Canadian Quarterly Earnings Pulse - Q3 2023

Michael Huynh Dec 07, 2023
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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 home some companies thrive amid a challenging macro environment due its the resiliency and secular tailwind of the business models, as well as executives’ view on how to position their companies from the expected economic recovery next year.


Despite the challenging macro environment, some niche industrial player still experienced strong volume growth

“Volume increases versus prior year were driven primarily by increased sales in the U.S. distribution channel and private label sales. The backlog continued to grow versus the prior year and more meaningfully grew by 11% versus the end of the second quarter, indicating that demand for our products remains healthy.” – Hammond Power Solutions Inc. (HPS.A) CFO, Richard Vollering


Weak consumer health drives demand for products with better value

“In the current macroeconomic context and based on what we have been seeing year-to-date, including the quarter currently underway, we expect strong customer demand to continue through the second half of the fiscal year. This is reflected in the upward revision of our same-store sales guidance range for the full year. On the real estate front, we opened 18 net new stores this quarter. This is compared to 13 in the same quarter last year and 21 last quarter. This year, our team worked hard to front-load net new store openings to take some of the pressure off our fourth and historically busiest quarter of the year. – Dollarama Inc. (DOL) CEO, Nell Rossy


…leading to robust same-store-sales growth

“Dollarama delivered strong top-line growth with a nearly 20% increase in sales and a 15.5% increase in same-store sales in the second quarter. This is all the more notable because this SSS growth is over and above our 13.2% in the same quarter last year. We are seeing robust performance across the board in terms of our 3 main product categories and their departments. We generated a strong gross margin representing 43.9% of sales compared to 43.6% of sales in the same quarter last year, driven by lower inbound shipping costs, partly offset by higher logistics costs. – Dollarama Inc. (DOL) CFO, Jean-Phillippe Towner


In a declining interest rate environment, crypto assets could experience a tailwind

“But there are plenty of smart guys in Washington and plenty of good pieces of legislation already crafted that will propel this industry forward in the next 18 months. And so 18 months can seem like a long time; in the big picture, it's not. And so we've got at least the potential of regulatory clarity coming. We've got a Fed that's going to stop hiking rates and probably will be cutting rates by the first quarter next year. The economy is slowing. The experiment of raising rates 550 basis points in a straight line is actually going to work and it's going to slow the economy down finally. And I think once that Fed cuts, it's another tailwind for crypto. So put it all together, it just feels better. Our results in the third quarter weren't great. The first month we already made that up and then some and we're off to a good November. – Galaxy Digital Holdings Ltd. (GLXY) CEO, Michael Novogratz


Macro environment has a minor impact on businesses with secular tailwind

“Turning to overall markets. Central banks have made significant progress in lowering headline information while trying to navigate a soft landing for the economies. Market participants increasingly believe the current rate hiking cycle has crested. And while the move in rates has been historically sharp, the absolute level of interest rates is still relatively low as compared to historic levels and at a level where we have operated and grown successfully for many years. And for what we do does not impact the success of our business.” – Brookfield Asset Management Ltd. (BAM) CEO, Bruce Flatt


Due to high interest rate commercial real estate will have a tough time to refinance debt

“Within commercial real estate, securitization markets remained slow, though issuance has started to pick up in September and October. Nevertheless, the vast pools of commercial real estate loans that are maturing over the next 12 to 24 months will face a thinner pool of capital available for refinancing. Real estate investors who lack deep relationships with large institutional investors will be looking for solutions. Combined with the broader trends around the availability of traditional lenders, the deficit of liquidity will create a very attractive lending environment for sponsors with significant dry powder like us” – Brookfield Asset Management Ltd. (BAM) CFO, Connor Teskey




Expansion beyond traditional markets into adjacent ones increase the total addressable market for the company 

“And most importantly, meeting the global Hammond Power Solutions team. The team is a set of truly passionate people making a difference in every day. I've traveled to many of our facilities and have seen firsthand how our team members are working to make Hammond Power Solutions a leader in the electrification of our world. I sit here today very confident in our ability to meet our current goals and to expand beyond our traditional markets.”– Hammond Power Solutions Inc. (HPS.A) CEO, Adrian Thomas


Long-term growth tailwind due to the clean and efficient energy solutions demand

“Thanks, Richard. I'm convinced that Hammond Power Solutions is in a great position to capitalize on the growing demand for clean and efficient energy solutions. We currently see strong demand across the geography. However, we continue to watch carefully for the potential of economic moderation in North America. As we look ahead, we are confident that we can continue to deliver value to our shareholders, customers and employees. – Hammond Power Solutions Inc. (HPS.A) CEO, Adrian Thomas


Dollar stores with growth strategy through geographic expansion

“In LATAM, the team at Dollarcity also continues to execute on its long-term growth plans and consistently delivering strong financial and operational results. In their second quarter, they opened 10 net new stores, bringing the total number of Dollarcity locations to 458. They are seeing and experiencing many of the same trends in their 4 markets of operation as we are here in Canada. That is to say, strong traction from their customers on the value and convenience they are offering in the current economic context. This, coupled with the team's solid execution of its growth strategy is resulting in strong performance quarter after quarter. – Dollarama Inc. (DOL) CEO, Nell Rossy


Selling non-core assets helps companies pay down debt and increase capital returns

“Following the end of the quarter, we announced a definitive agreement to sell Healthcare for an enterprise value of $311 million, a decision which better positions CAE to efficiently allocate capital and resources to secure growth opportunities in our large core simulation and training markets. We intend to apply a significant portion of the net proceeds to reduce debt. The transaction is expected to close before the end of the current fiscal year, subject to closing conditions, including customary regulatory approvals. With leverage having decreased to a ratio of approximately 3x, we will consider reinstating capital returns to shareholders following the closing of the Healthcare sale transaction. We are prioritizing a balanced approach to capital allocation, including funding accretive growth, continuing to strengthen our financial position, commensurate with our investment-grade profile and returning capital to shareholders. – CAE Inc. (CAE) CFO, Sonya Branco


Managing financing is crucial in a high interest rate environment

“On financing, we saw a 17.2% increase in financing charges year-over-year due to a higher weighted average interest rate on our long-term debt and short-term notes. This was a result of long-term debt issuance executed in 2023 as well as increased rates on short-term notes. During the quarter, Hydro One issued $425 million of floating rate medium-term notes during 2026. This was yet another first, the first corporate issuance of green floating rate notes in Canada. Subsequent to the quarter, Hydro One issued an additional $400 million of medium-term notes due in 2025. Concurrent with the offering, the company executed a $400 million fixed to floating interest rate swap agreement. Both offerings were done under our sustainable financing framework. – Hydro One Limited (H) CFO, Chris Lopez


Global fiscal uncertainties could increase institutional interest in cryptocurrencies

“We have been waiting for institutions, almost like that famed waiting for sitting on the subway station, waiting for the car to show. And a lot dipped their toes in. This ETF is going to make it really easy to open the door for institutions coming into the crypto space. When you marry that with the uncertainty in the world, with the fiscal crisis, quite frankly, that's going on in the U.S. and in the rest of the developed world, with the slowdown in China, it just makes for a really interesting time for institutions to put 1%, 2%, 3% of their assets into Bitcoin and other cryptocurrencies. – Galaxy Digital Holdings Ltd. (GLXY) CEO, Michael Novogratz


The approval of a spot Bitcoin ETF could be a tailwind for crypto trading and lending activities

“However, in October, we realized the benefits of our market positioning and the recent uptick in volatility and generated approximately $24 million in counterparty trading revenue, representing over 70% growth in the first month of Q4 alone versus the entire prior quarter. The lending side of our business continued to grow in the third quarter as well. Loan originations were $117 million and our average loan book size increased by 9% quarter-over-quarter, growing to $553 million notional as of September 30, reinforcing our position as one of the largest collateral-backed lending counterparties in the digital asset space. Our debt continued to onboard new counterparties, bringing the total count from 999 at the end of the second quarter to over 1,020 at the end of September. We believe the approval of a spot Bitcoin ETF in the U.S.” – Galaxy Digital Holdings Ltd. (GLXY) CEO, Christopher Ferraro


Despite uncertainty and volatility, alternative asset managers are well-positioned to take advantage…

“There has been no shortage of uncertainty and volatility this year, but we have continued to execute. We have committed to over $50 billion of new investments at very attractive value entry points, while also being very active on the monetization front, selling some of our derisk and mature assets. We currently have over $100 billion of dry powder from uncalled fund commitments to invest into attractive opportunities across the business. Our fee-bearing capital stood at $440 billion at the end of the quarter and assets under management are now $865 billion. This scale partnered with the interconnectivity of our businesses enables us to spot trends early, source proprietary deal opportunities underwrite with accuracy, drive better operations and have best-in-class access to capital.” – Brookfield Asset Management Ltd. (BAM) CEO, Bruce Flatt


…and raise more capital ready to be deployed opportunistically

“At the same time, we continue to drive fundraising with inflows of $61 billion year-to-date, including $26 billion in the third quarter, which represents our strongest fundraising quarter for the year. This sets us up nicely for what we expect to be a strong next few months towards our $150 billion capital raising target. We expect to hold several meaningful fund closes and anticipate completing our contract to manage the assets of AEL within the coming months.” – Brookfield Asset Management Ltd. (BAM) CEO, Bruce Flatt




An increase in production capacities lead to reduced stock outages, record shipments

“Turning to our operations. Our third quarter of 2023 has been another noteworthy quarter for Hammond Power Solutions. Most importantly, we continue to deliver record financial results, and we are reinvesting in the expansion of our production capacities which in turn is improving our ability to serve the needs of our distributors and our customers. While we are running at full or near capacity at every facility, continuous improvement programs and increased hiring have progressively increased plant productivity, incrementally increasing our production rates. These higher production levels are reducing stock outages and increasing shipments. – Hammond Power Solutions Inc. (HPS.A) CEO, Adrian Thomas


Improvement in earnings along with strong growth in order and backlog helps companies meet short-term leverage target

“Thank you, Andrew, and good afternoon to everyone joining us on the call. We delivered a good performance overall in the second quarter with double-digit top and bottom line growth, driven mainly by continued strong momentum in Civil and higher contribution from Defense compared to the second quarter last year. We made excellent progress to secure CAE's future with nearly $1.2 billion in total adjusted order intake, for a record $11.8 billion of adjusted backlog. We further bolstered our financial position on the path to meeting our short-term leverage target. – CAE Inc. (CAE) CEO, Marc Parent


Temporary low-margin performance for defence contractors due to legacy contracts prior to COVID and the inflationary environment

“And as we look at the remainder of fiscal 2024, the positive inflection we expected this year in Defense has been delayed because of impacts associated with the retirement of our lower-margin legacy contracts, specifically those awarded prior to COVID and current new program delays. And while the inflationary impacts on these contracts are known and finite in nature, they continue to be the most significant factor contributing to the current low margin performance of the business and does not reflect its underlying potential. – CAE Inc. (CAE) CFO, Sonya Branco


Opportunistic acquisition helps the company expand its market presence quickly

“I am pleased to report that on November 7, Hydro One announced an agreement for the Township of Chapleau, the acquisition of Chapleau Hydro, a local electric distribution company, which serves approximately 1,200 customers. While small, the transaction is meaningful for those 1,200 customers in the Township of Chapleau will continue to have dependable electricity. Hydro One started assisting Chapleau Hydro this summer as it experienced challenges in continuing operations. We were happy to help as the service territory embedded within Hydro One, we already have a local presence, and we already serve indigenous communities and businesses on the outskirts of Township. – Hydro One Limited (H) CEO, David Lebeter


Long-term fundamental improvements supports healthy dividend growth

“On guidance, we reaffirm our previous target of 5% to 7% earnings per share growth through 2027 on the normalized 2022 EPS of $1.61. As a reminder, the EPS growth range does not factor in growth from broadband, LDC consolidation, all the transmission lines that have been previously awarded but only have preliminary assets or our pending approval, such as the Waasigan transmission line as well as any amounts from externally driven variance accounts. Finally, I am pleased to report that we declared a dividend to common shareholders of $0.964 per share. – Hydro One Limited (H) CFO, Chris Lopez


Companies mentioned:


Hammond Power Solutions Inc. (HPS.A)

Q3 Revenue Growth: 20.5% |  Q3 EPS Growth: 24.7%


Dollarama Inc. (DOL)

Q2 Revenue Growth: 19.6%  |  Q2 EPS Growth: 30.3%


CAE Inc. (CAE)

Q2 Revenue Growth: 9.6%  |  Q2 EPS Growth: 28.6%


Hydro One Limited (H)

Q3 Revenue Growth: -4.8%  |  Q3 EPS Growth: 15.7%


Galaxy Digital Holdings Ltd. (GLXY)

Q3 Revenue Growth: N/A  |  Q3 EPS Growth: N/A


Brookfield Asset Management Ltd. (BAM)

Q3 Revenue Growth: 7.5%  |  Q3 EPS Growth: N/A


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,





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