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What to Expect for Cronos Group in the Second Quarter

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Cronos Group (CRON) is set to report its second-quarter results before the market opens tomorrow. In the quarter, analysts expect the company’s revenue to more than double YoY (year-over-year). In contrast, they expect its bottom line to fall.

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CRON’s revenue growth

In the second quarter, analysts expect Cronos Group’s revenue to rise 117.9% YoY to 7.4 million Canadian dollars from 3.4 million, boosted by higher cannabis production and average selling prices. Sequentially, they expect the company’s revenue to rise 14.3%. Analysts expect CRON’s gross profit to increase YoY to 4.3 million Canadian dollars from 2.1 million. However, they expect its gross margin to narrow YoY to 50.7% from 63.1%.

CRON’s net losses expected to rise

As Cronos continues to invest in R&D (research and development) and expand its production facilities, its operating expenses could rise. In the second quarter, analysts expect the company to report negative EBITDA of 10 million Canadian dollars. It reported EBITDA of -1.1 million Canadian dollars in the corresponding quarter of 2018. We expect Cronos’s continued R&D investments and production capacity expansion to increase its operating costs and lower its EBITDA, dragging down its bottom line. In the second quarter, analysts expect the company’s net loss to expand YoY to 8.8 million Canadian dollars from 0.7 million. That loss would translate to 0.03 Canadian dollars per share.

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Stock performance

Since Cronos’s last earnings report on May 9, its stock has fallen 11.0% to 18.38 Canadian dollars. The company missed analysts’ expectations in the first quarter. Furthermore, recent scandals in the cannabis sector have dampened investor sentiment. These factors combined have dragged down CRON stock. Some of that decline was offset on August 2, when the company announced its acquisition of Redwood Holding Group.

Year-to-date, CRON has returned 27.8%, outperforming the broader equity market. During the same period, the S&P 500 and Horizons Marijuana Life Sciences Index ETF (HMMJ) have risen 15.0% and 18.0%, respectively. In comparison, peers Canopy Growth (WEED), Aurora Cannabis (ACB), and Tilray (TLRY) have returned 17.6%, 37.7%, and -39.7%.

Yesterday, Aurora Cannabis provided better-than-expected guidance for its fourth quarter. Canopy Growth is set to report its second-quarter earnings on August 14. To learn more, read What to Expect for Canopy Growth’s Earnings.

Analysts’ recommendations

Ahead of CRON’s second-quarter results, 50% of the 12 analysts following the stock recommend “hold.” Their average 12-month price target of 19.50 Canadian dollars implies a 6.1% upside.

Since CRON’s last quarterly earnings release, Cowen and Company, Canaccord Genuity, CIBC, and Cormark Securities have lowered their price targets for its stock. However, on June 5, BofA Securities upgraded the stock from “underperform” to “buy.” It raised CRON’s price target from 17 Canadian dollars to 27 Canadian dollars.

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