Morning Brew Daily - A Cereal Deal Worth $3B & Delta's Profit Forecast Means Travel is Back

Episode Date: July 11, 2025

Episode 624: Neal and Toby unpack Ferrero, the maker of Nutella, acquiring the cereal maker Kellogg in a nearly $3B deal. Then, the Pentagon becomes the largest shareholder for a rare earth mining company. Also, Delta shares jumped 11% signaling traveling is stabilizing. Meanwhile, there’s in-fighting in the matcha community that is leading to a shortage. Plus, Varda Space just bagged $187M in funding to make drugs in space.  Meet your local home loan expert at ⁠⁠https://mortgagematchup.com/?utm_source=morning_brew&utm_medium=podcast  Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here:⁠ ⁠⁠https://www.swap.fm/l/mbd-note⁠⁠⁠  Watch Morning Brew Daily Here:⁠ ⁠⁠https://www.youtube.com/@MorningBrewDailyShow⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

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Terms and conditions apply. Good morning, Brew, Daily Show. Neil Fryman. And I'm Toby Howell. Today, Nutella and Rice Krispies get together in a food deal made in chocolatey heaven. Then there is a matcha shortage brewing, which is bad news for everyone who pretends to like the taste of it. It's Friday, July 11th. Let's ride. Tennis hasn't been this hot since Challenger's came out, and let's face it, it will never be that hot again. Still, not only is Wimbledon nearing its epic conclusion, but billionaire investor Bill Ackman got in on the action, competing in an ATP Challenger tour event in Newport, Rhode Island

Wednesday afternoon. His stint as a professional tennis player lasted all of 67 minutes losing a doubles match in straight sets and was lambasted by pretty much everyone online. Andy Rodick described it as, quote, the biggest joke I've watched in professional tennis. Ackman had only nice things to say about tennis players after the match, writing whatever respect we already have for these incredible athletes, it is not enough. They deserve more of our plot. and our appreciation.

I mean, Neil, it was rough watching these highlights. A lot of serving volume kind of ending up in the net. You never want a billionaire stepping into a pro sporting event and taking the spot of someone who worked their whole life to get there. But if I had a couple extra billions to add to my net worth, I am not proud to say I'd probably do the exact same thing and step into the arena if I could figure out my second serve. One thing Acman's putrid servant volley game shouldn't distract you from

is the fact that American tennis is crushing it right now. Now, American Amanda Anasimova just took down the number one in the world, Ariana Sabalanka, to become the first American to reach the finals at Wimbledon since Serena. And this morning, Taylor Fritz seeks to become the first American man to reach the Wimbledon finals since Andy Roddick 16 years ago. So watch Ackman's backhand from your mind and go watch some actually good tennis at Wimbledon. And now a quick word from our sponsor, Mortgage Matchup. Hey, Toby, would you say you're an expert when it comes to mortgages? Neil, I barely know the meaning of the word.

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right, and you can eat chocolate for breakfast. At least that is the future that Italian chocolate maker Ferreiro International is imagining after selling out $3.1 billion to buy the breakfast cereal maker, Kellogg's. Nutella on Fruit Loops does sound delightful, but the sugary tie-up is not coming from a position of strength. The food industry is grappling with a series of fundamental changes, as consumers are opting for healthier options or just less snacks altogether, thanks to the rise of GLP1 weight loss drugs. The two brands are also under pressure from the Maha movement under top

U.S. health official RFK Jr., whose crusade against artificial dyes might make your fruit loops a little duller going forward. The shifting landscape has led a number of brands to consolidate this year, including Pepsi snapping up both the prebiotic soda brand Poppy, as well as the Mexican-themed snack brand Siette Foods. Ferreiro, who generated nearly $20 billion in revenue last year saw Kellogg's as a struggling but still valuable business as it looks to expand further into North America. Meanwhile, Kellogg's shareholders are just happy to hear someone still wants to eat corn flakes driving the stock up more than 50% after the deal was announced before pairing some of those gains later. Neil, snacking times, they are a change in. If this means more chocolate in cereal

though, I'm all for this deal. Absolutely support it. Nothing like having those chocolatey bits. make your milk into chocolate milk, and then you slurp it up afterwards. There's nothing better than that. Kellogg is a company in decline here. I mean, cereal is fading from people's cupboards. The volume of breakfast cereal consumed in North America is down around 17% since 2019. Still, what Ferreiro is looking at is that 70% of U.S. households still have cereal in their cupboards. They're hoping that they can toss in some Italian innovation that they've shown that they can

do with their North American brands like Nutella to revive some of this lost cereal luster for Kellogg. And Kellogg is getting squeezed onto both sides because consumers with more disposable income are opting for these healthier snack foods. We've seen that become a trend. But then on the other side as well, cast trap consumers are opting to save money by not buying these name brand cereals and instead buying those store brand cereals, saving a little money in the process. That being said, I do think Ferreiro sees Kellogg's as a good wedge into the North American market. They have been expanding geographically and by category, by looking at North America specifically,

they bought Wells Enterprises who makes Blue Bunny and other ice cream brands back a few years ago. That has been pretty successful as well. So maybe they are eyeing this business as well. as maybe one that's not surging, but allows them to diversify away from chocolate a little bit. It's also a very interesting tie-up of two very old brands. So Kellogg, you can trace back to this guy founder, Will Keith Kellogg, who invented cornflakes in 1894 as a way to provide patients at the Battle Creek Sanitarium in Michigan

with something digestible and not too much flavor for their morning breakfast. And then Ferreiro was founded in 1946. long time ago by the Italian confectioner Pietro Ferreiro. So you've got these two old brands, or two old companies coming together. One has been much more successful of late than the other. We'll see what happens as we head towards these uncertain moments of 2025 in the food industry. I am not a corn flakes guy. Sorry to Mr. Kellogg's, but give me some of the frosted flakes. The corn flakes are just, they're not doing it for me. Well, corn flakes is not a part of what are known as the core six brands for WK Kellogg.

Those are Frosted Flake Special K, raisin brand fruit loops, frosted mini-weets, and rice Krispies. Those six account for approximately 70% of sales, and you're nodding your head because those are... That's 70% of my breakfast cereal consumption right there. All right, could the next guest shark on Shark Tank be the United States government?

Uncle Sam dusted off the old alberds. Uncle Sam dusted off the old allbirds to make a major investment into a private company yesterday with the Pentagon plowing $400 million into rare earth miner, MP Materials, to become its largest shareholder. MP Materials owns the only operational rare earth mine in the United States, and as such has become a strategic asset for a country that's trying to wean itself off of Chinese raw materials. Rare earths are used to make magnets necessary for the manufacture of high-tech products like cars, wind turbines, and especially relevant for the government, jet fighters and missile systems.

A single F-35 contains more than 900 pounds of the stuff. But currently, the U.S. gets virtually all of its rare earth magnets from abroad, primarily China, which accounts for about 70% of imports. That is a problem considering China is the U.S.'s top geopolitical adversary and has used its leverage over rare earths in the simmering trade war. This spring, Beijing curbed exports of rare earths after Trump slapped high tariffs on China, sparking panic from automakers and defense companies that their factories would have to shut down. Despite a fragile truce, the U.S. isn't waiting around for China to pull that move again, and has decided to use taxpayer funds on an unusual public-private partnership with MP Materials

to boost rare earths production here on American soil. MP Material investors were singing Lee Greenwood from the rooftops, sending the stock soaring over 50%. Yeah, this is an interesting deal for sure. And one thing their CEO of MP Materials tried to do is say, like, listen, this is not a nationalization. and he said that to CNBC. We remain a thriving public company.

We control our destiny. We are shareholder-driven. But when you look at who is the biggest shareholder now, it is the Pentagon. It's nearly twice the amount. They own nearly twice the amount of shares held by the CEO himself and also twice the amount held by BlackRock, the second biggest shareholder.

So it's a very unique deal that the CEO is trying to betray us something that is just a good investment. It just happens to be the U.S. government. and they did get a good deal from it. The Pentagon has agreed to buy 100% of the magnets made at this new facility. So they have someone who is supporting the legwork to set up this processing facility. And then they also have a willing buyer in the Pentagon. So their future looks very secure and safe right now because they are so aligned with the U.S.

government's goal of ramping up this rare earth material production. Right. Let's go into the details of what this deal will actually do. Well, MP Materials wants to build a second maximum. manufacturing facility in the United States. And that is what this financing, this cash from the proceeds of the deal will go toward. As you mentioned, the Pentagon is buying all of the magnets made at the new facility for 10 years in the future. That new facility is expected to come online in 2028. And crucially, the Pentagon is also guaranteeing a minimum price floor of $110

per kilogram for 10 years. And that is a big deal because it guarantees that whatever MP Materials makes will be bought at a certain price because China could stop curbing exports, flood the market with rare earths, and drive down the price overall. And the fact that MP Materials is getting that $110 per kilogram guarantee from the United States government is what a lot of rare earth companies in the United States weren't seeing before. And that's why they weren't investing in the manufacturing and production of these particular magnets that the United States needs.

So this is the kind of industrial policy that I think a lot of. lot of economists love to see from the Trump administration, also from the Biden administration, instead of tariffs, you know, actually using the United States' financial muscle to secure a large share in these companies to pride them with the financial backing needed for something that is a very urgent national security issue. It's Friday, and you know what that means. Stock of the week, dog of the week, the segment where Toby and I pick one stock that threw another stock into the lake on a golf course. I won the pre-show. Who already memorized more of Justin Bieber's surprise new album contest, so I get to go first. And my winner is Delta Airlines, which jumped 12%

after reporting guidance that exists. And that's not even a joke. Yesterday morning, Delta reinstated a forecast for the year, which is a huge deal because three months ago, Delta initiated the stampede of companies withdrawing their guidance due to tariff uncertainty after Liberation Day. Ignoring the fact that the new earnings guidance is about 15% lower than forecast at the start of the year. Investors saw the move as a sign that slumping air travel and consumer confidence at large had stabilized. CEO Ed Bastion certainly sounded cautiously confident on the interview circuit post earnings. He said people are starting to understand with clarity where things are headed and that allows them to start making plans, whether to travel or invest in a business. On balance,

it's going to be a good summer. Again, not as great a summer as we're hoping, but it will still be good. Delta projecting confidence put the entire airline sector on its wings, lifting short. chairs and rivals American and united by at least 12% each. It's a much-needed boost during a disappointing year in which the S&P's airline index had dropped nearly 16% through Wednesday compared to the S&P 500, 7% gain. Toby, this is basically Delta saying, it's okay to unbuckle your seatbelt sign and walk about the cabin. Yeah, I got to get up and stretch my legs a little bit.

CEO Ed Bastian called the current environment incredibly stable, which was one of the head scratching quotes from this call because a lot of analyst said, huh, incredibly stable against the current economic backdrop of a constantly shifting tariff rates that feels anything but stable. So maybe it was more just projecting that conference versus actual confidence in the backdrop of the economy right now. But maybe in Delta's position where you're making all this cash from rich people and not main cabin travelers, everything does seem a little bit more stable because if you look at their high margin areas of their business, which are their premium tickets, their loyalty travelers, their

credit card program. That accounted for nearly 60% of Delta's total sales for the period. Premium revenue actually grew 5% annually compared to a 5% drop for main cabin revenue. So those factors maybe has Delta feeling a little bit more stable than you might expect, given the backdrop. Yeah, perhaps he meant incredibly stable compared to three months ago when Delta really set the standard for the entire corporate world. It always is the first to report earnings, which it is here. We have earnings season coming up. And it pulled its guidance. And nearly every company subsequently also did the same thing saying this environment is way too uncertain for us to have

any sort of outlook for 2025. So maybe as it was symbolic back then, as to all the uncertainty, it will set the tone for earning season coming up for broader consumer facing companies, especially in the hospitality, travel and leisure space saying, okay, people are sort of become numb to like investors to all the uncertainty and tariff backdrop that we're having. They're starting to spend a little bit more higher income consumers that Delta relies upon are still doing okay, which is why you saw other shares in airlines go up that do rely on those international routes, those first class tickets like United and American airlines that focus more on the domestic market didn't do so hot.

If you look at spirit stock, it stayed pretty much flat because it does not have any of those sort of premium options. And if you look at a company like Southwest Airlines, it wants to move from the Spirit model more towards the Delta American United model with its more premium options with its checked bags, fees for checked bags. So it wants to go into the other camp where they're all seeing their stock rise and not the other camp where their stock is staying flat. Never look at Spirit Stock, just as a rule of thumb. We're going to take a quick break and come back with our dog of the week. My Dog of the Week is Macha, who is suffering from its own success.

The Japanese-produced tea leaf has seen its popularity explode in recent years. Take a walk down the west side highway in New York City these days, and you'll see macho lattes outnumbering coffees, while a scroll on TikTok will inevitably surface a video from Macha Talk where fans share their Mata to milk ratios and which bamboo whisk they are using. But as the West hops on the Macha bandwagon, Japan has been suffering under extreme weather conditions damaging its tea production in spiking prices.

The Kyoto region, which accounts, for a quarter of Japan's production, was racked by massive heat waves last summer, leading to lower yields come springtime. Even though Japan produced nearly three times as many tons of tension, the dried leaves that are ground in Amatha last year compared to a decade ago, it hasn't been enough to keep up with demand.

The high prices and low availability has led to some tensions on Amcha talk, too, with those who fail to carefully use every last bit of powder, like opening a tin over a bowl to catch stray part, articles of the green gold are scorned for wasting money. It is almost a full-blown machapocalypse out there for everyone's new favorite beverage. And imagine if it tasted good. Just imagine how much of a shortage there would be. I want to talk about one particular company that's really riding the macho wave, which is Blank Street. And Blank Street is this coffee,

VC-backed coffee chain that you might have seen pop up in New York City. It's everywhere. All still they have locations across the UK and in Boston. And in DC. They're absolutely raking it in from what are called macheteens. And you might have heard of Sephora teens. Well, this is Macheteen's, Blank Street teens. And they have driven this company to a $500 million valuation. Ostensibly, Blank Street is a coffee company, but they're now doing 50% of their revenue with matcha. And they concoct all these weird matcha drinks that I can't even name because they sound so bad. But they say that matcha is great for mixology. All right, I'll name some strawberry shortcake macha, cookies and creams matcha. They have about 25 grams of sugar

and people absolutely love it. So Blankstreet has been one of the huge success stories because they've leaned into matcha and this huge craze among Gen Z and millennials for this particular drink. Someone get Neil a macho latte here because it's not as bad as you're making it sound. It takes a little bit of an acquired taste, but it's good for you. It's a little less caffeinated than coffee, but it's more caffeinated than green tea. So it hits that middle spot. right there. And it's just a nice ceremony to prepare it. Some people do lean into the ceremonial aspect of it as well, especially in Japan. So I do think it's funny, too, that macha talk is slowly turned on each other as it's gotten more expensive because it used to be this wonderful place

where everyone was sharing recipes left and right. But now people are policing how many grams of match and how many tins of matcha are acceptable to have. And whatever an influencer comes back with a big hall, people in their comments are going like, you just wiped out all the matcha supply, for the rest of us. So it's been interesting as the price has rise, so have tensions. I'm not anti-Machra. I love the traditional aspect of it. That is very cool to me. I think it's this Frankenstein Blank Street version. Okay, okay. Railing up against a little bit. Two of the hardest things to do in business are spaceflight and designing pharmaceutical drugs. So of course, the Peter Thielback startup Varda space is trying to take on both challenges at once. Varda just raised

$187 million to expand on its vision of development. developing pharma drugs and what it calls the ultimate high ground of space. Why make drugs in space? Other than making for an amazing Breaking Bad spin-off series, space is a surprisingly good spot for delicate experiments. Protein crystallization is one of the more difficult and complex processes involved in drug discovery, but the microgravity offered in space makes things like temperature and fluid control much easier.

A 2022 study found that 90% of protein crystals formed in space, had superior properties to those made on Earth. Drug makers have been sending experiments to space for decades now, actually, but Varda was the first company to raise money to build a drug production biolab up there, as well as the vehicles needed to ferry pharma products back to Earth. Now, after three successful launches in the past three years, Varda feels confident it can crank out valuable IP to license to drug manufacturers and plans to use the money it raised to scale up production.

Neil sounds very sci-fi. But Varda thinks it's got a down-to-earth business model. And there's a lot of money to be made. This whole industry took off in 2019 when Merck showed that it could make an improved formulation of this blockbuster cancer drug, K. Truda, that has sales of more than $20 billion annually. So Merck says, if we can get a better formulation of this particular drug that makes $20 billion a year by going to space, that perched up the ears of pretty much everyone in the pharma industry, as well as anyone in the space. industry said, wow, this is a very lucrative market. If we can make it work, if we can overcome the insane sounding logistical and financial hurdles. You need to raise something like $187 million just to have a bio lab in space. That's a lot of money. But they think the payoff

down the line could be worth it. It sounds crazy when you think about how logistically intensive this is. But NASA has been doing experiments when it comes to drug discovery on the International Space Station for decades now. But the Space Station, but the Space Station, is set to retire by 2030. So they are looking for more private companies to step in in fill the void here, which is where Varda is kind of licking its chops. Varda's business model is actually three plonged. Its spacecraft, when it comes back down to Earth, re-enters at a speed of Mach 25, which is a great testing ground for temperature control materials, navigation equipment, other sensors that could be flowing on hypersonic missiles. So they're also getting money from the U.S. government

in the U.S. military to test out certain things on their reentry space vehicles. So it is interesting to see that they have this drug discovery business, but they also have this kind of reentry test vehicle business as well that gives them a little extra cash. And it doesn't stop at pharma. I mean, there's a budding space manufacturing sector that could apply to anything from semiconductors to fiber optic cables. They are trying to create factories in space. Farma is just perhaps the first frontier.

The final note I want to make about VARDA is. You mentioned it is Peter Tealback, while his VC firm Founders Fund has backed a number of aerospace and defense companies, and they are all named after Lord of the Rings characters and themes. And this company is no different. You may know about Anderrol and Palantir. Well, Varda is the star queen of Middle Earth. Let's bring to the finish with some final headlines. President Trump was in the mood for tariffs yet again last night,

announcing the U.S. will raise the tariff rate on Canada from 25 percent. to 35% come August 1st. The higher levels, which will exempt goods complying with the North American Free Trade Agreement, come as Trump complained that Canada wasn't doing enough to stop fentanyl coming into the U.S. and had retaliated for previous U.S. tariffs. The surprise tariff hike could accelerate deal negotiations between the two countries because Canada's economy is getting battered. Trade with the U.S. accounts for about one-fifth of Canada's output, and unemployment has climbed to a nine-year high outside of the pandemic due to the hit from U.S. tariffs. It could accelerate negotiations with other countries, but also some of those current negotiations

aren't as set in stone as you might think because Vietnam just announced that their leadership was caught off guard by Trump's announcement that they had struck a trade deal at a 20% tariff rate. Vietnam officials are saying, wait, I didn't even know that we agreed to something like that. And if you look at their state-run media, they haven't been publishing that a deal has been reached. So things are still in flux. I mean, you know, how many times have we said this before? but negotiations are still going on. Canada has kind of come to realize that, hey, we're not going to get a zero tariff rate, so we're going to have to figure out where we can live and where our economy can kind of endure when it comes to tariffs apply to non, you know, goods that are

not covered by the USMCA trade deal. So it kind of feels like we're repeating ourselves here because we are, but it looks like those negotiations are going to happen because you're right. Canada's economic output is kind of struggling right now when it comes to the current tariff burden. The newest Superman movie comes out today, but while the Man of Steel can fly around the world in an instant, his toughest task may be saving the DC film franchise. Despite being able to go bar for bar with the Marvel Cinematic Universe when it comes to recognizable heroes like Wonder Woman and Batman, Warner Bros. Owned DC has never been able to piece together a coherent universe like its counterpart over at Disney. This latest movie offers a chance for

for DC to hit the reset button once more with this Superman reboot directed by formal Marvel standout James Gunn off to a strong start in pre-sales. Warner execs want the movie to gross about $500 million globally, a big movie for sure, but nowhere near the Marvel 3 comic club. Neil Superman is the OG comic book figure, but his invincible Boy Scout vibe was always playing second fiddle to the grittier Batman when it comes to attracting modern viewers. One reason to finally be bullish on a DC Superman film. This one prominently features his super dog crypto. Absolutely would be on board with that. I mean, there's been no sandalone Superman movie in more than a decade. And there hasn't been a particularly good Superman movie since 1978

starring Christopher Reeb. There's a lot riding on this particular movie. It's also come under fire from right-leaning conservative influencers for being woke. Who knows whether that will help or hurt sales at all. We'll be back here on Monday, seeing how it did, but it is a huge part of the reset process for DC as it tries to claw back some of this big disadvantage it has versus Marvel. Finally, if you find yourself at Heathrow Airport this summer, don't be surprised to hear airport sounds coming out of the loudspeakers. London's biggest airport said it will be playing an ambient music loop that incorporates classic airport sounds like passports being stamped, elevator dings, baggage sirens, and jet engines in order to, quote,

build suspense and set the mood for where you're headed on your summer holiday. The track even contains Easter eggs from famous movies filmed at Heathrow, incorporating tapping feet from Bend It Like Beckham and a security scanner from Love Actually. To create the track, Heathrow allowed Grammy-nominated Jordan Rakey, quote, unprecedented access to the airport so he could capture all the best audio air travel has to offer, ultimately incorporating 50 sounds from the airfield baggage handling system and the turn. Terminals. Toby, dare I say it, is music for Heathrow, the song of the summer. I mean, we read this headline and you just immediately giggled to yourself because what do you mean airport music is going to be piped in via airport loudspeakers, but then we listen to it.

And I'm not kidding, I played it 10 times in a row on a loop this morning as we were preparing for the show. And last night, it is so soothing. It's got this ASMR vibe to it, the tapping of the feet, the dinging of the elevators. it just makes you calm, which I think is a very smart thing to do in an airport. I mean, things don't have to make sense, especially when it comes to airport. I read this book Alchemy a few years ago. I've mentioned it on this show before. And in there, there is this anecdote about how this one airport was getting all these complaints about their baggage wait times. And instead of making the baggage arrive faster, all they did is reroute people to walk further. So they were walking a while than waiting. That is an example of how you can do things in airports that,

that don't necessarily make sense on the surface, but do lead to better outcome. So maybe if this ambient music leads to less cases of aggressive passengers, it could just be this genius idea that you don't know what the effects may be. Or it's a marketing stunt. Or it's a marketing stunt. You may laugh at it, but please go listen to it because it truly is a fire track. That is all the time we have.

Thanks so much for starting your morning with us. Have a wonderful Friday and an even better weekend. If you have any thoughts on today's episode, send an email with questions, comments, or feedback to Morning Brew Daily at Morningbrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Loo is our producer. Our associate producers are Olivia Graham and Olivia Lake. Hair and makeup is hoarding all the matcha. Devin Emery is our president and our show is a production of Morning Brew. Great show today, Neil. I wish you all well.