Tilray earnings: Analysts cut price targets ahead of 'noisy' Q4

·3 min read

Tilray (TLRY.TO)(TLRY) could have investors scratching their heads when the Canadian cannabis producer reports its first quarterly results since closing a reverse-merger with Aphria before the opening bell on Wednesday.

Tilray announced its blockbuster deal with Aphria, aimed at creating a dominant player in Canada's pot industry, was finalized in early May. The financial results for the three months ended May 31 are expected to capture 13 weeks of legacy Aphria, and four weeks of legacy Tilray. Analysts expect the mix of financial figures, and a series of technical changes, will challenge investors looking to kick the tires of the newly combined pot company.

"We anticipate a noisy quarter," CIBC analyst John Zamparo wrote in a research note to clients. "In an industry in which forecasting is very difficult, even with crystal clear historical information, it will take a few quarters in our view before investors attain a very clear picture of the new entity."

Tilray's fourth-quarter results will see it switch its reporting currency to U.S. dollars from Canadian dollars. The company will also change its financial reporting rules from International Financial Reporting Standards (IFRS) to U.S. generally accepted accounting principles (GAAP).

"Most crucially, the change in year-end for legacy Tilray, and a quirk in aggregator software, means we find ourselves in the unfamiliar situation of not knowing what fiscal fourth-quarter consensus actually is, which can create an unknown environment on earnings day," Zamparo wrote.

Analysts polled by Bloomberg expect Tilray to report $150.4 million in revenue for the quarter, and $5.8 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Cantor Fitzgerald analyst Pablo Zuanic called the headline consensus figures "a blended comparison of apples to oranges," in a note to clients on Tuesday.

Adding to the lack of transparency, he predicts Tilray will offer pro-forma financial figures for its cannabis, hemp foods, U.S. craft beer, and German medical cannabis divisions for the year ended May 31, but not for the quarter.

"So, we will not be able to judge cannabis sales trends (what really matters, in our view)."

Zuanic says he is awaiting management commentary on how Tilray plans to hit its stated goal of 30 per cent market share in Canadian medical and recreational cannabis. 

Chief executive officer Irwin Simon told Yahoo Finance's Julie Hyman in an interview on Monday that Tilray's domestic market share is currently about 14 per cent. Zamparo estimates Tilray's market share is "currently well above all peers," amid tepid industry-wide sales growth.

Shareholders have until July 29 to vote on a proposal from management that includes authorization to increase the pool of common stock. The company says the move will allow it to "move quickly to accelerate growth through potential acquisition and financing opportunities." Proxy advisory firms ISS and Glass Lewis have backed the company's proposals.

It's unclear if the company will attempt to gain a bigger slice of the Canadian market through an acquisition, or look to buy an asset to bolster its presence in the U.S., which is currently limited to non-cannabis infused craft beer.

Both Zuanic and Zamparo recently cut their price targets on Tilray shares. Zuanic dropped his target from $24 to $19 per share, while Zamparo lowered his expectations from $20.66 to $17.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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