To The Moon

• Dollarama reported a strong quarter despite tough FY2024 comparisons showcasing its strong footprint in the Canadian retail landscape.
• PepsiCo had a tough quarter plagued by several headwinds, including Quaker Food’s product recalls.
• Goldman Sachs reported a strong quarter, with earnings and revenue beats. Management is cleaning out non-core business segments to focus and right-size the business.
• Norfolk Southern reported a better-than-feared quarter with good volume growth and operational efficiencies.

Dollarama Inc: Dollarama Inc. (TSX: DOL) recently reported its financial results for the second quarter of fiscal 2025, ending July 28, 2024. Despite a challenging economic environment, the Canadian dollar store giant delivered a strong performance, showcasing its resilience and adaptability. Dollarama reported a 7.4% increase in sales, reaching $1,563.4 million (missing WallStreet estimates by $6.64 million)compared to $1,455.9 million in the same quarter last year. This growth is a testament to the company’s ability to attract and retain customers with its value-oriented offerings. Dollarama’s diluted net earnings per common share increased by 18.6% to $1.02 (beating WallStreet estimates by $0.05). This significant rise in earnings per share reflects the company’s robust financial health and commitment to delivering value to shareholders.

Given the tough comparisons going into the quarter, which contributed to the revenue miss, the revenue was driven by comparable store sales up 4.7%, driven by a 7.0% increase in the number of transactions. This indicates that more customers are choosing Dollarama for their shopping needs, likely due to the affordability and variety of products available. However, the transaction size declined by 2.2% compared to last year’s quarter, indicating some consumer headwinds. The company expanded its margins as its gross profit margin grew to 45.2% from 43.9%, which was helped by lower logistic costs. The operating margin came in at 27%, up from 25.2% in the same period last year, showing strong execution from management. The company’s EBITDA rose by 14.7% to $524.3 million, representing an EBITDA margin of 33.5%. This strong performance highlights Dollarama’s efficient cost management and ability to generate substantial profits. The company’s EBITDA number expanded the company’s net income margin from 16.9% to 18.3%.

Dollarama’s share of Dollar City increased the company’s net income from $11.4 million last year to $22.7 million. Dollar City added 23 net new openings to end the quarter with 570 stores, up from 532 stores six months ago. Dollarama opened 14 new stores, further expanding its footprint and making its products more accessible to a broader customer base. This strategic expansion will drive future growth and strengthen the company’s market position. Regarding free cash flow, Dollarama generated $368.35 million, up from $358.3 million, which enabled the company to return $288.8 million to shareholders from $268.32 million. Management reaffirmed its FY2025 outlook, and Neil Rossy, Dollarama’s President and CEO, expressed his satisfaction with the company’s performance. He stated that they continue to see strong traffic trends and customer demand for their value offerings. He emphasized that Dollarama remains committed to providing affordable products to its customers, even in a challenging economic environment.

Dollarama’s Q2 FY25 earnings report showcases the company’s resilience and growth potential. With impressive sales growth, strong comparable store sales, robust EBITDA performance, and a significant rise in net earnings, Dollarama is well-positioned for continued success. As the company continues to expand its footprint and attract more customers, it remains a key player in the Canadian retail landscape. The stock reacted well to the news, going up over 8%, and we continue to hold the stock given the strong performance. This report backs up the premium forward earnings ratio of 26x.

PepsiCo Inc: PepsiCo (PEP) recently reported its financial results for the third quarter of 2024, ending September 7, 2024. While the company delivered a mixed performance, it highlighted its resilience in a challenging market environment. PepsiCo’s revenue declined by 0.6% year-over-year to $23.3 billion (missed WallStreet estimates by $460 million), falling short of analyst expectations. This was primarily due to softness in the snack category, impacted by inflation and consumer spending trends. Despite the revenue miss, PepsiCo’s adjusted earnings per share (EPS) grew by 3% to $2.31, exceeding analyst estimates by $0.02. This was driven by strong cost management and productivity initiatives. We had expectations for Pepsico as we expected the company to earn $2.35 per share from a revenue base of $23.8 billion.

Looking at the segment Performance, Frito-Lay North America experienced a 1% decline in organic revenue due to inflationary pressures and a slowdown in snack consumption. PepsiCo Beverages North America was relatively flat, with Gatorade, Propel, and Bubly growth offsetting other brands’ decline. Quaker Foods North America saw a 13% revenue decline, impacted by product recalls and weak category performance. The international segment delivered 4% organic revenue growth, driven by solid performance in convenient foods and beverages. Despite the tough segment performance in the quarter, PepsiCo expanded its gross profit margins to 55.4%, up from 54.5%. However, the company’s operating margins contracted to 16.6% from 17.1% affected by the Quaker product recalls. The net income margin for PepsiCo faced pressure due to higher costs, which went down from 13.2% to 12.6%.

Looking at free cash flow, PepsiCo has generated $3.37 billion in revenue in the year to date, down from $5.09 billion. The company returned $6.13 billion to shareholders in FY2024, up from $5.69 billion. PepsiCo increased its net debt by $1.13 billion to finance its purchase of Siete Foods for $1.2 billion to add to its organic food portfolio. PepsiCo lowered its full-year organic revenue growth guidance to low-single-digit growth, reflecting the challenging market conditions. This quarter was tough for PepsiCo, signaled by the tough segment performance and volume reduction. To my surprise, PepsiCo’s stock went up by close to 2%, and we continue to hold the stock and will likely add when it sells off.

Goldman Sachs Group Inc: Goldman Sachs (GS) recently released its third-quarter earnings for 2024, showcasing a robust performance despite a complex financial environment. Goldman Sachs reported net revenues of $12.70 billion (beating Wall Street estimates by $940 million), a 7% increase year over year. This growth was driven by solid performance across its key segments, particularly in Global Banking & Markets and Asset & Wealth Management. The company posted an EPS of $8.40 (beating Wall Street estimates by $1.48), a significant jump from $5.47 in Q3 2023. This represents a 54% increase year-over-year, reflecting the company’s ability to deliver strong earnings growth. Goldman Sachs’ headline numbers blew away our fund estimates of earnings of $6.49 from a revenue base of $11.84 billion.

Looking at the segment performance, Global Banking & Markets generated $8.55 billion in revenues, driven by record net revenues in Fixed Income, Currency, and Commodities (FICC) financing and strong equities performance. FICC trading generated $2.96 billion, missing our fund estimate of $3.25 billion in higher financing, contributing to the revenue miss. Equities trading generated $3.5 billion, up 18% year over year, beating our fund estimate of $3.05 billion. The Asset & Wealth Management segment generated $3.75 billion, with record management and other fees. Assets under supervision reached a record $3.10 trillion, marking the 27th consecutive quarter of long-term net inflows. Investment Banking revenue was up 20% year-over-year, beating our fund estimate of $1.45 billion. The small segment of Platform Solutions generated $392 million, down 32% due to lower revenues from the GM Credit Card program, a business that Goldman Sachs is selling to Barclays.

Goldman Sachs increased its provision for credit losses by $390 million to $397 million, up from $7 million a year ago. The investment bank’s operating expenses were $8.32 billion, down 8% year-over-year, reducing its efficiency ratio from 74.4% to 64.3% (a lower efficiency ratio is better). Goldman Sachs declared a $3 per share dividend and repurchased $1 billion in stock, underscoring its commitment to returning value to shareholders, returning $1.98 billion to shareholders. Net earnings for the quarter were $2.99 billion, highlighting the company’s solid financial health. The annualized Return on Equity (ROE) was 10.4%, demonstrating efficient capital utilization. Goldman Sachs’ liquidity is up with Global Core Liquid Assets up to $447 billion from $424 billion a quarter ago.

David Solomon, Chairman and CEO of Goldman Sachs, highlighted the company’s strong performance and ability to leverage talent and execution capabilities in a complex market. He emphasized the company’s focus on innovation and growth, particularly in its key segments. This was a great report from Goldman Sachs, as the stock soared to a record high of $540/share but ended the day flat, pulling back to end flat the day the earnings report was released. The stock has performed well this year, up 35% (as of the October 15, 2024, close). We want to add to our stock position if the stock pulls back towards $500/share.

Norfolk Southern Corporation: Norfolk Southern Corporation (NSC) recently announced its third-quarter earnings for 2024, showcasing impressive growth and operational efficiency. NSC reported $3.05 billion in revenue (missed Wall Street estimates by $38.12 million), a 3% increase year-over-year. This growth reflects the company’s ability to maintain and expand its market presence despite economic challenges. The company posted an adjusted EPS of $3.25 (beat Wall Street estimates by $0.14), a 23% increase compared to the prior year. This significant rise in EPS underscores NSC’s strong financial performance and effective cost management. Norfolk Southern’s headline EPS number beat our fund estimate of $3.16. However, the revenue missed our fund estimate of $3.09 billion as the railway company is still recovering from the East Palestine accident and suffered the hurricane effects of Helene.

Norfolk Southern's revenue growth was supported by the 7% year-over-year increase in volume, driven by solid performance in both merchandise and intermodal segments. Merchandise revenue per unit (RPU) less fuel grew for the 37th consecutive quarter. Norfolk Southern recorded an operating income of $1.6 billion, up 760 million from the same period last year, thanks to the $380 million gain from railway sales and $159 million in net insurance proceeds higher than the expense from the East Palestine accident. Management also made operational improvements and cut costs during the quarter to improve operating income. NSC achieved an adjusted operating ratio of 63.4%, a 570 basis point improvement year-over-year. This improvement indicates enhanced operational efficiency and better cost control.

In terms of free cash flow, the company has generated $1.4 billion in revenue in the year to date, up from $1.02 billion. The company has returned $910 million to shareholders, down from $929 million, as it did not repurchase any shares during the quarter to allow them to use some of that cash to complete its $1.6 billion acquisition of Cincinnati Railway. Despite the positive results, NSC remains cautious about the evolving market conditions. The company is focused on continuing its productivity initiatives and strategic investments to sustain growth and improve operational efficiency. Overall, this quarter was not as bad as expected despite the company missing our revenue estimate; investors cheered the earnings report, with the stock going up 4%. We are happy with the improvement in the operational efficiency of the company, as they have had to make improvements since the East Palestine incident. We are not looking to add to our position but would add if the stock pulled back.

Thermo Fisher Scientific: Thermo Fisher Scientific (TMO) recently released its third-quarter earnings for 2024. The company's performance was mixed, with some areas of strength and others showing room for improvement. Thermo Fisher reported $10.60 billion in revenue for the third quarter of 2024, slightly below analyst estimates of $10.63 billion. While revenue was flat compared to last year's quarter, it showed sequential improvement from Q2 2024. The company posted an adjusted EPS of $5.28, which beat the analyst consensus of $5.25. However, this slightly decreased from the $5.69 EPS reported in the same quarter last year. Thermo Fisher Scientific’s headline numbers missed our fund estimates of earnings of $5.31 and revenue of $10.71 billion, which shows that the company is still getting out of the revenue decline phase in FY2024.

The company’s two most significant segments, Life Science Solutions and Laboratory Products & Biopharma Services, had declining and flat revenue, respectively. The smaller segments in Analytical Instruments and Specialty Diagnostics had revenue growth. The operating income margin contracted by 30 basis points to 17.3% from higher cost of revenues and higher selling and G&A expenditures affected the operating income. The net income margin also contracted by 80 basis points to 15.4%. The company’s year-to-date free cash flow is generated at $4.46 billion, up from $3.61 billion. Thermo Fisher returned $3.43 billion, up from $3.39 billion, and the company has a healthy cash balance of $4.67 billion. A healthy cash balance will help management to make strategic bolt-on acquisitions.

Thermo Fisher reaffirmed its 2024 sales guidance of $42.4 billion to $43.3 billion and revised its adjusted EPS guidance to $21.35 to $22.07, up from the previous range of $21.29 to $22.07. The company remains optimistic about its ability to meet its 2024 objectives despite the mixed results in Q3. Marc N. Casper, Chairman, President, and CEO of Thermo Fisher Scientific, commented on the company’s performance, noting that they delivered strong financial results and sequential improvement in growth. He emphasized that their trusted partner status resonates strongly with customers, translating into meaningful commercial wins. Overall, this was a tough quarter for Thermo Fisher, resulting in the stock selling off, and since we like the company's long-term prospects, we added to our stock position.

Disclosure: Cresco Investments is long Dollarama Inc. (DOL.TO), PepsiCo Inc. (PEP), Goldman Sachs Group (GS), Norfolk Southern Inc. (NSC) and Thermo Fisher Scientific (TMO).

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 consult with their financial advisor(s).