- IDEXX Laboratories had a disappointing quarter on tough comparisons coupled with higher cost headwinds.
- Innovative Industrial Properties reported a mixed quarter from their usual top and bottom-line beats.
- GXO Logistics reported an impressive quarter coupled with fiscal year guidance raise.
- Marathon Oil continues to post impressive earnings on the back of higher oil prices.
- Brookfield Renewable Partners continues to steadily grow its assets base.
In this earnings review, we will go through our fund positions in the healthcare, real estate investment trust, industrial, energy, and utility sectors. The earnings reports from IDEXX Laboratories (IDXX), Innovative Industrial Properties (IIPR), GXO Logistics (GXO), Marathon Oil (MRO), and Brookfield Renewable Partners (BEP)had a mixed theme as a whole as some companies are doing well while others seem to be struggling. High costs and supply constraints continue to be consistent among companies given the challenging macroeconomic environment. In the face of this difficult macroeconomic environment, some companies were able able to raise their fiscal year 2022 guidance.
IDEXX Laboratories (IDXX): IDEXX Laboratories reported an earnings miss and in-line revenue which was a surprise given how has consistently beaten expectations. IDEXX reported earnings of $2.24/share (a $0.01 miss of Wallstreet estimates) and revenue of $836.54 million. In comparison to our fund estimates, IDEXX’s earnings were a disappointment as we expected the company to accelerate its earnings power and revenue growth. We estimated IDEXX would earn $2.30/share on revenue of $845 million. The animal healthcare company posted revenue growth of 8% which was a modest number in comparison to what we expected. The company’s decelerating revenue growth came from the livestock, poultry, and dairy business unit. This is because of the tough comparisons from last year from the swine fever testing program volumes in China when the country had an outbreak.
IDEXX had a gross margin contraction during the quarter as it went down from 60.5% in the same period a year ago to 59.6% due to higher freight and distribution costs. The company’s net income was affected by a $50 million one-time charge related to the Russia-Ukraine conflict. If we are to back out that number from the company’s earnings IDEXX’s EPS number would come in line with Wallstreet expectations. Looking at the cash flow numbers, IDEXX’s free cash flow decreased from $104.3 million to $82.9 million but its overall cash position improved by $60 million ending the quarter with $204.6 million.
Management reduced its fiscal year 2022 financial outlook by 3.5% for its revenue as they see further slowing its animal business. Management also cut its earnings outlook as well based on higher interest rates and a strong US dollar. Overall, this was a lackluster quarter from IDEXX and the stock deserved to be sold off by investors. However, we are using this stock sell-off to add to our position in IDEXX because we like the company’s long-term growth prospects in the animal healthcare space.
Innovative Industrial Properties (IIPR): The cannabis-focused real investment trust reported (REIT) a top and bottom-line miss in a quarter that had a lot of moving pieces. Innovative Industrial Properties reported funds from operations of $1.87/share (a $0.03 miss compared to Wallstreet estimates)and revenue of $64.5 million (a $1.31 million miss compared to Wallstreet estimates). The cannabis-focused REIT reported 50% revenue growth primarily fueled by acquisitions in newly legalized states in the United States. During the first quarter of 2022, Innovative Industrial Properties acquired 197,000 square feet in additional properties in New Jersey, Massachusetts, Pennslyvania, and California. The company now has 109 properties across the United States as they continue to position for the legalization of cannabis.
The REIT’s fund from operations increased by 34.8% compared to the same period a year ago on the back of acquisitions. The company seems to be gearing up for expansion into the cannabis market as it raised $345 million from a secondary offering. Innovative Industrial Properties raised its dividend by 33% to $1.75 per share, something that will be welcomed by investors. We like that management raised its dividend and this is a good sign that they are comfortable we the company’s liquidity position. Overall, it was a mixed quarter although the company missed on the revenue we see the million and change miss as revenue coming in line with expectations. We like the strategic moves management is making to be the prime real estate play for the cannabis industry. The company seems to be in a good liquidity position for expansion. We continue to be buyers of the stock because we like its growth and defensive attributes.
GXO Logistics (GXO): GXO Logistics reported an earnings and revenue beat as they earned $0.59/share ($0.08 ahead of Wallstreet consensus) on revenue of $2.1 billion ($40 million ahead of Wallstreet consensus). GXO Logistics reported revenue growth of 14% primarily driven by the company’s e-commerce, multichannel, and consumer business unit. The company sits at the heart of the e-commerce secular growth trend as the demand for contract logistics increases from retail companies. The secular growth trend coupled with the supply chain constraints has been a boom for GXO as they reported over $1 billion in incremental contract revenue to end the first quarter. The company has a current backlog of $217 million with high customer retention rates.
GXO Logistics’s gross margins contracted by 50 basis points an indicator of the current inflationary environment. The company had a slight cash burn during the quarter as the free cash flow went down from $20 million to $16 million. Management raised its fiscal year 2022 guidance for organic revenue to 11–15% up from 8–12%. The raised guidance reflects the high demand for GXO Logistics’s services as companies contend with supply chain constraints. Overall this was a great quarter from the logistics and we will continue to add to our stock position since the stock is trading below its spinoff price.
Marathon Oil (MRO): The oil exploration and production company reported earnings and revenue beat on the back of higher oil prices. Marathon Oil reported earnings of $1.02/share ($0.04 ahead of Wallstreet consensus) and revenue of $1.76 billion ($70 million ahead of Wallstreet consensus). In comparison to our fund estimates, Marathon Oil met our earnings expectation of $1.02/share but we thought the higher oil price would make the company increase production and generate revenue of $1.83 billion. We had high expectations on the revenue side given how the commodity is up over 50% this year.
Marathon posted revenue growth of 63% from the same period a year ago this just shows how fast oil prices have moved up the past year. Marathon's operating margins have shot up significantly from 10.9% to 45.9% and this just shows the company is executing at a high level and capitalizing on this oil supercycle. Marathon’s management continues its solid capital allocation as they purchased $900 million in shares and raised the dividend by 15%. Management upped its share buyback program to $2.5 billion as an indication it feels that its stock is still undervalued and its cash flow keeps on growing from strength to strength. Marathon reported $940 million in adjusted free cash flow and has a total liquidity position of $3.8 billion.
Management raised its fiscal year 2022 guidance as they expect higher natural and oil prices. The previous outlook had oil at $60/barrel and they updated it to $80/barrel. This was a great quarter from Marathon Oil we like the stock very much even at these levels if the stock pulled back below $30/share we would be tempted to add to our position. The fund has been buying the stock since it was trading at around $11/share and has traded around the stock position taking profits at various intervals.
Brookfield Renewable Partners (BEP): The publicly traded limited partnership that has a vast portfolio of renewable energy assets from hydroelectric plants to wind farms reported an earnings loss of $0.16 and revenue of $1.16 billion. Brookfield Renewable reported revenue growth of 11.4% and the partnership’s hydroelectric assets were the biggest contributor to the revenue growth. Brookfield Renewable’s hydroelectric assets generated 1.64% more power compared to the same period a year ago. Brookfield Renewable’s normalized fund from operations was up 19.1% from the same period a year ago. This is a good sign which shows that the company’s growth trajectory is on the right path.
Collectively Brookefield Renewable’s renewable assets generated 50 gigawatts more compared to the same period a year ago at 7,425 GWh. These numbers show Brookfield Renewable’s power generation capabilities as one gigawatt is enough to power 750,000 homes. The company has invested $1.6 billion in various renewable assets as of the end first quarter. Brookfield’s direct operating costs were down 10.5% compared to the same period a year ago. This was surprising given the inflationary environment backdrop but this could be due to once renewable assets are built their maintenance costs are not so high.
Looking at the cash flow numbers, Brookfield Renewable negative free cash flow of $149 million down from the positive number of $62 million a year ago. The partnership has ample liquidity at $4 billion (including debt) to fund its asset portfolio expansion. Overall, this was a good quarter for Brookfield Renewable Partners and we continue to be buyers of the stock. The stock is a good portfolio diversifier with its defensive attributes and it is going to benefit from the green energy push as countries around the world look to cut their carbon footprint.
Disclosure: Cresco Investments is long IDEXX Laboratories (IDXX), Innovative Industrial Properties (IIPR), GXO Logistics (GXO), Marathon Oil (MRO), and Brookfield Renewable Partners (BEP).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.
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