Village Farms International Q2 Preview: Fatter Margins Expected

Village Farms International, Inc. (TSX:VFF), one of the Canadian marijuana stocks, will be reporting Q2/19 financial results on Monday, August 12, 2019, after markets close

SmallCapPower | August 12, 2019: Village Farms International, Inc. (TSX:VFF) (NASDAQ:VFF), one of the Canadian cannabis stocks, is expected to report Q2/19 financial results on Monday, August 12, 2019, after markets close. Analysts are expecting Village Farms to generate $55.6M in revenue, $7.9M in earnings before taxes depreciation and amortization (EBITDA), and an EPS of $0.05/share.

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Figure 1: Village Farms Delta Greenhouse Complex

Source: VFF Corporate Presentation

Revenue expected to increase 29% sequentially. During Q1/19, VFF reported EPS of $0.20 on revenue of $43.0M. Last quarter’s results included a gain on the disposal of an asset of $18.1M. On July 11, 2019, Village Farms International announced that its joint venture (JV) with Emerald Health Therapeutics, Pure Sunfarms, had achieved full run-rate production of 75,000 kgs of cannabis at its 1.1M sq. ft Delta 1 greenhouse complex in Delta, BC. VFF has also begun conversion of its second 1.2M sq. ft greenhouse Delta 2, which would double the Company’s production output to 150,000 kg annually. Village Farms also has 600 aces of industrial hemp in Virginia, North Carolina, and South Carolina, which it expects to begin harvesting in August. Village Farms International is waiting on packaging approval from Health Canada before it can begin to sell cannabis grown at its Delta 1 facility. Investor should expect Village Farms to provide an update on production of these two facilities during its Q2 earnings call, including an update on Health Canada packing approval, which could be delayed due to issues with CannTrust Holdings (TSX:TRST). Additionally, investors can expect VFF’s revenues to increase this quarter, fueled by increased vegetable production during the summer months.

Gross margins are expected increase. With full production ramp-up of its Delta Greenhouse complex and the Company’s extraction facility coming online in Q4/19, Village Farms International should expect to see an expanding gross margin profile. Higher sales prices of extracted products, starting in December, as well as cost-savings from migrant workers over the summer, should help to increase gross margins in calendar year (CY) 2020. For Q2/19, analysts are expecting gross margins of 23%, which is expected to increase to 38% by Q1/20, ending March 31, 2019.

Village Farms International transitions from a foreign issuer to a domestic issuer in the U.S. On July 11, the Company reported that more than 50% of its common shares were held by U.S. shareholders. As a result, VFF is no longer a foreign issuer and is subject to SEC reporting requirements beginning in January 1, 2020, including a shift from IFRS reporting of financial statements to GAAP reporting.

Key takeaways. For over 30 years, Village Farms International has grown crops, such as tomatoes, peppers, and cucumber, successfully at low margins. As a result, analysts are expecting the Company to quickly transition to growing cannabis at scale profitability. Additionally, Village Farms is expected to gain additional supply agreements once it receives its packing license from Health Canada and investor should expect revenues of ~320M for FY2020, of which cannabis revenues are expected to contribute ~50%.

Shares of Village Farms International ended Friday’s trading session 4.5% higher at C$17.80. Village Farms stock trades at a market cap of C$375.5 million.

  • Market Cap: $875.5M
  • YTD Return: 302.7%
  • Q2/19 Revenues Estimate: $55.6M (3 estimates)
  • Q2/19 EBITDA Estimate: $7.9M (3 estimates)
  • Earnings Date: Monday August 12, 2019, after markets close

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