Tilray's Cannabis Business Leads the Way as Losses Narrow
Tilray just delivered record quarterly revenue but fell short of Wall Street's earnings estimates. Here's what investors need to know.
Tilray stock is down modestly on Wednesday after the company's latest fiscal quarterly earnings technically fell short of Wall Street's expectations. But there was plenty for bullish investors to like in the cannabis and consumer packaged goods specialist's report.
For its fiscal first quarter of 2024 (ended Aug. 31, 2023), revenue grew 15.5% year over year to $176.9 million. On the bottom line, Tilray's net loss narrowed to $55.9 million, or $0.10 per share, compared to a loss of $0.13 per share in the same year-ago period. By comparison, most analysts were modeling a smaller net loss of $0.05 per share but on lower revenue of $174 million.
Tilray's top-line results marked a fresh first-quarter record for the company, led by a 20.1% increase in cannabis segment sales to $70.3 million. Distribution segment revenue wasn't far behind, rising 14.1% to $69.2 million, followed by 17% growth in alcoholic beverage sales to $24.2 million.
Wellness business revenue declined around 0.8% to $13.3 million -- derived primarily from Tilray's Manitoba Harvest hemp foods brand -- though management added that Manitoba maintained its roughly 52% industry market share while expanding gross margin by three percentage points year over year to 29%.
On Tilray's budding cannabis leadership
Tilray's cannabis business continues to perform admirably. The company expanded its No. 1 market share position to 13.4% during the quarter, maintaining its leadership across every major market and remaining No. 1 in cannabis flower, oils, and concentrates, as well as THC beverages.
Tilray also closed on its $56 million acquisition of HEXO in June, as expected, significantly expanding its operations and distribution footprint in Canada. It followed in August by purchasing the remaining 57.5% equity stake it didn't already own in Canadian cannabis beverage company Truss Beverage from Molson Coors.
Cannabis segment gross margin simultaneously contracted to 28% from 51% in the same year-ago period. Profits here were negatively impacted by a combination of a strategic wholesale transaction (which helped normalize inventory levels and generated a little over $3 million in cash) as well as costs related to the HEXO acquisition.
Finally, as Tilray remains well positioned to benefit from the eventual federal legalization of cannabis in the U.S., it continues to focus on achieving early-mover advantages in new countries as cannabis legalization proliferates across Europe and other international markets.
An acquisitive bump from craft beer
But cannabis might not remain Tilray's largest business segment for long. The company only just closed on its $85 million acquisition of eight big beer brands from Anheuser-Busch InBev earlier this week, including Shock Top, Blue Point Brewing, 10 Barrel Brewing, Breckenridge Brewery, Redhook, Widmer Brothers, Square Mile Cider, and HiBall Energy.
This deal alone triples Tilray's beer sales volume to 12 million cases, with pro forma craft beer revenue of $250 million. It also significantly expands its distribution capabilities and vaults Tilray to a 5% share of the U.S. craft beer market, making it the country's fifth-largest craft brewer (up from 9th previously).
The way forward
Looking ahead to the rest of the fiscal year ending May 31, 2024, Tilray reiterated its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for growth of 11% to 27% year over year to a range of $68 million to $78 million. Tilray further reiterated its expectation for generating positive adjusted free cash flow this fiscal year.
So where does that leave Tilray investors today? With three key acquisitions (HEXO, Truss, and the eight beer brands from AB InBev) now closed, its primary focus in the coming months will be on the seamless integration of these new businesses into its existing operations, as well as the realization of cost and operating synergies going forward.
To be clear, costs related to this process might result in additional earnings shortfalls (relative to Wall Street's expectations) in the near term. But as Tilray enjoys the fruits of these acquisitions going forward through diversification and expanded profitability over the long term, I think it remains one of the most compelling consumer goods stocks our market has to offer.
