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Canopy Growth (CGC) Q2 Earnings & Revenues Miss Estimates

Canopy Growth Corporation CGC incurred loss per share of 82 cents (CDN $1.08) on a GAAP basis in the second quarter of fiscal 2020, which is wider than the year-ago loss of 76 cents (CDN $3.70). Further, the bottom line lagged the Zacks Consensus Estimate of a loss of 27 cents.

The loss per share excludes certain non-recurring expenses like fair value changes in biological assets, share-based compensation expenses, acquisition-related costs, and depreciation and amortization expenses.

Total Revenues

Gross revenues (without considering any returns and pricing adjustments, primarily related to oils and softgels, and certain excise tax) were $89.6 million (CDN $118.3 million), up from the year-ago figure of $17.8 million (CDN $23.3 million).

Canopy Growth Corporation Price, Consensus and EPS Surprise

 

Canopy Growth Corporation Price, Consensus and EPS Surprise

Canopy Growth Corporation price-consensus-eps-surprise-chart | Canopy Growth Corporation Quote


Net revenues skyrocketed to $58 million (CDN $76.6 million) from the second quarter of fiscal 2019. However, the metric lagged the Zacks Consensus Estimate by 24.7%.

Compared with the fiscal first-quarter figures, company-owned recreational same-store sales growth was 17% and global medical organic growth was 23%. These were fueled by consumer demand for cannabis.

Revenues by Product Categories

The company has two major reporting segments — Canadian cannabis and International medical cannabis.

In the last reported quarter, Canadian cannabis registered gross revenues of $58 million (CDN $76.6 million), up from $15.2 million (CDN $19.9 million) reported a year ago. International medical cannabis revenues were $13.7 million (CDN $18.1 million), up from $1.7 million (CDN $2.2 million) a year ago.

Margin

Inventory production costs expensed to cost of sales were $65.4 million (CDN $86.3 million) in the quarter, reflecting a remarkable improvement from the year-ago figure of $11.9 million (CDN $15.6 million).

Sales and marketing expenses rose year over year to $45.8 million (CDN $60.5 million) due to pre-revenue investments in brand awareness, product marketing and consumer education initiatives. The company incurred these expenses as it is increasingly focusing on the launch of Cannabis 2.0 products in Canada, and the rollout of cannabidiol (“CBD”) products in the United States and other international markets in the coming months.

Canopy Growths’ research and development expenses grew year over year to $9 million (CDN $11.9 million), thanks to an increased focus on new research and development efforts.

The company’s general and administration costs rose year over year to $66.6 million (CDN $87.9 million), fueled by expenses like compliance and litigation costs.

Adjusted operating loss was $128 million (CDN $169.9 million) in the quarter under discussion, wider than $54.7 million (CDN $71.5 million) in the year-ago quarter.

Financial Position

Canopy Growth exited the second quarter of fiscal 2020 with cash and cash equivalents of $833.1 million (CDN $1.1 billion) compared with $328.6 million (CDN $429.4 million) a year-ago.

Year to date, the company used $272.1 million (CDN $359.3 million) in operating activities, compared with $151.6 million (CDN $198.1 million) a year ago.

Our Take

Canopy Growth exited the second quarter of fiscal 2020 on a mixed note as its revenues grew substantially, while loss per share widened. Per the company, it is facing challenges in the Canadian cannabis market as provinces have reduced purchases to lower inventory levels, retail store openings have fallen short of expectations and delay in the launch of Cannabis 2.0 products.

However, Canopy Growth is optimistic about its retail store sales, on both overall and same-store basis. The impressive revenue performance of International medical cannabis, both an organic and inorganic basis, buoys optimism.

However, the continued widening of loss per share and increasing general and administration costs are concerning for the company.

Zacks Rank and Stocks to Consider

Currently, Canopy Growth carries a Zacks Rank #3 (Hold).

Some better-ranked medical device companies, which posted solid results this earnings season, are ResMed Inc RMD, NuVasive, Inc NUVA and Thermo Fisher Scientific Inc TMO.

ResMed, with a Zacks Rank #2 (Buy), reported first-quarter fiscal 2020 adjusted earnings per share (EPS) of 93 cents, surpassing the Zacks Consensus Estimate by 6.9%. Its revenues of $681.1 million outpaced the consensus mark by 3.7%.

NuVasive’s third-quarter 2019 adjusted EPS of 59 cents surpassed the Zacks Consensus Estimate by 9.3%. Its revenues totaled $290.8 million, which outpaced the consensus estimate by 2.4%. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, with a Zacks Rank #2, delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Its revenues of $6.27 billion surpassed the Zacks Consensus Estimate by 1.3%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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