Aphria Stock Rose after Impressive Q1 Performance

Today, Aphria (APHA) reported its first-quarter earnings for fiscal 2020, which ended on August 31. The company reported revenues of 126.1 Canadian dollars—lower than analysts’ estimates of 132.2 million Canadian dollars. However, Aphria’s EBITDA was 1.0 million Canadian dollars, which beat analysts’ estimate of a loss of 2.2 million Canadian dollars. The company’s EPS was 0.07 Canadian dollars, which beat analysts’ expectation of a loss of 0.02 Canadian dollars.

Aphria stock rose

Investors were nervous about cannabis stocks reporting wider-than-expected net losses during the last quarter. So, the better-than-expected adjusted EBITDA and net profits led to a rise in Aphria’s stock price. The company was trading more than 17% higher in pre-market trading hours today.

Aphria Stock Rose after Impressive Q1 Performance

Aphria’s revenue growth

Aphria’s revenues have increased 848.8% year-over-year. On a sequential basis, the company’s revenues fell 1.9%. The decline of 3.9 million Canadian dollars in distribution revenues lowered the company’s revenues. Aphria’s management said that its distribution revenues fell due to the change in its strategy to increase its profitability at CC Pharma. However, the growth of 2.2 million Canadian dollars in net cannabis revenues offset some of the revenue declines.

During the quarter, Aphria sold 3,317-kilogram equivalents of recreational cannabis and 1,354-kilogram equivalents of medical marijuana. The average selling price for the quarter was 7.56 Canadian dollars per gram compared to 7.66 Canadian dollars in the last quarter. The company’s management stated that increased contribution from medical sales lowered its selling price. The average selling price for recreational cannabis increased from 5.73 Canadian dollars in the last quarter to 6.02 Canadian dollars.

Lower gross margin

For the first quarter, Aphria reported a gross profit of 15.3 million Canadian dollars compared to 15.2 million Canadian dollars in the fourth quarter of fiscal 2019. However, the company’s gross margin fell from 53.0% in the last quarter to 49.8%. Aphria stated that the decline in the sales of higher-margin products due to the Broken Coast fire lowered its adjusted gross margins. However, the company’s adjusted distribution gross profit margin increased from 12.4% to 12.8% during the same period.

Net margin rose

For the first quarter, Aphria reported net profits of 16.4 million Canadian dollars. In the last quarter, the company reported net profits of 15.8 million Canadian dollars. Higher gross profits and a decline of 18.6 million Canadian dollars in the company’s SG&A expenses during that period drove the net profits.

Aphria’s adjusted EBITDA increased from 0.2 million Canadian dollars in the last quarter to 1.0 million Canadian dollars. The company’s management credited its cost-saving initiatives for the EBITDA growth.

Outlook

After reporting its first-quarter earnings, Aphria’s management reaffirmed its guidance for fiscal 2020. Management expects the company to post revenues of 650 million–700 million Canadian dollars in fiscal 2020. The company’s adjusted EBITDA will likely be 88 million–95 Canadian dollars.

YTD stock performance

Aphria reported stellar fourth-quarter earnings, which beat analysts’ top-line and bottom-line estimates. The stock rose due to the company’s strong fourth-quarter performance. However, weakness in the cannabis sector dragged the stock down. Aphria has lost 23.4% of its stock value YTD as of Monday. We expect the company’s impressive first-quarter performance to wipe out all of its losses.

Since the beginning of this year, Aurora Cannabis (ACB), Canopy Growth (CGC) (WEED), and Cronos Group (CRON) have lost 29.2%, 29.8%, and 24.4% of their stock value, respectively.

The lower-than-expected fourth-quarter revenues and analysts’ lower target price caused Aurora Cannabis stock to fall. To learn about analysts’ recommendations, read Aurora Cannabis’s Price Target Cut by 30%.

Canopy Growth’s dismal first-quarter performance and downgrades by Bank of America and Seaport Global dragged the company’s stock price down.

Weakness in the cannabis sector and a wider-than-expected operating loss in the second quarter caused Cronos Group stock to fall. However, the company is focusing on Cannabis 2.0 to drive its sales. To learn more, read Cannabis 2.0: What Cronos Group Has in Store.