Rapid Reaction: After strong earnings, Aphria guides to stronger EBITDA margins for 2020

What a difference a quarter makes!

Aphria went from governance issues resulting in senior management changes earlier in 2019 to posting a strong quarter and an even stronger 2020 profit forecast than investors expected.

Revenue for the fiscal fourth quarter ended May 31, 2019, was CA$128 million ($97 million) versus expectations of CA$104 million.

The stock was up about 30% in after-hours trading.

Irwin Simon, founder of Hain Celestial, took the CEO role in early 2019 and brought in consultants to help develop a long-term road map for the company.

That work resulted in numerous operational changes at Aphria focused on cost reductions and accountability. Early results indicate the changes are working.

Aphria guided 2020 revenue of CA$650 million to CA$700 million, which was basically in line with current estimates and implies revenue growth of 174-195%.

The positive surprise for investors came from the CA$88 million to CA$95 million adjusted EBITDA guidance, implying a 13.5% EBITDA margin.

That is doubly impressive given the recent management changes and EBITDA losses.

If Aphria management can deliver on their guidance, that could lead to investors to pressure the management of other large cannabis companies to start improving their margins as well.

Longer term, management also reiterated their capacity expansion of CA$1 billion, based on the run rate of December 2020 production capacity at current prices – so the question remains if current pricing can be maintained in the face of capacity expansions.

Time will tell.