Despite posting record revenue in its latest quarterly release, investors did not react positively to Tilray’s (NASDAQ:TLRY) FQ2 results, sending shares down in the subsequent trading sessions by 17%.
The Canadian cannabis operator saw revenues reach $194 million in the quarter, marking a 34.6% year-over-year increase, yet it fell $1.03 million short of expectations.
Cannabis net revenue rose by 35% to $67 million vs. $50 million delivered in the same period a year ago, while beverage alcohol net revenue saw a big 117% jump to $47 million, boosted by the brands acquired from Anheuser-Busch. However, the average was pulled down by Distribution revenue, which grew by just 12%.
While the company reported adj. EPS of $0.00, beating the forecast by $0.05, that was based on an adjusted loss of $2.7 million. But the problems lie primarily in the margin profile. Gross profit margins fell for both the cannabis and beer segments, dropping 12 full percentage points to 31% for the former and 13 full percentage points to 35% in the latter. In total, adj. gross margin declined from 31% in the year ago period to 27% while also showing a ~100 bps quarter-over-quarter contraction.
Alliance Global Partners analyst Aaron Grey puts most of the “sequential degradation” down to the beverage segment, where the GM of 35% also came in below his 55% forecast (and the 52% notched in the previous quarter). Specifically, the newly acquired ABI brands bringing a lower GM of 21% vs. the legacy beverage GM of 55%, being the main culprit.
“Longer-term,” the analyst went on to add, “we believe more meaningful profitable growth will be dependent on the ability of the company to drive sales growth from its cannabis operations (share gains in Canada or international growth) and beverages (beer turnaround). We await greater signs of organic top-line growth from its existing business, as well as the company’s ability to capitalize on potential changes in the US & internationally.”
For now, then, Grey remains on the sidelines, keeping a Neutral rating on TLRY, while his $2.25 price target indicates shares will climb ~15% higher over the coming months. (To watch Grey’s track record, click here)
Two other analysts join Grey on the fence, and hence, TLRY has a Hold consensus rating, based on 3 Holds and 1 Buy. However, going by the $2.36 average price target, the stock could climb ~21% over the coming months. (See Tilray stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
