Why Tilray Brands stock fell 10% on Tuesday

stock Tilray Brand (TLRY -9.83%) The Canadian cannabis company was down 10 per cent on Tuesday afternoon, despite reporting “improving earnings” early in the morning.

Ahead of the company’s second quarter of fiscal 2024, analysts forecast that Tilray will lose $0.06 per share (adjusted for one-time items) on revenue of $195.1 million. As a result, Tilray is very close to breakeven profit (loss of $0 per share). However, sales were slightly below expectations of $194 million.

Tilray sales and profits

But isn’t it so? good News? Tilray nearly met sales expectations and beat revenue expectations by healthy margins. Wasn’t it within your range to make a positive profit during the quarter?

Well, yes.

On the one hand, Tilray has managed to grow its cannabis revenue by 35% year-over-year, while its beer business (Tilray now calls itself the “fifth largest craft brewer” in the U.S.) has surged 117%. However, the distribution revenue growth rate was only 12%, which was lower than the average, and the company-wide growth rate reached 34%.

Profit was another story. Gross profit margins fell 12 percentage points to 31% (cannabis) and 13 percentage points to 34% (beer) across both the marijuana and beer businesses. Distribution margins also fell 2 points to 11%.

Tilray said its “adjusted net loss” was just zero, but it still lost $2.7 million (adjusted) for the quarter. Meanwhile, net losses calculated under generally accepted accounting principles (GAAP) were several times larger, totaling $46 million, or $0.07 per share.

Tilray’s next move

As it transitioned from the second quarter to guidance for the remainder of the year, Tilray largely stuck to its previous forecasts without providing any additional details to help investors gauge how realistic those forecasts are. For example, management did not provide estimates for revenue growth or margins. Instead, it said it expects the end of 2024 to have “adjusted” earnings before interest, taxes, depreciation, and amortization (EBITDA) of between $68 million and $78 million. This represents a growth rate of between 11% and 27%.

However, management did not commit to actual GAAP profits. It’s also worth pointing out that even 27% growth is slower than second quarter sales growth.

On the bright side, Tilray still says it expects to generate positive adjusted free cash flow this year. On the negative side, the company had already burned through $56.2 million by the end of the second quarter. negative That’s double the rate at which Tilray was burning cash this time last year. I’d be interested to hear how Tilray plans to turn this around and become free cash flow positive by the end of the year.

If investors today aren’t convinced by Tilray’s forecast by year-end… well, that could be one reason they’re skeptical.