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Here's What's Behind Village Farms' Disappointing Q1 Results

By Keith Speights - May 10, 2021 at 9:30AM

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COVID-19 hurt, but the main problem stemmed from low tomato prices.

Village Farms International (VFF -7.88%) started off 2021 with a bang. Its shares soared more than 90% by early February. Since then, though, it's been mainly downhill with Village Farms stock more than 40% below its high coming into this week.

Don't expect a rebound to begin after Village Farms announced its first-quarter results before the market opened on Monday. Investors didn't like what they heard, and the marijuana stock sank 11% in early trading. Here are the highlights from Village Farms' Q1 update.

Marijuana leaf in cupped hands.

Image source: Getty Images.

By the numbers

Village Farms reported revenue in the first quarter of $52.4 million, a 63% year-over-year jump from sales of $32.1 million generated in the prior-year period. This result topped the average analysts' estimate of $51.2 million.

The company announced a net loss in the first quarter of $7.4 million, or $0.10 per share. In the prior-year period, Village Farms posted net income of $4.2 million, or $0.08 per share. The consensus analysts' estimate projected a Q1 net loss of $0.02 per share.

Village Farms recorded adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $400,000. Although this was down 63% year over year, it was still the company's 10th consecutive quarter of delivering positive adjusted EBITDA.

Behind the numbers

While Village Farms is now primarily known for its success in the Canadian cannabis market, the company's produce business still generates more of the company's revenue. Produce sales jumped 9% year over year in the first quarter to $34.9 million, making up three-fourths of Village Farms' total revenue.

However, produce wasn't nearly as profitable as it's been in the past. Adjusted EBITDA for produce sank 50% due to some of the lowest prices for certain varieties of tomatoes in the past 10 years. Prices have fallen with the combination of lower demand and increased supply.

Village Farms recorded Q1 cannabis sales from its Pure Sunfarms operations of $17.4 million. Retail branded sales jumped 20% from the fourth quarter, although non-branded sales sank 49% quarter over quarter.

The COVID-19 pandemic continued to weigh on the Canadian retail cannabis market. However, Pure Sunfarms maintained its leading market share in dried flower, which accounted for 71% of total cannabis sales. Thanks to the continued strength of Pure Sunfarms, Village Farms remained one of only a handful of Canadian cannabis companies actually making money with positive cash flows. 

Looking ahead

Village Farms CEO Michael DeGiglio predicted there is "strong growth demand" on the way. He noted that the company plans to boost its production capacity by 50% by the end of 2021 and double its capacity in the second half of next year.

The major wild card for Village Farms to watch is the potential for cannabis reform in the United States. DeGiglio said, "We continue to monitor the regulatory progress in the U.S. in terms of our opportunity to legally participate in what we believe will be a different market environment that will position experienced, new entrants for success."

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Village Farms International, Inc. The Motley Fool has a disclosure policy.

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