It has been an interesting quarter so far for Canadian earnings and we fully expect the fireworks to continue
Ryan Modesto | November 3, 2016 | 5i Research: Third-quarter Canadian earnings are just getting into the swing of things but there have already been a few notable releases that investors should be paying attention to during an earnings calendar where markets have been unforgiving to the companies that do not meet expectations. We wanted to highlight a few releases from companies that should be on investors’ radars for better or worse.
Hit – Savaria Corp. (TSE:SIS)
Savaria is a name we cover at 5i Research and has doubled in value for our members in less than a year. While the stock has seen good returns, the strong results seem to continue with revenues of $32.4 million compared to $31.1 million expected and EPS meeting estimates at $0.09. What is most interesting is that financial guidance has been increased (again) to $119 million in revenues and EBITDA of $19 – $20 million compared to $118 million and $17.5 to $18.5 million, respectively. Add in a 30% dividend increase back in December and things continue to look good at Savaria.
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Miss – Aecon Group (TSE:ARE)
The $981 million infrastructure construction company was down over 15% after the company’s Q3 earnings release. EPS of $0.42 was below estimates of $0.57 as were revenue expectations of $838 million compared to an estimated $900 million. It looks like a heavy concentration of revenues coming from within Canada is acting as an anchor on operations at Aecon, relative to some of its more diversified and larger competitors. Plans for infrastructure spending in Canada do provide some hope down the road and points are deserved for a backlog of $4.6 billion, up 34% from the year previous.
Miss – Canwel Building Materials (TSE:CWX)
Revenues at Canwel did grow 11.7% but earnings-per-share had a fairly large miss with EPS of $0.13 vs. $0.21 expected and revenue of $276 million vs. $296 million expected. The Company is going through some acquisition integrations, which can make results volatile. Cash flows are a bit volatile right now, so it is tough to get a read on sustainability of the dividend, which currently yields 8.85%. With no actual cash on the balance sheet and a fair amount of debt ($169 million in debt against a market–cap of $387 million), it does limit flexibility, as the Company needs to then manage receivables effectively. Given a forward P/E ratio in the 12-13 times range and a yield of 8.8%, there could be potential for the brave here but the Company also does not look like it has a whole lot of wiggle room for slowing growth. CWX was down over 9% after earnings.
Hit – Sleep Country Canada (TSE:ZZZ)
Same-store sales at ZZZ were 7.7%, which is impressive considering the Company sells mattresses, which is hard to view as a growth industry. Revenues rose 12.5% to $160.8 million, which was just a hair short of estimates at $161.3 million. EPS met estimates at $0.58. Sleep Country continues to surprise markets to the upside and shares closed up 4.1% after the quarterly release.
Hit – Kinaxis (TSE:KXS)
Kinaxis is a company we hold in our model portfolio and also cover through our research reports. KXS reported revenues up 26% to $29.9 million compared to $28.9 million expected and subscription revenue was up 25%. KXS did have an adjusted earnings miss with EPS of $0.17 vs. $0.21 expected but we think markets will give the Company a pass for the revenue beat as well as increased guidance of revenues totaling $115 million to $116.5 million ($112 – $115 million previously) and annual subscription revenue growth of 24% to 25% (22% to 24% previously) offset by EBITDA margin at 23% to 26% compared to (25% to 29%) as the Company invests in new markets where they are signing contracts. It is tough to predict how the shares will react with the earnings miss but for a company where expectations are already high, they seem to continue to deliver the goods while literally helping their clients deliver the goods.
It has been an interesting quarter so far and we fully expect the fireworks to continue as we provide real-time analysis of earnings for our membership. With year-end approaching and investors being on edge with increasing election uncertainty, we think investors are eager to sell anything that gives a hint of slowing growth. For those caught in the midst of a bad quarter, it is important to remember that it is just three months out of what should be at least a two-year time frame in most cases. So while trends are important to watch, it is key to keep the long-term prospects in perspective.
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About the author: Ryan Modesto, CFA is a Managing Partner at 5i Research and has worked in high-net-worth portfolio management at one of Canada’s largest banks.
