Shares of Aphria jump as cannabis company reports $16.4M Q1 profit

Shares of Aphria Inc. jumped by as much as 18 per cent as the cannabis company reported a profit of $16.4 million in its latest quarter — its second consecutive quarter of profitable growth.

The Leamington, Ont.-based pot producer’s stock closed at $7.17 on Tuesday afternoon on the Toronto Stock Exchange, up roughly 15.5 per cent, after reaching as high as $7.33 earlier in the day.

Its interim chief executive Irwin D. Simon said during the quarter ended Aug. 31, the pot company was able to increase its market share to 12 per cent, based on data from the Ontario Cannabis Store.

“Aphria brands continue to gain momentum in the Canadian marketplace… We were able to gain a significant amount of share during the quarter from our competitors, driven by brand awareness, nationwide distribution and the quality of our products,” he told analysts on a conference call.

The company said the profit amounted to seven cents per share, up from $15.8 million or five cents per share in the prior quarter and net income of $21.2 million or nine cents per share for the same period last year.

Aphria’s latest earnings beat the two cent per share loss expected by analysts, according to the financial markets data firm Refinitiv.

Revenue for what was the first quarter of the company’s 2020 financial year totalled $126.1 million, down slightly from $128.6 million in the prior quarter but up more than 800 per cent from $13.3 million a year ago before legalization of recreational cannabis in Canada.

In its outlook, Aphria reaffirmed its guidance for net revenue of about $650 million to $700 million in its 2020 financial year, with distribution revenue representing slightly more than half of the total net revenue.

Its adjusted earnings before interest, taxes, depreciation and amortization for the year are expected to be approximately $88 million to $95 million, it added.

“We believe our financial results truly set us apart from our peers in the adult-use cannabis industry,” Simon told analysts.

Aphria’s surprise profit and positive forward guidance comes after two of its peers recently cut or missed their own earnings forecasts, which they attributed to various factors such as a slower than expected retail rollout and delays in government approvals for new cannabis derivative products, such as edibles.

Last week, Gatineau, Que.-based Hexo Corp. cut its net revenue forecast for the quarter ended July 31 from $26 million to between $14.5 million to $16.5 million, “primarily due to lower than expected product sell through.”

And last month, Edmonton-based Aurora Cannabis reported net revenues of $98.9 million for its quarter ended June 30, marking an increase from the prior year but lower than the range of between $100 million and $107 million it predicted earlier, pointing to the slow rollout of stores in Ontario.

Aphria, however, said during its latest quarter that its adult-use cannabis revenues amounted to $20 million, up eight per cent from the prior quarter.

“Given the recent broader sector correction and indications of industry transition pain, we view Aphria’s Q1 results as solid,” said Justin Keywood, an analyst with GMP Securities in a note to clients.

Aphria’s confirmation of sales should be seen as a “big positive” amid concerns around wider industry pressures and a wave of recent street downgrades, said Owen Bennett, an analyst with Jefferies.

“We have argued these downgrades have not reflected worsening industry conditions but are simply a function of the street being too high in the first place… Where we have seen certain companies pull back on guidance such as Hexo, we think this reflects soft consumer traction for their brands, as opposed to industry weakness,” Bennett wrote in a note to clients.

Aphria’s second-consecutive quarterly profit comes nearly one year after Canada legalized recreational pot and after a tumultuous period for the company.

The pot producer has been without a permanent chief executive since Vic Neufeld retired on March 1, a departure that came after Aphria faced allegations in December by short-sellers that argued its acquisitions in Latin America were purchased at vastly inflated prices to benefit insiders. Aphria denied the allegations, and a board committee later reviewed the deals and deemed that they were within an acceptable range.

Also, earlier this month cannabis company Aleafia Health Inc. terminated its wholesale pot supply agreement with Aphria for up to 175,000 kilogram equivalents of products over five years, citing its “failure to meet its supply obligations.” Aphria said that it had every intention of fulfilling its obligations, and it made “good faith” efforts to ensure continuation of the agreement but the deal was not a material part of its operations.

Aphria executives told analysts on Tuesday that it expects to replace the Aleafia deal with retail customers and other products.

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