Tilray (TLRY) to Report Q2 Earnings: What's in the Cards?

Tilray, Inc. TLRY is scheduled to release second-quarter 2019 results on Aug 13.

In the last reported quarter, the company missed earnings expectations by 8%. The track record has been pretty disappointing for this company, which went public in July 2018. In the last four quarters, the company missed earnings estimates thrice with average negative surprise of 40.29%.

Let us see what is in store for the second quarter.

Pipeline Progress in Focus

Tilray produces medical cannabis in Canada and Europe. The company has two product categories — dried cannabis, which includes whole flower and ground flower, and cannabis extracts, which includes full-spectrum and purified oil drops and capsules.

There is a global paradigm shift regarding cannabis. Medical cannabis is now authorized at the national or federal level in 29 countries. Although the legal market for medical cannabis is still in its early stages, it represents huge potential. Recreational cannabis was legalized on Oct 17, 2018. This should drive demand for the company’s products in the second quarter.

Revenue increased 195.1% in the first quarter of 2019, driven by the cannabis legalization of Canadian adult-use in 2018, the addition of hemp food sales from the Manitoba Harvest acquisition and strong growth in international medical markets. We expect the momentum to continue in the second quarter. Notably, Tilray had acquired Manitoba Harvest, a hemp and natural foods producer in Winnipeg, Manitoba, for up to $310 million in the first quarter.

Gross margin in the second quarter is expected to be affected by a non-cash charge related to purchase accounting for the fair value of inventory.

Apart from the regular top and bottom-line numbers, investors will focus on the company’s collaboration deals to accelerate its entry in the United States hemp and CBD markets, and other pipeline updates.

Tilray has completed a long-term, revenue-sharing agreement with Authentic Brands Group to leverage respective portfolios of brands, and develop, market and distribute consumer cannabis products worldwide. The partnership will initially focus on CBD products in the United States and then around the globe. Tilray earlier expanded alliance with Sandoz, a Novartis NVS Division to make medical cannabis products more accessible to patients in need across the world. These alliances should further boost Tilray's sales in the second quarter.

In June 2019, Tilray announced that it has imported medical cannabis oral solutions in bulk to the U.K. from its Good Manufacturing Practices (GMP)-certified facility in Canada. This export allows the company to provide authorized U.K. patients in need with a locally maintained supply of medical cannabis oral solutions. In May 2019, Tilray received a standard manufacturing license and a GMP certification, per the European Medicines Agency’s standards, for its Biocant Park manufacturing facility in Cantanhede, Portugal. This license and certification allow Tilray Portugal to manufacture and export GMP-certified dried cannabis as an active substance for medicinal products.

Meanwhile, two new clinical studies — a pilot study in Melbourne to evaluate the feasibility and acceptability of a larger, randomized, placebo-controlled trial of cannabis extract as a treatment for reducing severe behavioral problems in pediatric patients with intellectual disabilities and a study with McGill University Health Centre’s Division of Infectious Diseases and Chronic Viral Illness to examine the effectiveness of medical cannabis on immune activation in HIV patients — are ongoing.  An update on the same is expected during the second-quarter earnings call.

Earnings Whispers

Our proven model does not conclusively show that Tilray will beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at a loss of 23 cents.

You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Zacks Rank: Tilray currently carries a Zacks Rank #3, which increases the predictive power of ESP. But the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Share Price Performance

Tilray’s stock has lost 37.8% in the year so far against the industry’s growth of 9.3%.

Stocks to Consider

Here are some healthcare stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Aurora Cannabis Inc. ACB has an Earnings ESP of +50.00% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Catalent, Inc. CTLT has an Earnings ESP of +1.56% and a Zacks Rank #3.

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