3 Takeaways From Aphria Inc’s (TSX:APH) Q1 Earnings

Was Aphria Inc’s (TSX:APH) Q1 as good as the numbers suggested?

Aphria Inc (TSX:APH) released its quarterly results on Friday, which continued to show strong growth for the company as sales more than doubled from a year ago. Aphria also saw its profits increase by more than 40%. However, let’s take a closer look at how the company did this past quarter. Below are my three takeaways from the company’s earnings release.

Sales growth par for the course, but expenses continue to soar

While it’s good to see that Aphria sales were up over 117%, the bigger issue I see is that its operating expenses rose at an even faster rate: 270%. One of the things that I mentioned to watch for was whether or not the company would be able to produce a positive operating income, and that wasn’t the case as Aphria recorded a negative $10.3 million loss compared to a gain of $1.4 million this time last year.

The company is involved in expanding in many parts of the world, and so it shouldn’t come as much of a surprise that general and administrative expenses would rise, but the rate at which we’re seeing costs increase by is a bit concerning and calls into question whether or not the company will be able to produce an operating profit anytime soon. While investors may not be concerned with that today, sooner or later it’s going to start being an issue.

The role of non-operating items is too significant

When you see a company’s income statement having more line items in the non-operating section than you do in the other parts of the statement, which should be a concern. Investment-related gains and other income were able to turn an operating profit loss of $10.3 million into a pre-tax profit of over $25 million, adding over $35 million to the company’s bottom line.

For the sake of appearances, it looks great that Aphria produced such a strong profit. However, as an investor, I’d want to see that the company is able to produce a profit from its operations, not its investments. After all, poor-performing investments could swing the results in the other direction very quickly. This creates the potential for very volatile earnings reports and that could mean an even bigger roller coaster ride for investors.

No formal announcement, but a big rumour swirling

One of the items I was also looking for in Aphria’s earnings release was whether the company would comment on any possible deals, as it’s been sitting quiet amid a flurry of activity in the industry. And while Aphria didn’t make a formal announcement, earlier this week it was reported by The Globe & Mail that the company behind Marlboro was rumoured to be interested in Aphria and that it would be looking to acquire a minority stake in the company.

If it materializes, it will be the first big tobacco company to make a deal with a cannabis company and would be yet another industry that has now entered the space. We’ve already seen some of its rivals get involved in some big deals, and so it’s no surprise that we’d see news involving Aphria as well.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Investing

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Investing

Is Canadian National Railway Worth Buying for its 2.2% Dividend Yield?

Let's dive into whether Canadian National Railway (TSX:CNR) is a top buy for long-term investors at this point in the…

Read more »

nuclear power plant
Energy Stocks

Is Cameco Stock Still a Buy?

Cameco stock recently reported earnings that showed the Westinghouse investment is creating some major costs. But that could change.

Read more »

cloud computing
Dividend Stocks

Insurance Showdown: Better Buy, Great-West Life or Manulife Stock?

GWO stock and MFC stock are two of the top names in insurance, but which holds the better outlook?

Read more »

analyze data
Dividend Stocks

Here’s Why the Average TFSA for Canadians Aged 41 Isn’t Enough

The average TFSA simply isn't enough for most Canadians in their early 40s. Here's how to catch up.

Read more »

A plant grows from coins.
Dividend Stocks

The Smartest Dividend-Growth Stocks to Buy With $1,000 Right Now

New dividend-growth investors should consider CN Rail (TSX:CNR) stock and another top play if they're looking to build wealth over…

Read more »

concept of real estate evaluation
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on It

Canadian REITs can turn your TFSA into a monthly paycheque machine for life. Here's how Morguard North American Residential REIT…

Read more »

Start line on the highway
Investing

2 No-Brainer Growth Stocks to Buy Now With $5,000 and Hold Long Term

Market conditions today are ideal for growth investing, and two rising stocks are no-brainer buys in November.

Read more »