Canadian Quarterly Earnings Pulse - Q4 2023

Michael Huynh Mar 21, 2024
Headline image for Canadian Quarterly Earnings Pulse - Q4 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 some companies that are using Artificial Intelligence to accelerate revenue growth, as well as control cost and executives’ view on how to position their companies from the expected declining interest rates and consumer spending recovery next year.




Growth is expected to normalize for consumer discretionary companies as consumer spending recovers

“Looking to fiscal 2025, we expect top line momentum to accelerate, supported by square footage growth of approximately 20% to 25%. This is driven by 11 to 13 new boutiques next year, including our Chicago flagship and 4 to 5 newly expanded boutiques, including 2 of our Manhattan flagships. Importantly, our new stores are our most consistent growth driver, historically delivering predictable revenue growth and propelling our brand. With continued investment in both our digital experience and digital marketing, we remain confident that both our eCommerce and retail channels will fuel growth of our omnichannel business.” – Aritzia Inc. (ATZ) CFO, Todd Ingledew


The insurance business has a natural hedge against inflation

“Inflation, as expected, abated in the past year and appears to have stabilized in the mid-single digit range for the past couple of quarters. We expect rate increases to continue to cover inflation. And as a result, we remain comfortable with our sub-95 guidance and with capturing growth in this environment. Moving to personal property. Premium growth was 8% in the quarter due to our rate actions and supportive market conditions. The combined ratio for the quarter was very strong at 75.8%, reflecting robust underlying performance and mild weather across Canada. For the full year, the combined ratio was 100.7%, which included 11 points of CAT losses, above expectations. Despite this, our average combined ratio for the past 5 and 10 years remained below 90%, thanks to adapting our value proposition and operating model in the last decade.” – Intact Financial Corporation (IFC) CEO, Charles Brindamour


Despite challenging macro environment, businesses with secular tailwinds continue to grow over the long term

“We anticipate this solid growth to continue in 2024 and believe that this investment cycle has the potential to support several years of strong demand for our CCS segment. The demand outlook for our enterprise end market continues to be impressive as the beneficiary of hyperscalers growing deployment of AI/ML compute capacity. We are seeing the strong momentum from 2023 continue. And as mentioned earlier, we anticipate significant growth within our AI/ML compute portfolio as we enter 2024. We expect additional growth in our storage business to materialize in the latter half of the year, driven by demand from new programs.” – Celestica Inc. (CLS) CEO, Robert Mionis


Artificial Intelligence (AI) is a key factor that drives revenue growth

“OpenText is more relevant than ever as we enter the new era of business AI. We have significant momentum as we transform into a cloud growth company, as we expand our mission and information management and as we accelerate private and public cloud consumption. Artificial general intelligence is a once in a generational opportunity, and OpenText is in a very strong position to lead the way in information management. We continue to accelerate our investments in products, services and go-to-market, and we are seeing the results. Q2 was a spectacular quarter and showcases our strategy and performance progress with the following: record revenues of $1.3 billion or 71% year-over-year growth, strong organic growth, our 12th consecutive quarter of ARR growth in constant currency. Record enterprise cloud bookings of $236 million or 63% year-over-year growth and we're just getting started. We are winning with Cloud Editions, our business cloud. We are winning with data security and trust requirements.” – Open Text Corporation (OTEX) CEO, Mark Barrenechea


Both government and businesses are adopting Artificial Intelligence to improve operational efficiency

Governments are increasingly interested in solutions to improve their operational efficiency, leveraging the built-in security and innovation, including with AI of CGI's intellectual properties. Across all industries, CGI's end-to-end services and solutions position us well to deliver the right mix of offerings as clients continue to prioritize initiatives that will deliver the highest financial returns and drive tangible organizational benefits. CGI's outcome-based value propositions for managed services and IP are specifically designed to help clients generate cost savings and accelerate transformation with lower capital costs. In line with CGI's compelling value proposition for clients, Q1 bookings were mostly comprised of managed services and IP engagements, which generate long-term recurring revenue. Managed services bookings were driven by strength in government, communications and utilities and health.


High interest rates level and low home sales affected consumer demand for home improvement service

“Moving now to our home improvement brands, including California Closets, CertaPro Painters, Floor Coverings International and Pillar To Post Home Inspection. As a group, these brands were up mid-single digit versus the prior year, with organic growth low-single-digit, very similar results to those we posted in Q3. We continue to face real headwinds in home improvement and lead activity continues to be sluggish, still off year-over-year. It's a real tribute to the tenacity of our teams in this segment that we've driven growth the last 2 quarters in this environment. Interest rate levels and record low home sales have negatively impacted consumer demand and we don't expect this to abate until late in the year or next year. That said, our teams in home improvement are confident that they can continue to grind out modest gains through 2024.” – FirstService Corporation (FSV) CEO, Scott Patterson



Inventory management is a critical factor in the retail business

“We continue to expect our assortment to improve with a higher proportion of new styles for spring 2024, which begins to launch at the end of this month. From an inventory perspective, we're very pleased with the progress we've made in continuing to optimize our position. At the end of Q3, inventory was down 22% over last year. We were able to clear through our inventory and have less product at the end of the season compared to last year, and we, therefore, expect to sell more new products and client favorites for spring.” – Aritzia Inc. (ATZ) CEO, Jennifer Wong


Strong premium growth and healthy profitability allow insurance companies to raise capital returns

“And top line momentum is strong and improving. Organic growth was 8% for the quarter, driven by rate actions across all segments. Hard market conditions continue to provide a significant tailwind for a majority of our businesses. Overall, we delivered an operating ROE of 14.2% in 2023 and maintain a strong balance sheet with $2.7 billion of capital margin. We're therefore pleased to raise the quarterly dividend by 10%, our 19th consecutive annual increase.

Let's now look at each of our lines of business, starting with Canada. In personal auto, premiums grew 12% in the quarter, driven by our rate actions and continued momentum in unit growth. Premium growth has been accelerating for the past year, driven by our improved competitive position, leading brand awareness and continued investment in digital marketing and customer experience. With a combined ratio of 95.2% in the quarter and 94.7% for the full year, underwriting performance was in line with guidance.” – Intact Financial Corporation (IFC) CEO, Charles Brindamour


Higher interest rates slow down economic activities, especially in the industrial sector…

“Now moving on to the outlook for each of our businesses. Beginning with our ATS segment. Our industrial business recorded annual growth of 29% in 2023, driven by ramping programs in Smart Energy and EV charging. However, we began to see signs of market softness towards the end of the year due in part to pockets of weakness in the broader economic environment, higher interest rates as well as some delays in new program ramps. As such, we expect to see lower revenues in our industrial portfolio through the first half of the year before seeing a return to year-to-year growth in the second half, which should result in modest growth in our industrial business for all of 2024 when compared to 2023. We continue to believe that the structural trends in markets such as EV charging, Smart Energy and telematics, amongst others remain intact and are supportive to growth in our industrial business over the long term.” – Celestica Inc. (CLS) CEO, Robert Mionis


…leading to uncertainty in terms of demand.

“We are pleased with our strong performance in 2023 and continue to see very positive momentum in the first quarter of 2024. As such, we are currently undertaking discussions with our customers and suppliers in order to obtain better visibility into the remainder of the year, and we look forward to providing an update on our 2024 outlook with our first quarter results.” – Celestica Inc. (CLS) CEO, Robert Mionis


Artificial Intelligence could be an opportunity for cloud service providers to grow bookings and expand service offers

“But right now, our focus is driving bookings and cloud revenue growth. We're also raising the lower end of our free cash flow range and now expect stronger full year results of between $825 million to $900 million of free cash flow. And with our workforce optimization complete and the majority of the Micro Focus restructuring complete, our attention and energy are focused now on customer transformation, innovation and growth. Information automation plus AI will be an essential part of our competitive advantage. OpenText will completely embed AI in all our products.” – Open Text Corporation (OTEX) CEO, Mark Barrenechea


Acquisitions continue to play a key role in driving revenue growth for IT service companies

“The strategy deepens our resilience and serves as a catalyst for future organic growth. We continue to focus on building critical mass in strategic metro markets within all CGI geographies. Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions. We remain in dialogue with a number of merger targets, both metro market and transformational opportunities. As always, we will be disciplined to make sure that all CGI mergers will be accretive to each of our stakeholders.” – CGI Inc. (GIB.A) CFO, George Schindler



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Investment in physical stores and brand marketing will drive e-commerce growth over time

“Net revenue in our retail channel was $441 million, an increase of 4% from the third quarter last year. This was driven by the performance of our new and repositioned boutiques, which continue to generate better-than-expected payback periods. In eCommerce, net revenue was $212 million, an increase of 6% from last year as we lapped 3 years of unprecedented growth in this channel, resulting in a 4-year CAGR of nearly 40%. We continue to see significant opportunity in our eCommerce business, particularly in the United States, where we expect new boutique openings and increased marketing to generate accelerated traffic trends in fiscal 2025” – Aritzia Inc. (ATZ) CFO, Todd Ingledew


A fortress balance sheet allows insurance companies to stand strong against weather-related volatility

“Moving now to the balance sheet. Our financial position continues to be strong with a total capital margin of $2.7 billion at year-end as well as solid regulatory capital ratios in all jurisdictions. Despite weather-related volatility, capital generated during the year easily covered all capital needs, including dividend payments, organic growth and M&A related to our distribution platform. The adjusted debt to total capital ratio stood at 22.4% and was relatively stable compared to Q3 as we used capital to fund the Direct Line transaction. We expect the ratio to return towards our long-term target of 20% by the end of 2024, if not before, putting us in a very good position to deploy capital should an opportunity arise.” – Intact Financial Corporation (IFC) CFO, Louis Marcotte


A change in capital allocation policy could create shareholder value going forward

“Further, we're on track to complete the AMC divestiture by the end of the fiscal year, subject to standard regulatory approvals and customary closing conditions, which will allow us to go even faster in AI in the cloud. We intend to use the proceeds to reduce net leverage to less than 3x and ahead of schedule, providing us the flexibility to resume share buybacks and to pursue strategic M&A and to drive future cloud and ARR organic growth. We have all the ingredients we need for a fantastic 2024 and to achieve our F'26 aspiration of 7% to 9% cloud organic revenue growth. And with our strong cloud bookings growth of 63% this quarter, your visibility into our cloud growth increases. And as a reminder, and as we like to say, we're an annual business.” – Open Text Corporation (OTEX) CEO, Mark Barrenechea


Strong backlog along with cost optimization should improve company profitability in the near term

“Global backlog remained strong, reaching $26.6 billion, representing 1.8x revenue. Turning to profitability, earnings before income taxes were $527 million for a margin of 14.6%, down 40 basis points year-over-year, primarily as a result of expenses associated with our previously announced cost optimization program. This program, which is focused on SG&A has been expanded by $26 million for a total of $100 million and is expected to complete as planned in the second quarter. The cost optimization program, along with our ongoing management discipline will provide incremental margin improvement in the second half of the year.” – CGI Inc. (GIB.A) CEO, Steve Perron


Balanced capital allocation between inorganic growth and dividend increase created tremendous shareholder value over time…

“The fourth quarter also saw significant acquisition spending totaling $434 million, with the bulk of that amount to finance the Roofing Corp transaction. For the year, we deployed almost $550 million towards acquisitions and excluding the Roofing Corp transaction, our tuck-under acquisition program spending totaled close to $150 million, which contributes a mid-single-digit percentage of incremental revenue growth above our organic growth base. Beyond these growth-driven capital deployment priorities, we also continued our trend of growing our dividends by yesterday approving an 11% dividend increase to $1 per share annually in U.S. dollars, up from the prior $0.90. We have now annually hiked our dividend 10% or higher every year over the past decade.”


…While maintaining a healthy financial position

“Our 2023 year-end balance sheet continues to be strong even after the larger Roofing Corp investment. We closed out the year with just under $1 billion of net debt, and our leverage sits at a conservative 2.1x net debt to adjusted EBITDA, up only 0.5 turn from the 1.6x level at the end of 2022. After current year-end, this past January, we also bolstered our liquidity by tapping into $125 million of senior unsecured notes, under our noteholder Master Shelf facilities, which have 5- to 7-year maturities with interest coupons in the 5.5% area.” – FirstService Corporation (FSV) CFO, Jeremy Rakusin


Companies mentioned:


Aritzia Inc. (ATZ)

Q3 Revenue Growth: 4.6% |  Q3 EPS Growth: -37.7%


Intact Financial Corporation (IFC)

Q4 Revenue Growth: -2.1%  |  Q4 EPS Growth: 47.8%


Open Text Corporation (OTEX)

Q2 Revenue Growth: 71.0%  |  Q2 EPS Growth: -85.5%


CGI Inc. (GIB.A)

Q1 Revenue Growth: 4.4%  |  Q1 EPS Growth: 4.4%


FirstService Corporation (FSV)

Q4 Revenue Growth: 5.8%  |  Q4 EPS Growth: -83.7%


Celestica Inc. (CLS)

Q4 Revenue Growth: 4.8%  |  Q4 EPS Growth: 102.6%


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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