Tilray (TLRY) Earnings Miss – Diversifies Revenue But Analyst Targets Dropped

Despite Tilray Brands shares (NASDAQ:TLRY) still possessing a 20.96% monthly upside, earnings expectations for the third quarter were missed, and the stock is down 31.75%+ over the last week. That is the kind of rollercoaster journey that an adrenaline junkie may love, but for shareholders with a slightly milder taste, is Tilray stock too much to handle?

Let's start with the recent earnings miss.

With an earnings per share (EPS) of $-0.12, the company missed expectations by more than double, positioning itself in a weaker position in the eyes of the market.

On the positive side, Tilray has shown it is capable of impressively increasing net revenue, which stood at $188.3 million for the quarter, marking a substantial 29.4% growth over the prior year. This surge highlights the company's successful strategies in growing the top line, but still fell short of what analysts were expecting. 5% down from expectations on top line is not the worst result, but when you dig a little deeper into the quarter on quarter results there were a couple of concerns.

Notably, the reported cannabis revenue, whilst up year-over-year (at a mark of $63.4million), fell 5.5% when compared against the previous quarter. That is not the kind of revenue trend you want to see in one of the core product areas in a growth company.

Despite its' strength in the Canadian market where Tilray holds the coveted number one market share position in the cannabis industry, the expectations were set higher than the reality on this occasion. The Canadian market has shown strong loyalty to Tilray's products, which include a variety of cannabis flower, oils, concentrates, and THC beverages—areas where the company leads in market share.

Moreover, Tilray's breadth in the consumer goods space extends into the alcohol industry, where the company has shown the most growth on top line. Revenues in this division grew by an astonishing 165% year on year to hit $54.7million, as Tilray's growth by acquisition plan began to show its' value.

With eight beverage companies acquired (including 5 craft breweries), Tilray is banking on growing market share in the craft beer segment where it is now the 5th largest company. With ambitions flying high, Tilray has set its sights on becoming one of the top beverage companies in the U.S. In pursuit of this goal, the company is expanding into burgeoning categories like flavoured malt beverages and ready-to-drink cocktails, which have witnessed a surge in consumer demand in recent times.

Future Expectations – Earnings & Analyst Targets on Tilray Shares

Tilray guidance on the fiscal year ending May 31, 2024 was adjusted down to an EBITDA target of $60 million to $63 million. In addition, the Company no longer expects to generate positive adjusted free cash flow for the full fiscal year 2024, due to delayed timing for collecting cash on various asset sales. The previous guidance was for Tilray to deliver between $68million to $78mllion, so the drop is tangible.

Analysts adjust on the day – CIBC and Alliance Global Partners were two of the analysts to revise down price targets in the aftermath of earnings, but both hold firm on their ‘neutral' ratings for TLRY.

CIBC lowered their price target on Tilray shares to $2 from a previous mark of $2.25. The CIBC analyst had commented that estimates still look “quite sanguine,” even considering synergies when looking to 2025 consensus. Reduced sales and lower multiples were also noted as being responsible for the trim in forecast.

Alliance Global Partners also looked to apply a lower multiple, and guided that the drop in the cannabis market share in Canada, aswell as inconsistent cash generation as bearing some responsibility. Whilst keeping the neutral rating on TLRY, the price target held was cut from $2.75 down to $2.25.

Considering the consensus viewpoint has a target of $2.62, and the current price of Tilray stock is $2.02, there is still an upside of some 29.7% to consensus. With the revised marks of CIBC and Alliance Global Partners representing levels close to the lower end of the range on file, with $2 being the floor target and $4.50 representing the most bullish, there is more bullish sentiment on the board than not. 2 buys, 5 holds, and 0 sells from the analysts says this may be one to keep an eye on.

As Tilray continues to innovate and diversify, its trajectory toward becoming a major player in the beverage industry seems not only possible but likely. Whilst the results of these earnings can be read in multiple ways, expectations going in to the release have caused some of this downward pressure along with the wider market pullbacks seen in the last few days.

Where TLRY shares go from here will be interesting to watch, we will certainly be preparing for a wild ride and keeping our eyes on the next call.