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Feb. 14, 2020, 6:56 a.m. EST

Aurora Cannabis shares rise after a dire earnings report and $1 billion loss

Aurora says it expects fiscal third-quarter revenue to be roughly flat and ‘up to 20% of sales’ may be second-generation products

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By Ciara Linnane, MarketWatch , Max A. Cherney


Bloomberg News/Landov
Aurora said Thursday that it had experienced some “fairly typical” issues ramping up its second generation product line.

Aurora Cannabis Inc. shares rose 2% after the company posted a $981 million loss and batch of earnings that were mostly expected, after the weed producer last week unveiled a major overhaul of operations.

The Edmonton, Alberta-based company /zigman2/quotes/210559470/composite ACB -1.27%   /zigman2/quotes/203734337/delayed CA:ACB -1.83%  said it had a net loss of C$1.3 billion ($981 million), or C$1.18 a share, in the fiscal second quarter that ended Dec. 31, after a loss of C$182 million, or roughly breakeven on a per-share basis, in the year-earlier period. Revenue net of excise taxes came to C$56 million, up from C$54.2 million a year ago.

The FactSet consensus was for revenue of C$60.5 million and a loss of just 8 cents a share.

Framing the company’s difficulties and substantial changes to operations around an industry challenged by Canada's lack of retail locations, shifting consumer demands and the unpredictable bulk buying by provinces, interim Chief Executive Michael Singer asked investors to be patient as Aurora evolves along with the market for weed across the country.

“It’s important to remind ourselves that the Canadian consumer market is just over a year old and will take time to develop,” Singer said on the company’s earnings call. “But we remain extremely bullish on the long-term potential of the Canadian medical and consumer markets, as well as established international medical markets.”

Aurora maintained its medical business, logging C$26 million in medical cannabis revenue for the quarter, and reported recreational revenue of C$33.5 million. Chief Financial Officer Glen Ibbott said international medical sales dropped to C$1.8 million.

The company was expected to post a loss of about C$1 billion, thanks to goodwill and asset impairment charges that were disclosed last week. The company said then that Chief Executive Terry Booth was retiring and named Executive Chairman Michael Singer as interim CEO. It said it was laying off 500 people, cutting capital expenditures to about C$100 million and restructuring debt, hurt by the slower-than-expected rollout of legal cannabis in Canada.

For more, read: Aurora Cannabis stock is falling as CEO steps down, ‘sweeping’ cost-cutting plan announced

The news sent the stock down about 15% on Feb. 7, and prompted a fresh round of hand-wringing from sell-side analysts, most of whom rate the stock as either a sell or a hold.

“Overall today’s update provides little in the way of incremental information compared to that given when guidance was presented with Aurora’s recent business update,” Jefferies analyst Owen Bennett wrote in a note to clients Thursday.

Bennett said that while Aurora reported results above the guidance it issued last week, it was “obviously a function of the company beginning in their quest to under promise and over deliver, something which has been the reverse to date in most of the sector, and will be key going forward if the company is to rebuild trust with investors and the wider market.”

Bennett has a hold on the name with a C$1.90 price target.

Don’t miss: Canopy Growth earnings: When will the weed drinks arrive?

Aurora — and other Canadian weed companies — made a batch of acquisitions in the heyday of pot-stock mania, buying assets at values that now appear to be inflated. Aurora was the king of such deals, accruing about $2.4 billion in goodwill on its balance sheet, a large portion of which was from its acquisition of MedReleaf.

Read now: The $4 billion time bomb ticking away inside the biggest marijuana companies

The company said average net selling prices for cannabis, including provisions, fell to C$5.54 per gram from C$5.68 in the prior quarter. Aurora produced 30,691 kilograms of cannabis in the quarter, compared with 41,436 kilograms in the prior quarter.

Looking ahead, “Aurora reiterates its outlook for fiscal third quarter that cannabis revenue will be impacted by previously mentioned industry headwinds, and as such will likely show modest to no growth relative to fiscal Q2’s cannabis revenue, excluding provisions, of approximately $65 million,” the company said.

But Bennett noted that the company’s second generation of edible products, including beverages, edibles and vapes, were constrained mainly by the provinces orders — buyers are exhibiting volatile ordering patterns.

On the call, Aurora executives said such products may make up of 20% of Canada cannabis sales in the next reported quarter. Executives also said the company faced a “fairly minor, short-term extraction issue” and a “few issues of packaging, et cetera,” but dismissed them as the “usual kind of scaling up types of items.”

See also: Aurora Cannabis stock slides after dilutive bond deal, drags broader sector lower

The stock has fallen 80% in the last 12 months, while the ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -0.15%  has fallen 55% and the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.43%  has gained 23%.

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$ 10.09
-0.13 -1.27%
Volume: 1.32M
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Market Cap
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CA : Canada: Toronto
$ 13.38
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York. Max A. Cherney is a MarketWatch reporter based in San Francisco. Follow him on Twitter @chernandburn.

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