Canadian Quarterly Earnings Pulse - Q1 2023

Michael Huynh Jun 08, 2023
Headline image for Canadian Quarterly Earnings Pulse - Q1 2023

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 companies managing cash flows through working capital management and EBITDA convertion and how certain niche products/services are resilient even in an economic downturn, as well as executives’ view on acquisitions as a key tool to grow and expand market presence.


High interest rate environment continues to benefit insurance companies’ investment portfolios driven by higher yields

“The combination of higher rates and a larger portfolio has been very positive for the contribution from the investment portfolio. We began realizing these benefits through Q4 and observed continued momentum in Q1, with net investment income increasing 150% over the prior year. We are excited about the enhanced risk-adjusted yields we are capturing for the years to come. ” – Trisura Group Ltd. (TSU) CEO, David Clare


Despite macro headwinds, demand for consumer specialty products remain resilient

“Seasonal product revenue were up 69% from last year, reaching $692 million, driven by higher volume of Sea-Doo personal watercraft and Pontoon. Looking at our retail performance. In snowmobile, we've closed the '23 season in North America on March 31, with retail down low single digits, but with a 1% point market share gain which further increased our historical record level. We also ended the season with the #1 position in each segment in which we compete, including the youth category that we've just entered last season.” – BRP Inc. (DOO) CEO, Jose Boisjoli


An improved supply chain environment helps companies increase production more efficiently

“As expected, the improved supply chain environment allowed us to better leverage our production capacity and increase our throughput in Q1, further supporting network inventory replenishment. Our network inventory now stands only 4% up from the first quarter of fiscal '21, a very comfortable level when you consider the significant growth of our business since then, driven by market share gains and the introduction of new product lines.” – BRP Inc. (DOO) CEO, Sebastien Martel


In a recession, diversification in products and services helps companies not only maintain but grow earnings

“Sun Life had a strong start to the year with a good underlying earnings growth, an underlying ROE of 17.3% and a strong capital position. Underlying net income of $895 million and underlying earnings per share of $1.52 were up 24% from the prior year, reflecting the strength of our business fundamentals and the benefits of our diversified mix. Sun Life provides 3 main types of services to our clients, wealth and asset management, group and health protection and individual protection. Wealth and asset management businesses comprise approximately 40% to 45% of our earnings.” – Sun Life Financial Inc. (SLF) CFO, Manjit Singh


Inflationary operating expenses put pressure on companies’ margins

“Gross margin remained stable, and the EBITDA margin was 12.2% compared to 14% last year. First quarter net earnings attributable to shareholders totaled $22.4 million, down 25.6%. In addition to the fact that 2022 first quarter was a period where our financial results were especially strong. The factors that also affected our results were mainly the return of operating expenses closer to pre-pandemic levels as well as outside warehousing costs due to temporary inventory increase, amortization and costs related to our U.S.” – Richelieu Hardware Ltd. (RCH) CEO, Richard Lord


Strong capital position and disciplined risk management help companies get through broad market volatility

“While the external environment remains challenging and uncertain, we are confident that our diversified and capital-light business mix, strong capital position and prudent approach to risk management will allow us to manage through market volatility and more importantly, continue to help our clients achieve life confidence and security and live healthier life.” – Sun Life Financial Inc. (SLF) CEO, Kevin Strain




Well-run insurance companies grew premiums profitably…

“Our business reported strong operating performance in the first quarter, growing insurance revenue 58% compared to Q1 2022 and supporting a 21% operating return on equity. Momentum is sustained as we scale an increasingly diversified specialty insurance platform. Results again were particularly strong in Canada, with 33% growth in insurance revenue, supported by profitable underwriting.” – Trisura Group Ltd. (TSU) CEO, David Clare


…while maintaining their underwriting discipline

“We saw our warranty practices grow as auto inventory issues began to rationalize. Importantly, disciplined underwriting drove a 15% loss ratio, an improvement over a strong comparative year, supported by a particularly impressive result in Surety. We are proud of our 81% combined ratio in the quarter, but did not beat the strong comparative period set in Q1 2021 of 77%, due to a higher expense ratio as a result of the shift in mix. I apologize, that reference was to Q1 2022.” – Trisura Group Ltd. (TSU) CEO, David Clare


Despite short-term headwinds, the secular tailwind behind the trend of e-commerce remains robust

“Third area is e-commerce. We've certainly seen headlines about how e-commerce is not growing as fast as it did during the pandemic. However, those headlines often miss the key: it's still growing. E-commerce continues to be an increasingly more prevalent way of purchasing and e-commerce deliveries flow as a consequence. We've made historic investments to help our customers with this trend, and we continue to see strong volumes in the quarter that contributed to our organic growth.” – The Descartes Systems Group Inc. (DSG) CEO, Edward Ryan


Despite a dysfunctional supply chain recently, demand for critical supply chain software remains resilient

“It's also an important question as people have realized over the past few years how vulnerable their businesses are to a dysfunctional supply chain. Our MacroPoint solutions have continued to be market leaders in this space and see strong growth, especially with our integration to our Global Logistics Network, which enables us to easily cross sell MacroPoint embedded directly into a number of Descartes solutions.” – The Descartes Systems Group Inc. (DSG) CEO, Edward Ryan


Efficient capital deployment attracts AUM in the asset management business

“MFS AUM has increased since the end of last year and net flows have improved year-over-year. SLC management fee-related earnings were up over 20% year-over-year on higher fee earnings. AUM, reflecting strong capital raising and deployment across the platform. SLC Management also completed the acquisition of a 51% interest in Advisors Asset Management and are commencing the development of alternative products to meet the demand of high net worth individuals.” – Sun Life Financial Inc. (SLF) CEO, Kevin Strain


The restaurant industry fully recovers to the pre-pandemic level of business

“On the Canadian side, our network generated 32% system sales growth in the first quarter as the business continued on its strong momentum compared to a quarter marked by pandemic-related restrictions last year. Digital sales for the first quarter, meanwhile, increased 17% year-over-year to $246.2 million, including the positive impact of acquisitions and foreign exchange rate.” – MTY Food Group Inc. (MTY) CEO, Eric Lefebvre




Well-run companies consistently capture more market share even during difficult environments

“In Scandinavia, our market share also improved, gaining 4 percentage point by the end of the season. Also, as I mentioned, we recently closed our spring customer orders for the Season '24 model and presale level in North America came in about 25% above target. The solid bookings significantly improve our visibility on expected volume and sell-through for our snowmobile business. For this season, we have increased our seasonal product revenue guidance for the year, as Sebastien will explain in a few minutes. Looking at Sea-Doo product. – BRP Inc. (DOO) CEO, Jose Boisjoli


Companies that generate healthy free cash flow have the flexibility to take advantage of share price weakness through buyback programs

“We generated $141 million of free cash flow, providing us with the financial ability to take advantage of the current weakness in the share price to do buybacks. In fact, we have deployed about $110 million towards share repurchases so far this year, and we expect to continue being active in repurchasing shares as we still have about 2.4 million shares available under our NCIB. Moving to Slide 13 for an update on the network inventory situation.” – BRP Inc. (DOO) CEO, Sebastien Martel


Complementary acquisitions add tremendous value and increase the lifetime value of customers

“As I've said in the past, our investment strategy is heavily influenced by what our customers are looking for from us. An excellent example of that is our recently announced acquisition of Localz where we continue to deploy capital for leading technology and services for our customers. Localz is headquartered in Australia and specializes in helping customers with final mile deliveries. Specifically, they provide an Uber-like tracking experience to the end recipient of a delivery, allowing them to be able to see the real-time progress of the delivery over the final miles. Localz also provides customer self-scheduling deliveries and a click-and-collect solution to help with fulfillment of online purchases.” – The Descartes Systems Group Inc. (DSG) CEO, Edward Ryan


The performance of acquisition-driven companies should be evaluated on the per share basis

“The acquisitions of Wetzel’s Pretzels and Sauce Pizza and Wine during the quarter, along with the BBQ Holdings transaction, which closed last fall, largely contributed to the year-over-year growth in EBITDA and system sales. Wetzel’s Pretzels, which added over 360 locations to MTY's network, delivered strong results during the holiday season in December. We expect this deal to be accretive to MTY's earnings, EBITDA and free cash flow per share in 2023.” – MTY Food Group Inc. (MTY) CEO, Eric Lefebvre


Converting a high percentage of earnings before interest, taxes, depreciation and amortization (EBITDA) into cashflow is crucial for most companies

“Excluding the impacts of those nonrecurring payments, the conversion of EBITDA into cash flow is in line with the potential of MTY to turn EBITDA into cash flows in this higher interest environment. Excluding variations in noncash working capital items, income taxes, interest paid and other, operations generated $63.3 million in cash flows in the first quarter of 2023, compared to $36 million in the same period last year. In the first quarter of 2023, we also reimbursed $29.6 million of long-term debt and paid $6.1 million in dividends to our shareholders.” – MTY Food Group Inc. (MTY) CFO, Renee St-Onge


Acquisitions help companies expand their market presence, acquire customers and grow revenue in a short period of time

“With the acquisition of Quincaillerie Rabel, Trans-World Distributing, Unigrav and Usimm in January 2023, we strengthened our presence in Eastern Canada. And after the end of the quarter, we completed the acquisition of Maverick Hardware in Eugene, Oregon, which reinforced our presence in this market, where we already operated a distribution center in Portland.

With these 5 acquisition, we add $22 million in annual sales. new customers, complementary products and things that are experienced in their market. The expansion, modernization and opening of centers in the U.S. have progressed well, including Atlanta, Nashville, Pompano, Seattle and Chicago.” – Richelieu Hardware Ltd. (RCH) CEO, Richard Lord


Companies mentioned:


Richelieu Hardware Ltd. (RCH)

Q1 Revenue Growth: 4.8% |  Q1 EPS Growth: -24.5%


Trisura Group Ltd. (TSU)

Q1 Revenue Growth: 58.1%  |  Q1 EPS Growth: -45.5%


BRP Inc. (DOO)

Q1 Revenue Growth: 34.3%  |  Q1 EPS Growth: 31.5%


The Descartes Systems Group Inc. (DSG)

Q1 Revenue Growth: 17.4%  |  Q1 EPS Growth: 25.9%


Sun Life Financial Inc. (SLF)

Q1 Revenue Growth: 20.5%  |  Q1 EPS Growth: 21.1%


MTY Food Group Inc. (MTY)

Q1 Revenue Growth: 103.6%  |  Q1 EPS Growth: 10.5%


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,

5i Research Team Signature





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