alphabet (GOOG)
Dividend investors rejoice! Another high profile tech company has initiated a dividend. Although the yield is relatively small, I’d expect we see Alphabet join the ranks as a company that continually raises its dividend on an annual basis.
Alphabet reported a strong quarter to kick off Fiscal 2024. Revenue of $80.45B surpassed expectations of $78.7B, and earnings per share of $1.89 came in well ahead of estimates of $1.505.
We’ve stated for some time now that Alphabet remains the most attractive Magnificent 7 stock on a valuation basis, and this somewhat reaffirms that thesis. When we look to revenue and earnings on a year-over-year basis, they grew by 16% and 61%, respectively.
The company reported double-digit growth across practically every segment, with Google Search revenue growing by 14.3%, YouTube by 20.9%, and Google Cloud by 28.4%.
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In my opinion, the resurgence in YouTube ad revenues is the most surprising aspect of the quarter (see the chart above). The pandemic caused a large surge in growth through YouTube as more and more people had time to sit down and watch videos instead of scrolling through text-based queries on Google Search.
However, despite the large surge in growth, the company is still able to put up 20%~ growth even in a post-pandemic environment. There is also the added element right now, although pure speculation at this point, regarding the possible ban on TikTok in the United States.
If this ban were to go through and no US-based company were to step up and buy TikTok’s assets to operate in the United States, TikTok users could shift to YouTube to watch short-form video-based content. Nothing is confirmed yet, but it’s an interesting aspect to keep an eye on moving forward.
Another surprising element on the quarter was the company’s first dividend issue, as mentioned. Alphabet will now pay $0.20 on a quarterly basis, amounting to a yield at current prices of around 0.5%.
One could argue that the capital paid out to the dividend would be better invested into improving its cloud platform and driving growth in that regard, but the dividend is a small portion of cash flows. To give you an idea of how small it is, the company has generated $70B~ in free cash flow over the last 12 months, and the dividend would be about $9B of this.
Overall, it was a strong quarter for the company, and it should be able to drive strong growth moving forward.
Canadian Pacific Kansas City (TSE:CP)
CPKC kicked off the year with a solid first quarter despite some pretty harsh economic circumstances. Revenue of $3.5B was right in line with expectations, and earnings per share of $0.93 came in a penny shy of estimates.
The company’s operating ratio, which compares the company’s overall revenue generation to its operating costs, came in at 64%, which is 0.5% higher than the 2nd quarter of 2023.
Without getting too complicated regarding operating ratios, all we really need to know as investors is that the lower the operating ratio, the better. An operating ratio of 50% would mean the railway is spending less to generate its revenue than one with an operating ratio of 60%.
The company’s earnings are up 3% year over year, and revenue is up 55%. It is important to understand that the vast majority of that revenue generation comes from the Kansas City acquisition. That level of growth will not continue.
Operating expenses were relatively steady on the quarter as the company saw a 5% decline in fuel and material costs. However, with the rising price of fuel in recent months, it is likely that these operating costs come in higher next quarter.
The company generated $555M in free cash flow on the quarter, a 15.3% year-over-year increase.
The company has increased its average train speed by 13% on a year-over-year basis, reduced its average terminal dwell times by 10%, and reported essentially flat numbers in terms of the fuel efficiency of its trains.
For the most part, all of its operational key performance indicators showed improvement, which is important. If the company can not only continue to drive strong revenue growth but also improve efficiency, it can amplify earnings growth in the future.
Finally, it reiterated its long-term outlook, which is that it expects high single-digit revenue growth, double-digit earnings growth, and a return to double-digit returns on invested capital.
Overall, it was an expected quarter for CPKS and it seems the market is shrugging off short-term issues with railways as they continue to push to new all-time highs.
You can read our fully updated report on CP Rail here
TFI International (TSE:TFII)
TFI posted a relatively soft quarter to kick off Fiscal 2024. Revenue of $2.56B came in lighter than the $2.6B analysts had predicted and earnings per share of $1.69 missed estimates of $1.87.
The soft quarter is not all that surprising when considering the economic situation in both Canada and the United States. Yes, the U.S. seems to be operating fine on higher policy rates, but cracks are starting to form in the economy, and spending is being impacted as many consumers scale back expenses. With TFI being heavily exposed to many industries
that are seeing a reduction in spending right now (automobiles, retail), softer demand is expected, but also short-term.
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Package and Courier revenue fell by 11.4%, Less-Than-Truckload fell by 3.5%, Truckload fell by 6.2%, and Logistics revenue grew by 26.4%.
The reduction in Package and Courier revenue stands out the most. It is likely a result of a weaker Canadian and U.S. consumer. Less spending, particularly online, means fewer packages need to be shipped. Its Logistics segment saw some strong growth. However, this large growth is mainly attributed to an acquisition it made in 2023 of JHT Holdings. As the company merges into the fold, we will likely see Logistics revenue slow as well.
Free cash flow on the quarter fell by nearly 30% compared to the first quarter of Fiscal 2023 and it is clear that there are some large headwinds at this point in time for TFII. However, with rate cuts likely on the horizon, we may be at the low point in terms of demand and could see a rebound in 2025.
The company’s guidance was tempered, which makes perfect sense. Here are two of the most important snippets from the outlook:
“The North American economic growth forecast from leading economists remains subdued and uncertain due to a variety of factors including stubbornly high inflation, elevated interest rates, escalating geopolitical conflicts, global supply chain challenges, labor shortages, the approaching U.S. elections and slower growth in many international markets.
While North American economic uncertainty is likely to continue weighing on freight demand dynamics, management believes the Company remains well positioned to navigate these difficult operating conditions, benefiting from its recently further improved financial foundation and strong cash flow, and its lean cost structure that stems from a longstanding focus on profitability, efficiency, network density, customer service, optimal pricing, driver retention and capacity rationalization”
Overall, the company’s headwinds are obvious but likely short-term. It has firmly positioned itself as the best-in-class transportation company in North America and, as such, should be best positioned to benefit from a rebound in economic activity.
