Aphria Cuts 2020 Guidance, Stock Falls

Today, Aphria (NYSE:APHA) reported its earnings for the second quarter of fiscal 2020, which ended on November 30, 2019. For the quarter, the company reported revenues of 120.6 million Canadian dollars, which missed analysts’ expectations of 130.3 million Canadian dollars. However, the company’s adjusted EBITDA was 1.9 Canadian dollars higher than analysts’ expectation of 1.59 Canadian dollars. While most of the cannabis companies are fighting to become profitable, Aphria reported positive EBITDA for three consecutive quarters. After reporting its second-quarter earnings, the company’s management lowered its revenue and EBITDA guidance for fiscal 2020. Aphria stock fell due to weak second-quarter sales and the lower fiscal 2020 guidance. The company was trading over 5% lower in pre-market trading.

Aphria’s revenue falls on a sequential basis

Compared to the revenue of 126.1 million Canadian dollars in the first quarter, Aphria’s revenue fell by 4.4%. The revenue fell due to lower distribution revenue from 95.3 million Canadian dollars to 86.4 million Canadian dollars. According to Aphria, the distribution revenue fell due to the change in the German government’s medical reimbursement model and seasonality. However, an increase in net cannabis revenue from 30.8 million Canadian dollars to 33.7 million Canadian dollars offset some of the declines.

During the quarter, Aphria sold 5,567 kilogram equivalent of recreational cannabis and 1,237 kilogram equivalent of medical cannabis. For the quarter, the average retail selling price for medical marijuana increased from 7.56 Canadian dollars per gram in the first quarter to 8.16 Canadian dollars per gram. However, the average net selling price of recreational cannabis fell from 6.02 Canadian dollars per gram to 5.22 Canadian dollars per gram due to the unfavorable mix.

Aphria’s EBITDA continue to rise

In the second quarter, Aphria’s adjusted EBITDA increased from 1.04 million Canadian dollars in the first quarter to 1.9 million Canadian dollars. The higher gross profit drove the company’s EBITDA. However, the decline in the adjusted distribution gross profit and higher SG&A (selling, general, and administrative) expenses offset some of the increases.

During the quarter, Aphria reported gross profits of 19.1 million Canadian dollars with margins of 56.6%. The gross profits improved from the first quarter. During the first quarter, the company posted 15.3 million Canadian dollars with a margin of 49.8%. Aphria’s gross margins improved due to the fall in lower-margin wholesale cannabis sales and reduced cultivation costs. The adjusted distribution gross profit fell from 12.2 million Canadian dollars to 11.0 million Canadian dollars. The SG&A expenses increased from 41.4 million Canadian dollars to 49.2 million Canadian dollars. Aphria’s SG&A expenses rose due to higher share-based compensation and increased selling, marketing, and promotional expenditures.

Aphria lowers its fiscal 2020 guidance

Aphria has lowered its fiscal 2020 revenue and adjusted EBITDA guidance. The company lowered its guidance due to the delay in the rollout of retail stores in Ontario, the temporary ban on vape products in Alberta, the expenses associated with the third-party supply due to the delay in receiving Aphria Diamond’s license, and the fall in CC Pharma’s sales growth. Now, Aphria’s management expects its revenue to be 575 million–625 million Canadian dollars. Earlier, the company set the guidance at 650 million–700 million Canadian dollars. Management also cut the EBITDA guidance to 35 million–42 million Canadian dollars.

Stock performance

Since the beginning of 2019, Aphria has lost 9.6% of its stock value as of Monday. The company had an impressive performance in the last three quarters. However, the stock fell due to weak cannabis sales. Despite the fall, the company has outperformed its peers. During the same period, Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC) (TSE:WEED), and Cronos Group (NASDAQ:CRON) fell 67.3%, 17.7%, and 31.8%, respectively.

Today, OrganiGram will report its first-quarter earnings after the market closes. Read Can OrganiGram Beat Analysts’ Expectations in Q1?” to learn more.