This week, we continue to summarize the broader pulse of public Canadian companies by looking into another set of quarterly earnings (previous post). 

Below, we highlight the Macro, Industry and Corporate trends that we have observed along with quotations from 5i coverage company executives. In this weeks Earnings Pulse, we note underlying themes of home some companies thrive amid a challenging macro environment due its the resiliency and secular tailwind of the business models, as well as executives’ view on how to position their companies from the expected economic recovery next year.

Macro

Demand for steel increased as prices decreased approximately 20% year-over-year

“A noteworthy dynamic for the quarter not captured in the headline sales figures was the favorable role that volume played. With steel prices down approximately 20% on average compared to prior year, strong underlying volume gains captured through the quarter highlight the pace of growth and robust global demand for AGI products.”– AG Growth International Inc. (AFN) CEO, Paul Householder

“Higher for longer” interest rate sentiment is adding cost pressures to businesses as well as supply chains

“I will start with our perspective on the current market environment. In our key markets in Canada and Europe, we entered the period of rising interest rates with very limited supply pipeline, record low availability rates and significant structural demand drivers for industrial space. These dynamics, combined with continued population growth in major Canadian urban centers underpin the continued health in the occupier markets. While availability rates have increased somewhat from the start of the year, the supply pipeline, which is already limited is shrinking as projects get delivered and we expect limited new spec starts and a substantially lower development pipeline in the near term.” - Dream Industrial Real Estate Investment Trust (DIR.UN) President & COO, Alexander Sannikov.

Higher interest rates have investors shying away from capital intensive sectors

“That said, we want to also touch briefly on the market environment and our share price. The renewable sector traded down in the public markets on the back of higher interest rates and a perceived tightening of industry margins. And even though we are well positioned to benefit in this environment and insulated from the challenges that are seemingly impacting others in the sector, we have not been immune to the lower trading environment. It is important to note that, while we are never pleased when our share price is down, we are long-term focused investors, and between our strong position in the market, major global themes and the overarching sector tailwinds, the outlook for our business has never been better.” - Brookfield Renewable Partners L.P. (BEP.UN) CEO, Connor Teskey.

Global aging population is a continued trend that some businesses are capitalizing on

“So I am very positive and one thing very importantly, our company is based on the aging of the population. And you can see, that -- we have the work, sadly, but it's happen. And we have some country that man is always a question like not very respectful for the people. But it is what it is us. Our projects is basically the aging of the population.” - Savaria Corporation (SIS) CEO, Marcel Bourassa

Increased labour availability is good for businesses but a negative indicator for the general economy

“Yes. Pat so what I would say is we've seen market improvement on labor availability and lower absenteeism at repowering through the summer. And that was based on our recast on the revised schedule and the revised budget that we put forward in the second quarter. I think the question is around materiality of changes in dates. So as you said, we continue to be targeting midyear next year.” – Capital Power Corporation (CPX) CEO, Avik Dey

With recessionary fears, businesses are aiming to build up strong backlogs for resilience to these forces

“Looking beyond 2023, we remain very confident that our diverse business model and engaged workforce are ideally positioned to continue creating industry-leading results. We continue to closely monitor projects in our backlog for indications of a recession or economic slowdown, but our backlog remains solid. We're not seeing any significant delays or cancellations. As well, bid activity remains very robust.” -  Stantec Inc. (STN) CEO, Gordon Johnson.

Industry

The Farming segment continues to provide consistent demand for machinery providers

“Moving into a review of our segments and businesses. The Farm segment was the anchor contributor to the quarter with stable results in North America, complemented by solid growth from our international operations. Our Canada Farm business continues to generate reliable contributions to the global Farm segment. Revenues were flat year-over-year in the quarter and up 22% year-to-date. Margins were again strong in the quarter with growing volumes for our portable grain handling products, manufacturing efficiencies and more disciplined pricing strategies all supporting the results.” – AG Growth International Inc. (AFN) CEO, Paul Householder

Rental housing market appears to be strong with growth in market rents

“The outlook for rental rate growth remains healthy with market rents over 30% above in-place rents. We can therefore, continue to capture significant organic growth within our portfolio with less reliance on continued market rent growth.” - Dream Industrial Real Estate Investment Trust (DIR.UN) CEO, Brian Pauls.

Clean power continues to be highly in demand, but the number of providers is decreasing

“Most importantly, we are not seeing any reduction in the returns we are able to generate. In fact, quite the opposite. We are seeing an abundance of opportunities to invest at or above our target returns. The combination of accelerating demand for clean power from corporations and fewer players with access to capital is creating a favorable environment for those such as ourselves with capital capabilities and a pipeline of projects to deliver for our customers.”- Brookfield Renewable Partners L.P. (BEP.UN) CEO, Connor Teskey.

Patient care and accessibility are driving segments for companies providing solutions for the elderly and physically challenged

“The increase in gross margin versus last year was mainly attributable to greater profitability coming from the North American divisions in the accessibility in Patient Care segment due to better cost absorption, a favorable product mix, and improved pricing. Adjusted EBITDA and adjusted EBITDA margin finished at $33.6 million and 16%, respectively, compared to $31 million and 15.4% in Q3 2022.” - Savaria Corporation (SIS) CFO, Stephen Reitknecht

Power producers are needing to recontract some opportunities with a greater focus on environmental impact

“The facility is in the Pacific Northwest, which further diversifies our geographic footprint and is well positioned for recontracting opportunities with legacy coal retirement on the horizon. In addition, the facility sits on approximately 7 acres of land and is adjacent to additional lands owned by Capital Power. This represents a prime location for future developments, such as a battery installation or a hybrid opportunity. The facility is expected to deliver average contracted EBITDA of USD 15 million per year during the 5-year period of 2024 to 2029 with accretive near-term cash flows and will be financed using cash on hand and credit facilities.” – Capital Power Corporation (CPX) CEO, Avik Dey

Public sector spending is a large driver for Professional Services’ revenue growth

“In particular, our U.S. water business delivered 26% organic growth, driven by public sector and industrial project demand as well as large-scale water security projects in the Western U.S. We continue to see strong demand in health care, industrial and science and technology end markets for our Buildings business. Within our Energy & Resources business, we're continued on the major power grid upgrade project in Puerto Rico, and we started to ramp up on a rare minerals energy transition project in California. Our infrastructure and environmental services teams also remain very active in the U.S., delivering high levels of growth.” -  Stantec Inc. (STN) CEO, Gordon Johnson.

Unlock the Power of Informed Investing with 5i Research!

DIY investing doesn't have to mean going it alone. At 5i Research, we're your trusted partner in navigating the stock market. Our platform offers comprehensive stock and market research, empowering you to make smart investment decisions. 

• Investor Q&A: Have burning questions? Get answers from our team of experts and fellow investors in our dedicated Q&A section.
• Research Reports: With over 60 meticulously researched Canadian stocks, our reports offer in-depth analysis, giving you the confidence to invest wisely. 
• Model Portfolios, Alerts, Forums, Portfolio Tracking, and Much More...

Corporate

Workplace health and safety continues to be a cornerstone for strong business

"Our Olds, Alberta facility just recently celebrated 10 years of 0 lost time incidents. The team at Olds demonstrates that while the company-wide focus on safety has increased in recent years, many of our operations were already holding themselves accountable to high safety standards. This is an encouraging sign and a proud moment for the team at Olds as well as the rest of AGI. Olds is one of several AGI facilities that have multiple years of 0 lost time safety incidents. And we will continue to recognize and celebrate these milestone achievements." – AG International Inc. (AFN) CEO, Paul Householder

Effective management decisions for financing of new acquisitions is key to ensure accretive value

“We remain focused on expanding the Dream Summit JV in our target markets with the acquisition of 6 assets in the GTA for a total purchase price of approximately $272 million. In addition, the venture is in exclusive negotiations, or of a contract to acquire 2 additional assets located in the GTA totaling 250,000 square feet for approximately $50 million. These acquisitions are all accretive to the REIT's overall return profile with an expected yield on equity of over 7.5%, while requiring limited equity and hence, preserving our balance sheet flexibility.” - Dream Industrial Real Estate Investment Trust (DIR.UN) CEO, Brian Pauls.

Corporations are demanding clean energy and this is not expected to slow down any time soon.

“Over the past 5 years, the amount of clean energy procured annually by corporations has increased by almost 10x. And looking forward, we do not expect this trend to slow down. Access to energy is now a key constraint for a number of these buyers, including leading technology companies, to execute on their growth plans in some of their highest margin segments. This strong and growing demand from these customers, combined with our ability to provide 24/7 clean power solutions from our technologically diversified fleet, and our credibility to deliver scale projects globally and on time is translating into signing contracts at prices that appropriately compensate us for higher construction and financing costs.” - Brookfield Renewable Partners L.P. (BEP.UN) CEO, Connor Teskey.

A good backlog continues to be a strength for companies and indicates future revenue growth

“Thank you, Steve. First, I am quite happy the results on access for the third quarter. In North America, we had the growth of 9%, which came mostly from the output of Vancouver and Toronto factory, so good job guys, and we are continuing to have a very healthy backlog. So that's positive for the future quarter.” - Savaria Corporation (SIS) COO, Sebastien Bourassa

Climate change and sustainability initiatives continue to be at the forefront of businesses

“Finally, our decarbonization efforts continue through the Genesee Repowering project, which will reduce annual CO2 emissions from the facility by 3.4 million tonnes from 2019 levels.We are also actively engaged in ongoing commercial discussions to advance our near shovel-ready Genesee CCS project. These projects and initiatives demonstrate that we are taking a balanced, thoughtful approach to energy transition and delivering on our net 0 strategy. Addressing climate change is an urgent generational challenge. And we're proud to take a leading role in decarbonizing our power system to deliver long-term value for our business, communities and planet. Now I'll speak about key highlights from this quarter. I'd like to introduce you to our expanded executive team, a combination of internal promotions and an external new member.” – Capital Power Corporation (CPX) CEO, Avik Dey

Employee retention and organic hiring continue to be key drivers for financial performance

“Organic hiring remains robust. This was the busiest Q3 we've ever experienced in terms of hiring and we are hiring at 2x the rate that we were pre-pandemic. And our North American -- sorry, and our employee retention rates remain amongst the best in our industry, with voluntary turnover in North America returned to pre-pandemic levels. These are some of the key drivers that led to our Q3 earnings exceeding our expectations. Looking at our financial results, we grew our net revenue by 14% to $1.3 billion with organic growth of 9%.” -  Stantec Inc. (STN) CEO, Gordon Johnson.

Companies mentioned:

AG Growth International Inc. (AFN)

Q3 Revenue Growth: 2% |  Q3 EPS Growth: 235.2%

Dream Industrial Real Estate Investment Trust (DIR.UN)

Q3 Revenue Growth: 20.2%  |  Q3 EPS Growth: -62.2%

Brookfield Renewable Partners L.P. (BEP.UN)

Q3 Revenue Growth: 6.7%  |  Q3 EPS Growth: N/A

Savaria Corporation (SIS)

Q3 Revenue Growth: 4.3%  |  Q3 EPS Growth: 12.5%

Capital Power Corporation (CPX)

Q3 Revenue Growth: 49.8%  |  Q3 EPS Growth: 1030.0%

Stantec Inc. (STN)

Q3 Revenue Growth: 13.5%  |  Q3 EPS Growth: 53.5%

These are quotes from just some of the more than 60 Canadian companies we cover at 5i Research. To view their recent reports you can search for their tickers in the Reports section. If you are not a member and would like to gain access to these reports as well as the Q&A service where you can ask and search questions on these companies, you can fill in your information below to sign up for a free trial.

Take Care,

___________________________________________________