We’re right in the thick of earnings season. While last quarter was more gradual for Stocktrades Premium featured companies reporting, this quarter is condensed, with the bulk of companies reporting simultaneously.
If I were to provide all of my commentary on all Premium companies reporting this week, this newsletter would be a mile long. So instead, I’ll focus on some of the ones I know are popular companies here at Premium.
However, it is important to remember that all commentary on earnings is available on the website. So, make sure to log in frequently and check in on the companies you own and my thoughts on them this quarter.
Let’s waste no time and dive right into it, as I have quite a bit of portfolio moves to go over, including some sales and new additions.
My portfolio moves
As always, I post my moves every time I make them on the Stocktrades Premium dashboard. So if you’d like to find out what I’m doing earlier than the Sunday email, just login to the website to see the activity.
My first objective was to move on and sell Lightspeed Commerce (TSE:LSPD). I was a long-time holder of Lightspeed, buying into the company not long after its initial public offering. The company had a great technology base, was growing rapidly, and had all the ingredients to yet another high-profile Canadian technology IPO.
However, over the years, I have lost faith in the company’s management team, who seems to be trying to utilize headline news to move the stock price instead of focusing on underlying results. Although I made some profits throughout the years rebalancing this one, my final position was deep in the red. However, when the thesis changes, I cut ties and move on. This is an important mentality to have, as the sunk cost fallacy can rear its ugly head and cause us to make suboptimal decisions. If the thesis changes, I sell, whether I am 50% in the red or 200% in the green. It’s as simple as that.
With the proceeds and a little bit of my cash, I took a position in Topicus (TSEV:TOI), which is a Bull List stock and a spinoff of Constellation Software (TSE:CSU). I’ve had my eye on Topicus for quite some time, but felt I had too many positions inside of the portfolio. Selling Lightspeed allowed me to add another outstanding technology company to the portfolio. I won’t speak much on Topicus here, as I will review the earnings and link to my full report later in this newsletter.
Outside of that, I also added a healthy amount to my Berkshire Hathaway (BRK.B) position on the news of Buffett’s resignation and the drop in share price as a result. Berkshire now holds the title as my largest equity position (not including cash or Bitcoin), and I have a lot of faith in the upcoming management team to drive strong growth just as Buffett did. Again, I’ll speak more on that in the earnings section below.
And finally, I made relatively routine dollar cost averaging additions to my Canadian Pacific Kansas City (TSE:CP) and Intact Financial (TSE:IFC) positions. Again, I’ll go over their earnings below so you can get an idea of my thoughts.
Overall, my portfolio sits in the red by about 1.5% on the year. This is outperforming almost all major benchmarks outside of the TSX. Considering my portfolio is around 50%~ US equities, I’m satisfied with the results thus far.
Earnings
Berkshire Hathaway (BRK.B)
Berkshire reported a mixed quarter, primarily due to some catastrophe expenses impacting earnings. Revenue of $89.7B came in 10% ahead of expectations while earnings fell 5% short.
Overall revenue was down 1.2% YoY, operating earnings fell by 14%, and overall net income fell by 63%. It is important to note, however, that net earnings are down drastically due to some mark-to-market unrealized losses on its equity holdings. Remember, the markets were quite volatile in the first quarter. The dip in net income is not an indication of the strength of the underlying business.
The insurance segment had one of its first soft quarters in quite some time, with underwriting income falling. You can tell by the chart below, it has performed exceptionally well over the last few years, but struggled this quarter.
However, as mentioned, this was primarily due to the catastrophe losses the company has had to pay out related to the California wildfires. On the flip side, the company is reported 45%+ growth in fixed-income returns in its insurance segment as interest rates remain high in the United States.
We’re seeing some strong results after a few years of weakness from its railways and energy segments, with railway profits up 6% and its utility profits up by 53%.
The quarter overall was so-so. However, there are two main things I want to go over in this earnings summary. One of them is the company’s equity activity, and the other is probably the most notable news, being the resignation of Warren Buffett as the CEO.
In terms of the market, the company continues to be a net seller of equities, selling off $4.6B on the quarter and buying only $3.18B. This is the company’s 10th consecutive quarter as a net seller of equities. The company attributed a lot of this to needing to maintain dry powder amid higher market valuations, interest rate uncertainty, and global uncertainty.
The company now sits with $147B in treasury bills and just under $350B in total liquidity.
It has stopped the repurchasing of its own shares, likely due to the fact that it believes its stock is either fairly valued or slightly overvalued.
To the most important news. Buffett will be resigning at the end of the year, and it is highly likely the board will nominate Edmontonian Greg Abel to be the new CEO of Berkshire. Buffett will arguably go down as the best investor of all time, and has made many early investors exceptionally wealthy. To put this in perspective, if Berkshire’s stock were to fall 99%, Buffett would have still outperformed the S&P 500 since he took over. Yes, you read that right. A 99% drop, and holders of Berkshire would still be ahead of the S&P 500 since Buffett took the helm.
Buffett was exceptional at identifying strong companies to buy, and I have full confidence that his ability will be just as exceptional in picking a successor to continue to drive strong earnings for Berkshire moving forward with Greg Abel.
Canadian Pacific Kansas City (TSE:CP)
CPKC reported a relatively inline quarter. Considering the overall potential freight recession and tariff impacts on the company, anything in line with estimations is likely going to be well received by the market.
Revenue came in at $3.8B, which was 8% higher year-over-year, and earnings came in 14% higher over the same timeframe. Train weight came in 5% higher, train lengths came in 4% longer, and overall fuel efficiency remained flat.
These are important key performance indicators for the company, as ultimately, the longer and heavier it can make its trains, the more product it can ship on the same locomotive.
The only individual segment that struggled in particular was the company’s steel shipping. It mentioned that tariffs are impacting overall volumes, which makes complete sense and shouldn’t really be all that surprising. Petrochemical volumes also came in relatively flat, indicating a potential slowdown in the economy and falling oil prices.
Revenue ton-miles (the amount of money the company makes per ton of freight that is transported one mile) increased by 4%.
RTM is arguably the primary key performance indicator for the operating results of a railroad. If we were to start to see a decline in RTM, it would likely mean that freight demand was decreasing to the point where CP Rail would have to reduce costs downwards to keep cars full.
The company’s operating ratio came in at 62.5%, which is a 1.5% improvement over last year. When we look to the operating ratio of a railway, the lower the number the better, as it indicates how much money it costs the company to generate revenue. A 62.5% operating ratio is effectively saying it costs CP Rail 62.5 cents to generate $1 in revenue. The company’s operating ratio has been improving over the quarters, and there is strong momentum in this regard.
The company repaid over $935M worth of debt on the quarter and is doing a good job at deleveraging since the Kansas City Southern acquisition. In fact, the company has gotten to the point where they have paid down enough debt that they are comfortable raising the dividend and came through with a 20% increase.
CP Rail is not one to have a consistent dividend growth plan, unlike CN Rail. However, it is to the point right now where CN Rail’s debt load is starting to become a concern for investors. The fact that CP Rail is being prudent in this regard is a good thing.
The company made some comments on the conference call in regards to tariffs, mentioning that less than 1% of international freight is exposed to China-US tariffs. In addition to this, it states that the fact they operate in 3 countries (Canada, the US, and Mexico) means that they should serve as somewhat of a land bridge, which could help customers bypass tariff-sensitive routes.
The company is also noticing an uptick of grain shipments from Canada to Mexico. This is an interesting situation, as Mexico might be finding Canada as the more attractive partner over the United States. If you look to the chart below, you can see that late 2024/early 2025 numbers are well above last years.
There is no doubt the company is being cautious when it comes to tariffs, however, as they reduced their expected earnings growth in terms of guidance. They now expect 10-14% earnings growth, down from the original 12-15% guidance issued previously.
Full-year operating ratios are expected to reach south of 60% by the end of the year, which is a strong sign the railway is getting more efficient, which should help it in the case of an economic rebound.
Intact Financial (TSE:IFC)
It’s been a long time since Intact reported a soft quarter, and they certainly didn’t this time. The company reported net operating income per share of $4.01, well ahead of expectations.
I have mentioned this a few times prior, but it’s always good to reiterate it. “Net operating income per share” is going to be the more accurate way to measure the insurance company’s core operations as it isolates out one-time costs and gains/losses in investments. It allows investors to see how well the company is growing while doing what it does best, which is selling insurance products. Overall, NOIPS grew by 10% compared to the first quarter of 2024.
Book value per share grew by 13% year-over-year to sit at $96.16, and return on equity improved by 2.2% to sit at 16.5%.
The combined ratio, which is a measure of premiums collected versus claims paid (the lower the percentage, the better), came in at 91.3% (see the chart below.)
This is pretty stable relative to the company’s historical results, despite having some catastrophe losses impacting overall results. However, catastrophe losses are becoming much more than “one-off” costs, and seem to be occurring more and more often. Although these insurers will ultimately build that into their overall underwriting and charge more, it is certainly something I expect to be a recurring issue moving forward.
Canada was the shining star on the quarter, with premiums written increasing by 7%. The bulk of this growth was in personal auto and property. The commercial segment was effectively flat. However, it’s also important to note that this segment is the most profitable of the bunch, with a combined ratio in the low 80% range versus low 90’s% for their personal lines.
It’s US and UK segments saw premiums written decline by low single digits, for a multitude of reasons. For the United States, it was primarily due to the non-renewal of a large account. However, the US segment continues to be highly profitable, posting a combined ratio in the mid 80% range. Catastrophe losses continue to impact its UK segment, with a combined ratio nearing 98%. It seems like the company’s UK segment has been plagued with unlucky results as of late, primarily related to poor weather.
The company’s adjusted debt to capital is now back down to normalized levels, coming in at 19.1%. If you remember, Intact issued debt about a year and a half ago to buy Direct Line Insurance Group’s commercial operations. They’ve been actively working to pay down that debt, and are now at levels we witnessed pre-acquisition.
The company issued guidance expecting personal insurance to continue to increase at a double-digit pace, while commercial lines should increase in the mid-single-digit range.
Overall, Intact continues to display why it replaced Royal Bank as a Canadian Foundational Stock. I continue to add the company in my portfolio routinely, and I believe it is one of the best insurance operators in North America.
Topicus (TSE:TOI.V)
Topicus kicked off 2025 on a high note. I don’t put too much weight into analyst estimates, as there are few analysts covering the company. However, out of the few analysts that do, it exceeded their expectations in terms of earnings by nearly 25%.
Revenue came in at €355.6M, 16% higher on a YoY basis, and earnings per share came in at €0.30, 35% higher over the same time period. Most notably, free cash flow available to shareholders came in at €161.7M, 21% higher year-over-year.
The company is showing time and time again that it is able to provide market-beating increases in free cash flow, primarily through its acquisition-heavy strategy.
The company’s revenue breakdown by segment is as follows:
Licenses: €9.4 million, up 3% YoY.
Professional Services: €82.3 million, up 10% YoY.
Hardware and Other: €7.3 million, up 32% YoY.
Maintenance and Other Recurring Revenue: €256.6 million, up 18% YoY
While licenses continues to struggle a bit, it is one of the smaller portions of the business while the key drivers, being services and maintenance, are both growing by double-digits.
Overall, the company is performing exceptionally well operationally, and has a large amount of liquidity to continue to make deals. It sits on €296M in cash and debt of €312M. The company could theoretically pay off virtually all its debt with its cash on hand – this would never happen, primarily because it would not be the best use of investor capital. But this is a great position to be in, and it will allow the company to continue to be flexible in making deals.
Speaking of deals, the one that stands out the most on the quarter is likely the 10% stake it took in Asseco, which is a software and development company in Poland, for proceeds of €168M. However, the company also made a large amount of acquisitions overall in the telecommunications, healthcare, local government, enterprise resource management, craftsman, and retail software sectors for total consideration of €239.3M.
The company’s total organic growth rate was 4%. This has been the typical growth rate for the company over the last year or so, but is certainly not as high as the rates it was achieving during the pandemic and even extending to 2023. This rate will likely fluctuate depending on the number of deals Topicus can close and the overall quality of those deals. But judging by the high teens rate of free cash flow growth, it is executing just fine.
