North West Company (TSE:NWC) sees Q2 profit fall

Canadian food retailer The North West Company Inc (TSE:NWC, Mkt cap 1.26B, P/E 18.22, Div/yield 0.31/4.75, EPS 1.43, Shares 48.52M) has reported lower profit for the second quarter despite an increase in sales.

Its quarterly dividend remained unchanged at C$0.31 per share.

TSE:NWC Northern Store Fort Resolution North West Company Q2 profit lower

TSE:NWC Northern Store in Fort Resolution. North West Company has reported lower profit for the second quarter despite an increase in sales.

The company said on Thursday that net earnings for the three months ended July 31, 2016, were C$16.4m, down C$1.7m or 9.4% compared to the same period last year as earnings growth in its International Operations and the impact of foreign exchange were more than offset by lower earnings in Canadian Operations.

Excluding the impact of foreign exchange, North West’s net earnings were down 12.4% year-on-year.

Sales for the quarter grew 2.6% to C$460.6m, up from C$448.7m in the second quarter last year, driven by food sales gains and the impact of foreign exchange on the recording of international sales.

Excluding the foreign exchange impact, consolidated sales rose 1.3% and were up 0.6% on a same-store basis.

Commenting on the company’s second quarter performance, North West president and CEO Edward Kennedy said: “Our consumer and competitive environment was more challenging in the second quarter. Our Top Markets and Top Category work led our sales but did not generate enough profit momentum to offset other areas. While we remain committed to this plan we are equally committed to better execution and getting more results from our overall business within these market conditions.”

In June, North West reported a 13.3% increase in net earnings to C$17.8m for the first quarter and a 6.0% increase in sales to C$439.0m. But Kennedy referred to the prospect of “a very mixed consumer environment over the rest of the year”.

Winnipeg MB based North West Company Inc is a retailer to under-served rural communities and urban neighbourhood markets in northern Canada, western Canada, rural Alaska, the South Pacific and the Caribbean. Its stores offer products and services with an emphasis on food. NWC operates in two segments: Canadian Operations and International Operations. The Canadian operations operate through its subsidiary, The North West Company LP. and it includes 126 Northern stores, 34 Giant Tiger junior discount stores, seven NorthMart stores, 12 Quickstop convenience stores, one Valu Lots clearance center, one Solo Market test store, one Drug Store, Crescent Multi Foods and two North West Company Fur Marketing outlets. Its International operations operate through The North West Company (International) Inc. and its Cost-U-Less, Inc. subsidiaries., and its operations include 30 AC Value Centers, three Quickstop convenience stores, Pacific Alaska Wholesale, 12 Cost-U-Less and one Island Fresh Supermarket. More from Reuters » 

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TSE:NWC – North West Company reports Q1 profit up 13%

Grocery and retail chain The North West Company Inc. (TSE:NWC, Mkt cap 1.47B, P/E 20.50, Div/yield 0.31/4.12, EPS 1.47, Shares 48.52M) announced last week an increase in quarterly profit and declared a dividend of C$0.31 per share.

TSE:NWC Northern Store Fort Resolution North West Company Q1 profit up 13%

TSE:NWC Northern Store in Fort Resolution. North West Company reports Q1 profit up 13%.

For the first quarter ended April 30, 2016, net earnings increased by 13.3% or C$2.1m to C$17.8m, driven by earnings growth in the company’s International Operations, as well as the impact of foreign exchange and a lower effective tax rate. Excluding the impact of foreign exchange, net earnings were up 8.9% year-on-year.

“Northern Canada food sales were a highlight in the quarter, combined with continued performance gains in the Caribbean region,” commented North West president and CEO Edward Kennedy. “Work on Top Categories is delivering results led by our fresh food service, convenience merchandise and targeted general merchandise product groups. We have the right ‘get sales’ focus and the experience of multi-year programs now in place. These will be key factors as we manage through a very mixed consumer environment over the rest of the year.”

Sales for the quarter rose 6% to C$439m, from C$414m in the first quarter last year.

Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the three-month period increased 9.3% to C$37.6m led by EBITDA gains in International Operations and the impact of foreign exchange. Excluding the foreign exchange impact, EBITDA was up 6.3% compared to last year and as a percentage to sales was 8.7% compared to 8.5% a year ago.

In the company’s Canadian Operations, sales grew 4.5% to C$265.9m and EBITDA was up 1.9% to C$24.8m compared to C$24.4m last year. EBITDA as a percentage of sales dipped to 9.3% from 9.6% last year.

The International Operations saw first quarter sales rise 2.1% to C$130.4m and EBITDA showed a healthy increase of 19.6% to C$9.6m compared to C$8m last year. EBITDA as a percentage of sales was 7.4% compared to 6.3% in the first quarter last year, which North West attributed to sales growth, gross profit rate improvement and well controlled expenses.

Winnipeg MB based North West Company Inc is a retailer to under-served rural communities and urban neighbourhood markets in northern Canada, western Canada, rural Alaska, the South Pacific and the Caribbean. Its stores offer products and services with an emphasis on food. NWC operates in two segments: Canadian Operations and International Operations. The Canadian operations operate through its subsidiary, The North West Company LP. and it includes 126 Northern stores, 34 Giant Tiger junior discount stores, seven NorthMart stores, 12 Quickstop convenience stores, one Valu Lots clearance center, one Solo Market test store, one Drug Store, Crescent Multi Foods and two North West Company Fur Marketing outlets. Its International operations operate through The North West Company (International) Inc. and its Cost-U-Less, Inc. subsidiaries., and its operations include 30 AC Value Centers, three Quickstop convenience stores, Pacific Alaska Wholesale, 12 Cost-U-Less and one Island Fresh Supermarket. More from Reuters » 

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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

 

Stockwatch – Michael Sprung on BNN

Stockwatch – Michael Sprung discusses his market outlook and stock picks with Mark Bunting on BNN

Mark Bunting:          Now having said all that and maybe time to take some profits, so that’s what our next guest has been doing in a couple of stocks that have had some big run ups. He feels we maybe headed for a correction in the U.S. and Canada. Let’s find out more. We have Michael Sprung here, president of Sprung Investment Management. He joined us here in the studio, good to see you as always Michael.

Michael Sprung:        Good to be here, thank you very much.

Mark Bunting:          We’ve had so many people calling for a correction of 10% or more for a long time, we haven’t seen it. Why are you convinced that we have to have to one?

Michael Sprung market outlook stock picks Mark Bunting BNN

Michael Sprung discusses his market outlook and stock picks with Mark Bunting on BNN

Michael Sprung:        Well, it’s not that we have to have one. We at least have to have a pause in here. Now, whether we see a 10% or 15% pull back, I don’t think it’s likely to be a very sudden jerk response but I think we could see a deterioration in the market over the next number of months simply because, as value investors, we don’t really look at the macroeconomics environment all that much but we have to be aware of it. It’s getting harder and harder for us to find stocks that we think we really want to purchase and there’s a lot of tell tale signs out there that the market is closer to a top or at least the upside potential from today’s level in the immediate future. Probably, it’s not as great as perhaps the downside could be in a lot of circumstances.

Over the last, while we’ve seen much more retail participation in the market. That’s usually a sign that people are weighing more into equities and certainly we’ve seen that much more in the last year or so.

Mark Bunting:          And taking more risk?

Michael Sprung:        Taking more risk too. We’ve seen rotation into smaller cap stocks more, not necessarily lower quality, but certainly higher out on the risk profiles. So, if you look at the averages in the U.S. you’ll see the much broader averages like the Russell which include a lot of the smaller stocks are running way, way ahead of the S&P and so on.

We’ve seen much more in the way of IPOs and mergers easily eaten up again largely in a retail environment. This is all out of time when I think a lot of it is being fed by the low interest rate environment that we’ve been in. Also people are using more margin which is always a dangerous sign.

In our view, interest rates really can’t go too much lower. If you look at all the moves that the Central Banks have made since 2008, they’ve largely been somewhat inflationary and yet we have not seen inflation come into the picture really yet, although we have seen an acceleration and rate of inflation in Canada more recently.

Mark Bunting:          Right. Just give us short answers here before we get to your picks, but which sectors are overvalued and where have you have taken profits?

Michael Sprung:        Well, we took some profits in Precision Drilling (TSE:PD) for instance. There are a number of stocks in the energy area that we’ve had really significant gains on where we’re looking at pairing back a little bit just to have some off the table. Materials just recently have had a bit of a lift that yes they had been depressed for some period of time. We don’t own any railroads anymore. Railroads have sort of run on the gambits that they can do so much better than GDP and yes they have picked up share and they’ve come from the lowest and there’s been improvements and operating efficiencies.

Overall companies, I think profits look high but that’s on the back of some significant cost cutting and perhaps lower wage rates than what existed prior.

Mark Bunting:          Right. Okay. So, your picks today, Agrium, Northwest Company, and New Flyer, let’s start with Agrium.

Michael Sprung:        Sure, Agrium Inc. (TSE:AGU), we think that you know you can buy that under a $100. It’s a well diversified agricultural play. The agricultural stocks have not kept pace with the base metals or even the precious metals lately, so they’ve sort of lagged. There’s been less demand for potash certainly, and potash prices have been depressed. We like Agrium because it’s a little bit more diversified and we think that you know if you can buy at anywhere between $96, $98, even you know up to $99, it has fairly good upside with more limited downside risk from here.

Mark Bunting:          Okay, and North West Company?

Michael Sprung:        North West Company Inc (TSE:NWC) is one that is certainly significantly pulled back from its highs. It was as high as $29 in the not too distant past. We’ve been able to buy it for under $25 and it’s a good solid yield play. We think that because their markets are somewhat protected, although they do operate in some areas that have been a little bit more depressed. The far north, there hasn’t been the actual mining activity that there was before. But as we see though the demand for those materials pick up and the acceleration of economic activity there, it will do better.

Mark Bunting:          Just a quick thought on New Flyer, it pays a handsome dividend.

Michael Sprung:        New Flyer Industries Inc (TSE:NFI) pays a handsome dividend. They have acquired a lot of the competition in North America. They still do have competition out there, but the one thing that is really evident is that a lot of municipalities and have to start replacing their fleets of buses and transportation. New Flyer, I think will certainly benefit from that.

Mark Bunting:          Nice looking chart, thanks Michael, good to see you.

Michael Sprung:        Thank you.

Mark Bunting:          Okay. Michael Sprung, president of Sprung Investment Management.

See Michael Sprung on BNN here>>

Stockwatch – Michael Sprung on BNN’s Market Call

Stockwatch – Michael Sprung’s Top Picks

Stockwatch Manulife strongest capital bases industry

Stockwatch – Manulife has one of the strongest capital bases in the industry.

Manulife Financial Corp. (TSE:MFC, Mkt cap 37.99B, P/E 11.68, Div/yield 0.13/2.54, EPS 1.75, Shares 1.85B) Owned personally and by Clients, Last Purchase: April 10, 2014, $20.54

Manulife is a leading Canadian-based financial services group with operations in Asia, Canada and the United States. Over the past five years, the company has made tremendous strides in de-risking the balance sheet and improving profitability through increasing wealth management operations as well as redirecting the mix of products sold. The insurance companies will be amongst the beneficiaries should interest rates start to rise. MFC has one of the strongest capital bases in the industry and future dividend increases would not be unexpected.

Stockwatch - Hudbay Minerals Lalor

Stockwatch – Hudbay Minerals – Lalor mine to ramp up production in the second half of 2014

HudBay Minerals Inc. (TSE:HBM, Mkt cap 1.83B, P/E – , Div/yield 0.01/0.21, EPS -0.75, Shares 193.01M) Owned by Clients, Last Purchase: June 3, 2014, $9.85

HudBay Minerals is one of Canada’s leading producers of zinc, copper and precious metals. As the Reed and Lalor mines ramp up production in the second half of 2014, investors’ attention will shift to the anticipated start of production at Constancia in Peru late this year or in early 2015.   After completing a streaming agreement with Silver Wheaton on Constancia, HBM has arranged extended credit facilities with BNP Paribas and ING Capital. At current prices, long term investors can initiate positions and participate as HBM’s projects mature.

Stockwatch - Northern Store, Baker Lake, Nunavut - North West Company Canada oldest retailers

Stockwatch – Northern Store, Baker Lake, Nunavut – North West Company is one of Canada’s oldest retailers.

North West Company Inc (TSE:NWC, Mkt cap 1.14B, P/E 17.89, Div/yield 0.29/4.93, EPS 1.31, Shares 48.42M) Owned by Clients, Last Purchase: June 12, 2014, $23.52

North West Company is one of Canada’s oldest retailers with operations in Canada, Alaska, the South Pacific and Caribbean. Recent results reflecting a weaker retail environment in Northern Canada and greater competition in some Giant Tiger and Cost-U-Less banners has caused the share price to pull back to attractive levels. Management has outlined a plan to focus more on the company’s top 40 markets, optimize inventory and in-store mix as well as improve the customer experience. In the interim, the 4.9% yield will appeal to investors.

Stockwatch – Market Outlook:

North American markets have demonstrated a great deal of resilience in the the past few years during a slow, fragile recovery in business conditions. In Canada, 2014 has been particularly strong despite weakness in the materials sector and manufacturing.   Individual stocks representing good long-term value are becoming harder to uncover. Investors would be well advised to have funds available to take advantage of a market setback.

See Michael interviewed by Mark Bunting on BNN’s Market Call here>>

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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.