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Cronos (CRON) to Report Q2 Earnings: What's in the Cards?

Zacks Equity Research

Cronos Group CRON is scheduled to report second-quarter 2019 results on Aug 8.

The company beat earnings expectations by 1900% in the first quarter of 2019. In the last four quarters, the company surpassed earnings estimates twice, with average positive surprise of 450%.

Cronos Group Inc. Price, Consensus and EPS Surprise

 

Cronos Group Inc. Price, Consensus and EPS Surprise

Cronos Group Inc. price-consensus-eps-surprise-chart | Cronos Group Inc. Quote

Let us see what is in store for the second quarter.

Factors in Focus

Cronos is a globally diversified and vertically integrated cannabis company. In October 2018, Canada became the first G7 country and the second in line, worldwide, to legalize cannabis sales for adult recreational use.

The company’s portfolio includes PEACE NATURALS, a global health and wellness platform, and two adult-use brands — COVE and Spinach.

Revenues jumped 120% year over year in the first quarter, driven by the launch of the adult-use market in Canada. Sequentially, revenues were up 15% on increased sales in CBD oil, which carries no excise tax reduction, and higher sales of dry flower. We expect a similar trend to continue in the second quarter as well.

Cronos experienced continued growth in cannabis oil sales, which represented 23% of net product revenues in first-quarter 2019 compared with 9% in first-quarter 2018.  The momentum is expected to continue in the second quarter as well.

Increased productivity in cultivation operations led to lower costs in the first quarter and we expect the same to reflect in the second-quarter results as well.

Key Updates

Altria Group MO invested C$2.4 billion in Cronos this March, representing an approximate 45% ownership in the latter. Altria also has a warrant to acquire additional interest in Cronos, which is exercisable over the next four years. This partnership provides Cronos with surplus financial resources, and product development and commercialization capabilities along with deep regulatory expertise to leverage its position in the global cannabis industry.

Earlier this month, Cronos inked a definitive agreement to acquire four of Redwood Holding Group, LLC’s operating subsidiaries for $300 million. Redwood manufactures, markets and distributes hemp-derived cannabidiol (“CBD”) infused skincare, and other consumer products online and through retail and hospitality partner channels in the United States under the brand, Lord Jones.

Therefore, investors will focus on Cronos’ pipeline progress and crucial updates when it reports second-quarter results.

Earnings Whispers

The proven Zacks model does not conclusively predict that Cronos will beat on earnings this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to surpass estimates. Unfortunately, that is not the case here as you will see below.

Earnings ESP: Cronos has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at an equal value. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cronos currently carries a Zacks Rank #3, which increases the predictive power of ESP. But the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Share Price Performance

Shares of the company have rallied 29.1% year to date compared with the industry’s growth of 9.7%.

 

 

Stocks to Consider

Here are some healthcare stocks worth considering, as our model shows that these have the right combination of elements to exceed earnings estimates this reporting cycle.

Melinta Therapeutics, Inc. MLNT is scheduled to report second-quarter 2019 results on Aug 7. The company has an Earnings ESP of +0.26% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teva Pharmaceutical Industries Ltd. TEVA has an Earnings ESP of +1.07% and a Zacks Rank #3. It is scheduled to report second-quarter 2019 results on Aug 7.

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