In this week’s newsletter, I’m going to be diving into the final set of Stocktrades Premium highlighted companies that have reported earnings.
Interestingly enough, 2 out of the 3 companies are cyclicals that have started to show big signs of a turnaround in the economy. One of them is even up 100%~ in just 4 months.
Overall, it was a solid quarter from many of the companies highlighted here outside of Equitable Bank. And as you know from my email last week, I ended up removing the company from the Bull List and selling my position. If you missed the commentary on that, I’ll link to the email here so you can see my reasoning.
At this point in time, I am holding onto the cash from the proceeds with no real rush to deploy it. I have been spending the better part of a week trying to identify a new stock for the Bull List, but I will admit it has been hard to find a lot of value in the markets today.
I could easily find a wide variety of stocks that are likely to do well over the next year or so. Generally, in markets like this, you could throw a dart at a board of stocks, buy whatever one it lands on, and probably be right. This is often what gives investors a false sense of confidence when it comes to their investing ability. A rising tide lifts all boats.
However, the core aim of this platform is to try to identify stocks that will be long-term winners. On my side, this requires an extensive amount of discipline, especially as I witness numerous stocks being highlighted elsewhere, already trading at nosebleed valuations, and continuing to go up.
However, I hope this level of discipline is why you prefer the platform overall, knowing that the research here is grounded in long-term fundamental analysis, and not just simply trying to capture short-term momentum.
Let’s get into the earnings. I won’t go over my portfolio moves, as the only one I made was the sale of Equitable, which I’ve already talked about.
Earnings
BRP Inc (TSE:DOO)
BRP has gone on a monumental run over the last while, doubling in price in just 4 months.
This showcases the volatility of these cyclical stocks, but also highlights how an in-depth understanding of the business will allow you to buy at rock-bottom prices and benefit substantially from the runup when the macro-environment changes.
BRP delivered a second quarter that looked soft on paper, but was a large-scale beat on expectations and could be a potential indicator of a turnaround in its operations and the macro environment.
The company posted 4% revenue growth and earnings per share of $0.92, which more than doubled analyst expectations. Margins compressed slightly because of tariffs, but considering the strength elsewhere, I view this as a non-issue.
The real story is that BRP is now sitting on one of the cleanest inventory decks in the powersports industry. If you’ll remember the last few quarters, I had consistently mentioned dealership inventories and how they had escalated and were becoming an issue. Long time Premium members will also remember Aritzia, another Bull List Stock, got into a similar situation.
When you get rising inventories, you have to move out product, and in order to do so you need to discount it. Nobody wants to pay full price for old products. As such, margins take a hit.
For BRP, we are starting to see a turnaround. Look to the chart below.
Network inventory is down 20% year-over-year, and with the exception of snowmobiles, dealers are now well-positioned to start taking shipments of fresh product. The timing lines up perfectly with the company’s most aggressive overhaul of models.
Year round products increased by 13%, seasonal products fell 13%, and parts and accessories increased 7%.
Retail declined 11% in North America overall, with Canada up +4% and the U.S. down –15%, reflecting macro pressures south of the border and easing rates up here in Canada.
But BRP continues to win relative to competition in regards to sales where it has inventory. In ORV (Off-Road Vehicles) alone, it gained 3+ points of market share in current units. A lot of this is due to new products on the Can-Am market, including the Defender and Electric Outlander.
If you will remember from previous quarters, BRP continually reduced its guidance to the point where it ended up having to pull it entirely because of the environment.
It has now reinstated guidance, expecting revenue to grow 8-12% and earnings to grow at a relatively wide range, from 28-51%. If the company can hit the upper end of its earnings guidance, despite doubling in price over the last 4 months, shares are still cheap.
One thing to note, don’t expect much of this to come to fruition next quarter. BRP expects the fourth quarter to do the bulk of the heavy lifting.
As I had mentioned, BRP’s biggest earnings headwind over the last 12–18 months has been dealer destocking. With that behind them, they’re now in position to churn out more vehicles and get them to market. This will lead to lower markdowns and an improvement in margins.
Yes, tariffs are a headwind (C$90M this year, potentially C$120–130M next year if nothing changes). But BRP is already adapting via sourcing changes and selective pricing. Margins will still expand in H2 despite the drag.
I want to stress to members that this quarter was less about the numbers and more about the future setup. That setup looks strong.
BRP now enters its strongest shipping window of the year without the drag of bloated inventory, new flagship products, and a dealer base ready to buy. While macro conditions still weigh on consumers, BRP’s brand loyalty and market share will make it so they are the first thing new entrants see when they want to buy a rec vehicle.
You can view my full report on BRP Inc here
Alimentation Couche-Tard (TSE:ATD)
After several quarters of flatlining comparable sales in the U.S., Couche-Tard finally broke through with positive same-store sales, improved food margins, and tighter cost control. The quarter was not flashy by any means. In fact, it was still relatively soft. However, there are signs of a turnaround here, and a cyclical bottom for a company like Couche-Tard may be behind us now.
U.S. same-store merchandise sales turned positive at +0.4%, and I do believe this was the main reason the stock closed up more than 6.5% on earnings day.
The move wasn’t massive, but it signals a potential turnaround. In addition to this, management stated they’re continuing to see same store sales growth into the first 10 weeks of the most current quarter, a sign they could come in positive next quarter as well.
The U.S. is Couche-Tard’s largest market. Yes, it is well-diversified globally but the bulk of its operations are south of the border. Any weakness in the US is going to be a drag on results. Any potential turnaround in the US is going to fuel results. I’ve attached a chart below of just the company’s merchandise revenue in the US, to give you an idea of how vital the country is to their operations.
A 4.1% bump in comparable sales in Canada and 3.8% bump in Europe added to the company’s recovery, but the key takeaway is that the U.S. consumer is finally starting to respond and open up their wallets.
Meal bundles surged nearly 40% year over year to 8.6 million sold in Q1, while food gross margins expanded by ~500 basis points. They’re selling more food, with better economics, at a time when consumers are hunting for value.
Inner Circle loyalty membership in the U.S. hit 11.5 million and is about to get a major push as the program expands to Texas, Couche-Tard’s largest state market. Loyalty programs are huge for these gas stations, especially in a tougher macro-environment. As more and more people attempt to save, they will go to places which offer the best deals.
Fuel volumes were mixed, down 0.9% in the U.S. and 1.3% in Europe, but up 2.2% in Canada. The one benefit is that margins remained relatively steady.
The EV charging business in Europe continues to scale rapidly. Charge point count grew 35% YoY to 3,660, with over 1 million transactions, 50% higher than last year. Notably, EV users are now visiting stores 33% more often than traditional fuel customers and spending more when they do.
This is really interesting, as one of the main bear cases for Couche-Tard was electric vehicles slowing down fuel sales. At this point in time, it has a higher likelihood of being a tailwind.
The company repurchased 7.9 million shares (~C$405M) after launching its new buyback program and declared a quarterly dividend of C$0.195.
Leverage ratios remain relatively low at 2.18X, especially now that the 7 and i deal is dead, which will likely mean larger amounts of smaller, tuck in acquisitions. This is precisely what Couche-Tard has been good at for many years.
This quarter marked a return to U.S. growth, and if we continue to see more of it, I would imagine we see Couche-Tard’s share price finally break out of its funk and accelerate upwards.
For investors with a medium- to long-term horizon, this remains one of the most quietly compelling compounders in Canada.
Exchange Income Corp (TSE:EIF)
Exchange Income Corp delivered yet another record-breaking quarter, further validating my thesis built around this company’s diverse business model and acquisition-based strategy.
Despite macroeconomic uncertainty, wildfires, and tariff headwinds, EIC posted all-time highs across virtually all metrics.
Revenue came in at $720 million, up 9% YoY and the highest in company history.
Adjusted EBITDA grew 13% to $177 million, while net earnings increased 25% to $0.92 per share. Free cash flow climbed to $123 million, up 23%.
As mentioned, the company is posting these types of numbers despite some notable headwinds. The most prominent is wildfires in Northern Manitoba. They ended up reducing scheduled service and medevac volumes. Still, the company bumped its 2025 EBITDA guidance to $725M–$765M, the bulk of it due to the Canadian North acquisition.
On a per segment basis, Aerospace saw revenue increase by 7% and EBITDA increased by 10%. Growth was primarily fueled by medevac contract wins in BC and Manitoba, strong firefighting activity, and continued recovery in aircraft demand.
Canadian North was added to the Aerospace segment on July 1st. With it comes a 10-year exclusive air service agreement with the Government of Nunavut. This is the largest passenger contract Exchange Income has ever had. Manufacturing revenue increased 13%, and EBITDA increased 26%. A large amount of growth in this regard was due to Spartan’s environment mats. The company has so much demand it is currently at full capacity and planning a second U.S. plant, targeting a 2026 launch.
Overall, I really like what I am seeing. The Canadian North integration is already exceeding expectations on revenue and cost synergies. In addition to this, the company has over $1 billion in liquidity, which gives it ample room for further acquisitions. Leverage ratios are a bit higher at 3.2X~ EBITDA, however this company has managed to operate with that high of leverage for years, so I trust they’ll continue to be able to do so.
The company reiterated that it should be able to hit the top end of its guidance in 2025, and will release its guidance for 2026 next quarter. After listening to the call, management’s tone was very bullish, so I would be shocked if this guidance came in weak. In fact, I expect we will see some strong numbers.
The company continues to demonstrate why its model works, despite numerous analysts and pundits claiming it is overvalued. High-need essential services with capital-light manufacturing businesses allows the company to absorb a lot of shocks (wildfires, for example) without a material impact to its results.
Despite a large runup in price, I still view it as an outstanding GARP (Growth at a Reasonable Price) play in Canada.
