It’s our favourite time of the year yet again, earnings season. Over the next month, we’ll keep you in the loop on how our favourite stocks at Stocktrades performed during the recent quarter.
When the dust has settled and earnings season is over, it also gives us a better perspective on new additions to our Bull Lists and model portfolios.
This week was a very busy one. In fact, we have never had this many companies featured here report in a single week. So, to prevent information overload, we won’t include them all in our newsletter this week.
Instead, we’ll be spreading them out over the next few weeks.
Keep in mind, however, that we update our website and reports typically a few days after they have reported earnings. So, it’s important to be logging in and checking your account frequently.
Also, we encourage anyone who has questions about a specific company, strategy, or the markets in general to hop on our Q&A. It is an excellent resource for members. You can remain anonymous when asking a question by clicking a single checkbox. You can click here to ask a question.
Foundational Stock Earnings
Fortis (TSE:FTS)
Fortis continued to deliver strong results amid economic uncertainty. It reported revenue of $3.31B and adjusted earnings per share of $0.91 when analysts expected $3.129B and $0.817, respectively. The company is a pillar of consistency, and as far as we can remember owning Fortis, it hasn’t upset when it comes to earnings in a material way that would ever impact the company’s share price.
The company sold off its Aitken Creek Natural Gas Storage interest to Enbridge in the quarter. The $400M in proceeds from the sale will pay down debt, as it is selling off non-core assets like this storage plant to increase flexibility.
The company’s debt structure and regulated utility nature have resulted in it being largely unimpacted by the current inflationary environment and pending recession. Here is a quote directly from the company itself:
“While energy price volatility, global supply chain constraints and persistent inflation are issues of potential concern that continue to evolve, the Corporation does not currently expect there to be a material impact on its operations or financial results in 2023.”
Telus (TSE:T)
Telus reported strong first-quarter earnings, coming right in line with expectations on both revenue and earnings. The company reported EPS of $0.26 and revenue of $4.9B. Despite the tough economic environment, the company continues to put up record results regarding mobile phone additions. In fact, at 47,000 net mobile additions, it marks the strongest quarter since 2010.
In terms of total additions, including mobile, internet, etc., the company reported its strongest first quarter on record, with 163,000 new customers.
Telus reaffirmed its 2023 guidance, targeting revenue growth of 11-14%, adjusted EBITDA growth of 9.5-11%, capital expenditures of $2.6B, and free cash flow of $2B. This further cements our main thesis that Telus is the fastest-growing major telecom in Canada. Although it does trade at a premium valuation to Rogers and Bell, that valuation, at least thus far, has been more than justified.
The company raised the dividend by 7.4% on the quarter and now pays out $0.3636 quarterly. Looking at the dividend in terms of free cash flow, if it hits the $2B target it established, the dividend will make up around 97% of free cash flow.
Although this is still relatively high, it is much lower than the 173% it used to be. On a year-over-year basis, free cash flow is up 29%, highlighting our thesis that the dividend from Telus is sustainable. As capital expenditures are scaled back, free cash flow will grow, and payout ratios will normalize.
Franco Nevada (TSE:FNV)
It wasn’t the greatest quarter for Franco-Nevada as mine disruptions and lower oil & gas prices significantly impacted Q1 results. Earnings of $0.81 (-14%) per share missed by $0.08 and revenue of $276.3M (-18.4%) missed by $27.34M.
Lower year-over-year realized oil ($76.13 a barrel WTI vs $94.29 last year), gas ($2.76/mcf vs $4.57), and iron ore prices also played a factor the declines. The good news is that mining at both sites have since returned to normal operations and gold equivalent ounces will begin to normalize in Q2 (although it appears not fully until second half).
Despite the challenging quarter, no changes were made to guidance.
Franco-Nevada also added two assets to its streaming portfolio for total considerations of $25.6M. Outside of that, it was very much a kitchen-sink type quarter for Franco-Nevada. While it still remains debt free, lower oil & gas prices will make for tough year over year comparisons even though gold & silver prices have remained relatively stable.
Loblaw (TSE:L)
Loblaws reported first quarter 2023 earnings that missed the mark for the first time in quite some time. Revenue of $12.99B missed expectations of $13.7B, and earnings per share of $1.55 came in $0.16 below expectations.
The company raised the dividend by 10%, marking the twelfth consecutive year of dividend growth. Although Loblaws has never typically been a high-yielding company, it has put up a solid, consistent streak of high-single to low-double-digit dividend growth.
Arguably the most important thing in the eyes of investors heading into a recessionary environment is outlook. And Loblaws released its full-year Fiscal 2023 outlook this quarter. It expects earnings to grow faster than sales, likely due to inflationary pressures subsiding and overall margins improving. In terms of earnings and growth, it expects growth in the low double digits. Considering this is a company that trades at only 13 times free cash flow, it’s still cheap relative to its growth.
The company is witnessing strong results at its discount-level stores as price point is becoming the focal point for many consumers. This “discount factor” has been our central thesis for Loblaws for quite some time. That, combined with its economic moat.
Starbucks (SBUX)
Starbucks reported a strong second quarter of 2023, with earnings per share of $0.74 and revenue of $8.72B, topping expectations for $0.654 per share and revenue of $8.44B.
The company grew global same-store sales by 11%, and despite the current economic drawdown, the average ticket price of a Starbucks order increased by 4% compared to the second quarter of 2022.
We can see inflationary pressures starting to subside as operating margins increased to 14.3% versus 13% in Q2 of 2022. A notable increase in terms of margins was on the international front, where the company reported operating margins of 17% compared to 10.6% in Q2 of 2022. This is likely due to the easing of lockdown restrictions in China. This, combined with the added growth in store counts and same-store sales, resulted in 25% year-over-year growth in earnings per share.
It is taking a cautious approach to the second half of the year. In contrast, many investors expected the company to return to strong growth despite the economic uncertainty, primarily due to the lockdown restrictions being removed in China and its overall international growth. This caused its share price to sell off on earnings day.
As long-term holders, we’re not particularly concerned with short-term guidance from a company like Starbucks.
Bull List Earnings
TMX Group (TSE:X)
The environment seems to be improving for TMX Group as it beat on the top and bottom lines. Earnings of $1.85 beat by $0.09, while revenue of $299M beat by $12M. This represented growth of 2% and 4%, respectively, year-over-year (YoY).
Considering this company relies on market activity to fuel growth, the fact it was able to grow revenue and earnings at all in a severe bear market is a testament to its quality.
While market sentiment has improved, it remains a challenging environment for capital markets. However, TMX has proven to be extremely resilient over this timeframe.
All in all, TMX is unlikely to make any material moves until the overall market sentiment shifts which can still take some time in light of current macro events. This is an ideal situation for those who want to accumulate at cheaper prices.
You can read our full report on TMX Group here
A&W Royalty (TSE:AW.UN)
A&W continued its strong pace of growth in the first quarter of 2023, with royalty income increasing by 8.1% year over year and same-store sales growth of 6.1%. On January 5th, the fund added 22 new restaurants to the royalty pool, which should now put it at 1037 total restaurants.
This represents 5-year annual restaurant growth of 2.11%. It’s important to keep in mind that this growth is reflective of the COVID-19 pandemic. We expect annual restaurant growth to accelerate beyond this 2%~ pace in 2023 and beyond.
Year over year, the company continues to grow its distributable cash per unit, and it has also managed to slow administrative expenses by around 10% compared to Q1 of 2022. Remember, this fund takes the 3% royalty from the restaurants, deducts expenses, and pays the rest out as a distribution to the shareholders. So, lower general and administrative expenses ultimately mean more money in shareholders’ pockets.
When we look to the payout ratio, an important element when it comes to a royalty company, it comes in at 112.9%. However, there is no reason to panic here. At least once a year, the company is impacted by the short-term timing of income tax payments. This will normalize moving forward.
You can read our full report on A&W Royalty here
Jamieson Wellness (TSE:JWEL)
After a mixed quarter to end 2022, Jamieson rebounded in the first quarter of 2023, topping expectations in terms of both revenue and earnings. The company reported revenue of $136.7M and earnings of $0.21 per share, when $130.6M and $0.19 were expected, respectively.
On a year over year basis, revenue is up 31.9% and net earnings are down 27.5%. The bottom line decreased by 27.5% primarily due to acquisition related costs and higher interest costs on the company’s debt. High rates may continue to be a drag on earnings, and the company will need to offset these higher costs with acquisition synergies.
Thus far, the early stages of its Nutrawise acquisition integration, the acquisition it took out the debt for, have proven to be strong. So we’re not concerned at this point.
In terms of its China growth, the company reported revenue growth of 36.6%. This is exceptional growth, primarily related to the fact that COVID restrictions were eased in the country. The war between Ukraine and Russia continues to impact its international sales, as it witnessed a 15% decline in this segment.
Overall, it was a good quarter for the company, but far from outstanding. Considering the economic circumstances however, we’re not too worried.
You can view our full report on Jamieson Wellness here
Aritzia (TSE:ATZ)
Aritzia closed out the Fiscal 2023 year on a strong note, topping expectations. This company has not missed a top or bottom line estimate since 2020.
Earnings of $0.40 (+17.6%) per share beat by $0.04, and revenue of $637.6M (+43.5%) topped estimates by $49.89M. The company also reported adjusted EBITDA of $79.4M (+19.7%), which was lighter than expectations for $91.87M.
As expected, margins have continued to dip. This quarter, gross margins came in at 38%, down by 240 basis points YoY. This marks the third consecutive quarter in which margins dipped. That said, this is to be expected in the current environment. The company pointed to inflation, additional warehouse costs (due to higher inventory), and foreign exchange as key headwinds.
Inventory, a key indicator in the retail industry, rose by 124.7% year over year which was not insignificant. However, management’s explanation for the jump in inventory was perfectly acceptable. We cover that in detail in our report below.
Aritzia took a significant dive post earnings due to fears of margins dipping further and inventory accumulating. I (Dan) took this as a perfect opportunity to add to my current position in Aritzia. I am still very confident in the company over the long term.
