At the moment, the markets seem to have shaken off tariff worries. The S&P 500 closed in the green on Friday, its 9th consecutive green day, which is the first time it has done so in twenty years.
This is why it is so important to take a long-term approach to your portfolio and ignore short-term noise. Selling equities during the tariff drawdown has proven to be the wrong decision, at least for now. What happens next week is anyone’s guess.
This week’s newsletter will simply dive into earnings reports and some short commentary on Berkshire. I didn’t make any portfolio moves this week.
There are a lot of Premium-highlighted companies reporting earnings at this time, far too many for me to list in this newsletter. So remember, logging into your Stocktrades Premium account frequently and checking the reports will give you my most updated analysis on what I feel are the strongest opportunities at this point in time.
Let’s dive right into it.
Buffett stepping down
It truly is the end of an era for Berkshire Hathaway. Warren Buffett has stated that he will be stepping down at the end of the year.
Arguably one of the greatest investors of all time, he spent 6 decades with Berkshire and ran one of the most successful companies in history, primarily backed by strong fundamental analysis and investing for the long term.
Greg Abel will take over as the CEO, giving Berkshire a bit of Canadian flair. Greg is from Edmonton Alberta, and joined Berkshire back in 2000. Abel has been the likely successor to Buffett since 2021, so this shouldn’t come as a surprise to the market.
What many members will be wondering right now is how the market will react to Buffett’s resignation. All I will say is that if the market does react negatively, I will use this opportunity to accumulate more shares.
Although Buffett is the CEO of Berkshire, the decisions are not made by him alone. In fact, he’s had a strong team for the better part of 10-15 years, helping him make the core decisions for the company, and that team will simply be in the spotlight now instead of operating in the background.
It is important to remember that if Buffett’s investment managers Ted Weschler and Todd Combs had not convinced him to buy Apple, he never would have done it. Apple has been one of the greatest buys Berkshire Hathaway ever made. There is almost no question that the company is in good hands. Buffett has been meticulous at identifying people who are fit for the role and has made them prove they’re fit for the role.
I don’t expect Buffett’s resignation to impact the thesis for Berkshire whatsoever, and the company still remains the largest equity holding inside of my portfolio.
Earnings
Aritzia (TSE:ATZ)
Aritzia continues to string together rock-solid quarters. After going through a few difficulties over the last few years, this is one of the more notable earnings beats I’ve witnessed from the company.
Revenue increased by 31% YoY, backed by comparable sales growth of 26%. This level of comparable sales growth in getting back to pandemic level growth.
The United States now makes up over 61.5% of the company’s total sales, which has primarily been fueled by a near 50% increase in year-over-year revenue. As mentioned, this is a large portion of my thesis when it comes to Aritzia.
Growth in a population that is 10x the size and has a much healthier consumer. Despite some relatively rough economic conditions in the United States, this mid-tier fashion company seems to be showing no signs of slowing down momentum wise.
I’ve attached a chart below highlighting their US and Canadian revenue. Notice how fast the US revenue is growing.
eCommerce revenue jumped by 42% YoY and gross margins have had a noticeable recovery over the last year or so, expanding 420 basis points (4.2%) to now sit at 42.5%. If you’ll remember, the company was going through some inventory issues in 2023/2024 that forced it to mark down a lot of products.
Inventory has normalized, and although it is up 12% year-over-year, this is primarily because 50% of the company’s orders have been received already and will not be subject to tariffs.
SG&A (Sales, General & Administrative) expenses came in at 27% of revenue, which is down from the 28.9% as of last year, and adjusted EBITDA came in at $160M, 121% higher on a year-over-year basis. The company opened up 12 new boutiques on the quarter and repositioned 4 existing ones in order to try and boost sales in those particular stores.
The company issued its Fiscal 2026 guidance in which it expects revenue to grow by 11-19%, adjusted EBITDA to grow by 14-15%, and capital expenditures to come in at $180M, the bulk of which will be utilized to expand to new boutiques and set up a new distribution center in Vancouver.
The company mentions that the top end of this guidance is one they believe can be hit if there is zero decline in consumer activity and a stable macro-economic environment, where the bottom end of guidance would factor in “material consumer deceleration.” Considering the bottom end of this guidance is still double digit growth in the event the economy craters, this is very good news.
The company says tariffs could potentially impact gross margins by 400 basis points (4%) in 2026, but they do have mitigation efforts in place to try and offset some of this.
The company mentions they are in discussions with suppliers to share the overall impact of tariffs, and the company’s intentions is to move away from China reliance. They expect that by the end of the spring of 2026 (the calendar year, not their current fiscal year) they will only source around 5% of their supply chain from China, which currently sits at 25%.
Overall, it was an outstanding company from the retailer, who is proving to be extremely resilient in a pretty tough macro-economic environment.
You can click here to view our full report on Aritzia here
Visa (V)
Visa reported yet another strong quarter, topping estimates on both fronts. Revenue increased by 9.6% to sit at $9.6B, and earnings of $2.76 increased by 10%.
The resiliency of this company is truly impressing me. If I were to have made a wager, it would be that card activity would slow down a bit in light of tariff and recession uncertainties. However, payment volume increased by 8% YoY and processed transactions increased by 9% (see chart below). The company’s vast payment network and strong economic moat are shining here.
Cross-border volume, a profitable end of the business for the company, increased by 13% YoY. If you are unsure of what cross border volume is, it is cards that are issued in one particular country but utilized in another. Think of someone travelling to the United States and using their Canadian credit card there. There are additional fees to make these transactions, so if you’re a shareholder, you’ll definitely want to keep an eye on this segment of the business.
The business model is relatively simple. Issue cards and collect fees from the use of the cards. So, its earnings are relatively easy to digest. And when you combine the simplicity of the company’s business and its monopolistic-like payment network, it makes for an outstanding company.
The company generated $4.37B in free cash flow on the quarter, and utilized practically all of that to buy back shares and pay out dividends. I’ve attached a chart below showing free cash flow (purple) versus share buybacks (blue).
The company’s business does not require much capital expenditures to expand its network, so it has always been friendly from a shareholder return perspective.
The company provided guidance for its upcoming quarter, in which it expects revenue to grow in the low double-digits and high teens earnings growth. For the full year, the company maintained its outlook of low double-digit increase in revenue and low teens growth in terms of earnings.
Some interesting notes on the conference call, particularly about cross-border volumes. The company states that no single region makes up more than 25% of the company’s cross border volume. This creates some good diversity, as a recession in a single country would not have a material impact on the business. 40% of the cross-border volume is e-commerce-related, while the other 60% is travel-related.
The company also made a few comments on a potential recession, stating that they are exposed to plenty of everyday spending situations due to their debit cards, not just its credit cards.
Overall, it was a rock-solid quarter from the company, which seems to put out great quarters for years continually.
Amazon (AMZN)
Amazon reported a solid quarter, however some issues in regards to guidance caused a bit of a selloff post-earnings. Revenue of $155B came right inline with expectations and earnings per share of $1.59 came in around 20 cents higher than estimates.
Operating cash flow came in 15% higher YoY and free cash flow came in at $25.9B. This is well below the $50.1B the company reported last year. However, and I’ve mentioned this a few times, Amazon’s current capital expenditure plan is going to result in a persistent decline in free cash flows as it continues to roll out large developments in artificial intelligence and its distribution network.
North America remains resilient when it comes to consumer spending, with revenue up 8% YoY. International sales increased by 5%. I’ve added a chart below for reference.
Amazon is the go-to for many consumers looking to buy everyday goods, and although we’d no doubt see a decline in discretionary spending if a recession were to happen in the United States, I think the company would hold up well because of the amount of essential goods consumers order on the platform. The convenience of getting items delivered right to your doorstep, sometimes in the same day you order them, can’t be understated.
The retail side of the business continues to perform just fine, but most investors focus their attentions on its faster growing segments. In this regard, Amazon Web Services (AWS) reported 17% YoY growth and operating income of $11.5B, a $2.1B YoY increase.
This is a touch lighter than expected, but nothing overly concerning. Its Advertising segment, which is another fast growing segment for the company, reported a 19% increase in overall revenue. This was actually above analyst expectations, which somewhat softened the blow for its small miss on AWS expectations.
Overall, the quarter was a strong one. However, it was the company’s guidance that disappointed. It expects revenue to be in the range of $159-164B, which would be flat on the low end to low single-digit increased on the high end. Operating income is expected to come in around the same range, a small decline on the low end to a low single-digit increase on the high end.
This isn’t all that surprising. Although the company is expanding its higher-growth segments like AWS at Advertising at a high double-digit pace, the retail segment of the business is still prone to cyclicality. In addition to this, the company is likely being relatively conservative when it comes to its guidance due to the current tariff environment.
The company is taking some active steps to mitigate the impacts of tariffs, including frontloading a lot of inventory purchases in order to buy items before the tariffs hit them. I would imagine the company would then bank on a swift resolution of the trade war so that when it needs to purchase more items, they will not be subject to tariffs either. This is also causing some one time large cash outlays on the quarter as well, but will ultimately save them money.
Overall, the company believes that its third party sellers, due to the ability to cut out the middle man to a degree, are some of the most competitive prices around. So, they do feel they will be able to drive strong sales even if tariffs were to be applied to the products.
Overall, it was a solid quarter from the company, but it is taking the cautious approach when it comes to guidance because of how uncertain the macro-environment is.
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.
I added a chart below of the company’s RTMs. Most of the large increase beyond September 2023 was acquisition related.
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.
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.
