Canadian Quarterly Earnings Pulse - Q1 2023
Summary of the broader pulse of public Canadian companies for Q1 2023
Hey everyone, welcome back to another edition of the 5i Research newsletter. In this post, we highlight a few of the Macro, Industry and Corporate trends that we have observed along with quotations from 5i coverage company executives as part of our regular Earnings Pulse Blogs.
Let’s dive in!
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A strong US dollar and modest inflationary pressure provide a short-term tailwind for Canadian companies’ operating results
“We're expecting continued strong operating performance across all of our businesses and the stronger U.S. dollar provides a slight tailwind for our results. However, warmer weather, rising interest rates, modest inflationary pressure on operating costs, and commodity price backwardation in our Energy Services business unit, our hurdles were looking to offset. ” – Enbridge Inc. (ENB) CFO, Vern Yu
Limited exposure to commercial real estate protects banks’ loan book
“Specific to our commercial real estate exposure, we provided additional disclosures related to the composition of the portfolio. Our exposure and recent growth are heavily weighted to the Residential and Industrial segments, which together comprise 75% of the portfolio. The Office segment represents less than 10% of our overall commercial real estate exposure with U.S. exposure at only $300 million.” – The Bank of Nova Scotia (BNS) CEO, Scott Thomson
Solid capital base helps companies navigate a challenging macroeconomic environment…
“Our common equity Tier 1 capital ratio strengthened in the quarter to 12.3%. The capital build this quarter brings us above our 12% target sooner than expected, and we will aim to remain at 12% or above until we have more conviction on the macroeconomic outlook and regulatory expectations.” – The Bank of Nova Scotia (BNS) CEO, Scott Thomson
Despite the tough comparison, North American apparel distributors showed notable, sequential improvement
“In activewear, as previously communicated, we faced a strong comparative period as we cycled post-pandemic inventory replenishment at U.S. distributors. Overall, although year-over-year POS trends at North American distributors remain down, they showed notable, sequential, quarterly improvement. Further, while international sales in the quarter were down 17%, continuing to maintain a positive outlook regarding recovery in international markets for the full year, encouraged by positive POS in the first quarter.” – Gildan Activewear Inc. (GIL) CFO, Rhod Harries
Although retail customers remain cautious about inventory levels, the demand environment has shown improvements recently
“while our retail customers remain cautious on replenishment across all product categories, we were encouraged by improving inventory levels in the first quarter reflecting what we believe is an improving demand environment for our products.” – Gildan Activewear Inc. (GIL) CFO, Rhod Harries
Strong pricing power allows companies to maintain margins
“As expected, we have seen a progressive decrease in per extra services in Canada, and we expect this to continue through the coming few quarters. We continue to expect margins in Canada to remain at a premium to pre-pandemic levels for the foreseeable future. Our business service US segment had a good quarter despite a lower margin in the quarter, which is primarily driven by a reduction of extra services, pass-through expenses and timing in price increases to customers” – GDI Integrated Facility Services Inc. (GDI) CEO, Claude Bigras
Higher input costs and an unfavourable mix compressed short-term gross margins
“Turning to margins. Gross and adjusted gross margin came in at 26.7% and 26.2%, down year-over-year by 430 and 470 basis points, respectively. This is mainly a result of the anticipated flow-through impact on our cost of sales of peak fiber costs and higher manufacturing input costs. Margins were also impacted by unfavorable mix related to fleece sales.” – Gildan Activewear Inc. (GIL) CFO, Rhod Harries
Profitability grew faster than revenue due to operating leverage
“Total revenues for the quarter were up 22% over the prior year with organic revenue growth at 17%. Again, this quarter boosted by particularly strong growth in our Brands division. EBITDA was up 32%, reflecting a margin of 8.1%, a 60-basis point increase over last year's Q1, primarily resulting from operating leverage in brands. Earnings per share were up 16%. The -- we're very pleased with our performance to start the year and confident that it sets us up for a strong 2023.” - The Bank of Nova Scotia (BNS) CEO, Scott Thomson
For the full Earnings Pulse article, check out the link below!