Motley Fool Hidden Gems Investing - Albertson’s Carries Baggage

Episode Date: June 18, 2025

The grocer is in a pickle. Can a longtime employee and new CEO turn it around? (00:21) David Meier and Mary Long discuss: - The macro factors influencing Powell’s interest rate decision. - Andy Jassy’s letter to Amazon employees. - Albertson’s turnaround and market-beating potential (or lack thereof). Companies discussed: AMZN, META, MSFT, ACI, KR Host: Mary Long Guest: David Meier Producer: Ricky Mulvey Engineer: Dan Boyd Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

Andy Jassy's got a warning for Amazon employees. You're listening to Motley Fool Money. I'm Mary Long, joined today by David Meyer. David, great to see you. Thanks for being here. Great to see you too. We're going to dive right in. But before we get to today's main stories, first, we got to step back and highlight some of today's headlines. So, David, here's what's happening in the business world that caught my eye this morning. Perhaps first and foremost, the Fed meets later today after we record the show. Economic data suggests that inflation is receding, that the labor market is relatively solid. So, typically, that would indicate that

the central bank is more likely to back off and lower rates. But Powell seems unlikely to do that, even though he's facing continued pressure from President Trump to do so. We'll park on that in just a minute once we get to the rest of the headlines. Another thing that caught my eye, the Genius Act passed the Senate yesterday. If you're wondering what that is, it's about stable coins. The bill still needs to pass the House and to be signed by the president before it were to become law. Largely, what it seeks to do is regulate stable coins. So it would require stablecoin issuers to hold reserves that fully back those stablecoins. It also proposes a federal framework for stablecoin issuance at a time when companies like Amazon and Walmart are allegedly

moving toward stablecoin-style payment options. Last but not least, we got more news from Congress. Bloomberg reported yesterday that the White House is considering policies that would ban pharmaceutical companies from directly advertising to patients. If this would go into effect, it would leave a nearly $11 billion hole in the advertising world. In 2024, pharma companies spent $10.8 billion on direct-to-consumer pharmaceutical ads. The U.S. is an international anomaly in this space. It's one of the only countries that allows for DTC advertising of pharma products. The only other country that allows this is New Zealand. Okay, David, lots of time on the headlines, but let's park on the Fed meeting for a minute. I mentioned slowing inflation and perhaps

surprisingly solid labor market up top. Those indicators would typically suggest a rate cut, but you've got a lot of other things going on in the world today. You've got continuing attacks and tensions between Israel and Iran. You've got rising oil prices. You've got the unseen impact of tariffs. If you're Jerome Powell, what are you looking at to make your decision that's going to come out later today? All that uncertainty ahead, and you touched on a lot of it. So, yeah, if we go back to the tensions in Israel and Iran, which could push up oil prices. That's a major contributor to inflation. We don't know the impact of tariffs. Are they on again, off again? What's the rate? The rate's going up,

the rate's coming down. We just don't know. But most of those things that we've talked about could actually push inflation higher. So, I understand the idea behind cutting rates, but cutting rates now would actually be a catalyst for even more inflation. I actually think if they cut rates anytime soon, the bond market is going to sell off. What that's going to mean is higher rates. It's not going to go as they intend. I'm Jerome Powell. I'm looking ahead at the uncertainty. I'm not changing rates right now. With that in mind, let's switch places. If you're not Jerome Powell anymore, but you're back to being yourself, senior analyst David Meyer,

Do you plan to make any changes to your portfolio based on Powell's decision today, whatever it may be? Nope, not today. And the reason is, is because I don't think rates are going to change. But more importantly, nothing is being done to change my process right now. So, me and other Fools, we look for great companies, strong advantages that have large market opportunities ahead of them that they can capture and that are trading at reasonable prices for long-term results. What Jerome Powell or any Fed chair does to short-term rates doesn't really affect that, unless there's something happening in the economy that is forcing them to change rates. Then I would have to incorporate that into my

process. David Meyer, it sounds like you'd make a pretty good Jerome Powell, but we'll keep you as David Meyer. We like it that way. Alrighty, that's our news rundown. Later on in the show, we'll be talking about Amazon and AI, plus Albertson's turnaround. But before we get to all that, a quick word from our sponsors. Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll. So bundle up and come along for the bumpy ride.

Stream a new episode of North of North Tuesdays on CBC Gem. We're back and we're going to be talking a bit about Amazon. CEO Andy Jassy sent out a letter to employees the other day that's making headlines. It had the vague but newsy title, Some Thoughts on Generative AI. So David, the memo walks through examples of Amazon's AI progress. There's more to it that we'll get to in a second, but we'll pause here. What do you think Amazon's biggest AI play is right now? Right now, it is still providing AI infrastructures to customers through Amazon Web Services. That is just enormous.

Demand is very strong, and we're still very early in that cycle. We know companies want to bring AI into their fold as a capability. So, yes, lots of them are turning to AWS. And the other place, though, is advertising. So, think about Amazon has an amazing amount of data on all the products that it sells and where advertisers want to make product placements and things like that. AI will definitely help customers place ads better, which should lead to higher prices for ads, which would be good for Amazon shareholders.

The beginning of the letter, I think Jassy took about 15 paragraphs to walk through the AI advancements that the company was making. But the big point of it, or at least what caught the attention of Amazon employees, was Jassy's note about employment. He warned that the technology, AI technology, is likely to replace employees in future years. He was unspecific about other details, like when exactly this might happen and what jobs AI might fully replace. This is not terribly different or surprising. Jassy's not the first CEO to make these kind of vague comments. And whenever these headlines come out, they make headlines. But they can be noise. What should investors actually take away from this letter? So, you're right. AI is definitely going to

change the way employees work. And employers know this. Employees know this. We just don't know how that change is going to play out right now. And that's a little scary. But as an investor, so what I want to hear is, I want to hear how companies are managing both their technical capital, meaning how much are they investing in AI? Where is that money going? How is it doing? But as well as their, how is their human capital? What investments are they making there? Because at the end of the day, people are still important. And for me as an investor, as someone who looks at management as an important category to analyze when looking at an investment opportunity, I want to see those who make their human capital more productive, not just by cutting.

That's the easy thing to do, right? I want to see them lead and bring the human capital to make it more productive that's beneficial for the company, beneficial for the employees, beneficial for all stakeholders, and in the end, beneficial for shareholders. I'm glad you mentioned human capital. I guess my follow-up question would be, how exactly do you, as an investor, measure that, evaluate that, and keep track of it? You talked about this a bit with Nick Seipel, another analyst on The Morning Show earlier today. While you've got Amazon and others saying, AI is going to trim the workforce, it's going to take jobs, you've also got news that Meta allegedly offered $100 million bonuses to snag OpenAI's top employees. As you said, AI products matter, but right now,

you also need smart people to build those products. As an investor, how do you get a good sense of which companies are winning the race for AI talent? Is it just, hey, who's shelling out the most money to get these big names? Absolutely not. I mean, look, I get that you think about sports. You do want productive athletes on the field, on the court, and sometimes you have to pay for them. That's the way markets work. But paying the most for talent is not necessarily winning the race for talent. What I want to see is, I want to see companies getting the most out of their talent. That's difficult to measure. I'm not an employee at any of these companies, so I don't have inside information to see how things are going. But I can use the financial

statements. I can use management's commentary. I'm going to give you a quick example with a company that I'm fairly familiar with called Sport Radar. The ticker is S-R-A-D. They recently made a big investment in AI and AI talent. They actually restructured their business at the end of 2024 in order to make AI the focus. We're already seeing the direct impact of that. we've seen a little bit stronger growth, a little bit better cashflow. And we have commentary from management saying, Hey, this is, this is working. So again, it's ROIC it's return on investment on talent, not just investment. New from Nespresso, blend wellness into your coffee routine with a coffee plus range infused with functional benefits. Choose the coffee you love

with added B vitamins, like coffee plus B12 to help support immune function, and coffee plus B6 to keep your day moving. Or go with the flow and choose Ginseng Delight, our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Nespresso.com. So we'll keep on the talent train for a bit, but attack it from a slightly different angle. The Wall Street Journal had an interesting profile out the other day of Susan Morris. She's the CEO of Albertsons. She just came into this role about a month ago, but she's been at the company for decades. Got her start working at the grocer when she was in high school, selling lottery tickets at the store's customer service counter.

Morris comes to the helm of Albertsons when the company is in a bit of an interesting spot. Albertsons spent years trying to merge with Kroger, only to have had that deal blocked in December. And it seems to be in a bit of a pickle right now. In the company's last fiscal year, its profit declined 26%. Morris, for her credit, has plans to cut costs and save about $1.5 billion over the course of the next three years. But still, it seems to be a tough time to be at the helm of Albertsons. David, how much of this company's troubles have to do with the blocked Kroger merger? So, probably not much. I would hope that the executives there could walk and chew gum at the same time. And what I mean is, yes, it does take time and effort to try to,

you know, affect a merger. But at the same time, the day-to-day focus is on the operations of the business. So, I would think it's more of a day-to-day thing, like how many customers are coming in? Do we have the right merchandise? You know, how much is it costing to do this? How are our labor relations? All those things like that. So, I don't, like I said, I don't think it has... I think the blocked merger didn't help, but these are things that should have been paid attention to along the way. Morris' plan involves some cost cutting. Is there anything else that you would like to see in order for her to successfully turn this company around? Yeah. So, cost cutting is obviously

the easiest thing, the low-hanging fruit. The bigger challenge would be, do I have the right data about what merchandise I need to put in the stores. Are the customers that I'm attracting, are they buying the things that I have in the store? What are my price points? Are those right? How much promotion, couponing? This is a very complicated business. We have to get all of those things right. And the worst part of it is, it's only to make a very slim margin. Now, this is the way the grocery business works all over. None of this is really unique to Albertsons. So, Albertson has to basically get its own shop in order, pardon the pun. It's going to take getting in, again, to the details of what is everything that is happening

in our operations. And from Susan Morris's background, she might be the perfect person to do that, given that she used to work directly in the stores. Her background notwithstanding, how much faith do you actually have in her ability to execute this? If you look at this stock, do you think that Albertsons has the potential to beat the S&P over the next five years? That's going to be difficult, but I think it's difficult for any grocer. Again, we're talking companies that make on the order of 1% to 3% margins. This is about throughput. You need to get lots of customers in the store buying lots of things all the time. And the other challenge that they have is we don't necessarily

buy things the same way we used to 10, 20 years ago, maybe even two years ago. We're starting to see the rise of Instacart and companies like that. So again, this is why I think you need to go back to the data. What is the data telling you about what people want and where is Albertsons meeting them in order to affect that transaction. We'll pivot briefly to Albertson's, perhaps, chief competitor, Kroger. That grocer reports on Friday. Is there anything that you're going to be looking out for to gauge the success of that business or just maybe the industry at large? I will say this. I took a quick peek at the Kroger stock chart. Because it's not a company I follow enormously, I don't follow it a lot, it's actually done very well. If I look at their

margins. They're pretty steady. Growth is slow. But what I want to know is, what do they say about the consumer? Because if they say the consumer is healthy, shopping with them, and things like that, one, not only is that good for Kroger, but two, that should be a good sign for the rest of the economy broadly. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure,

please check out our show notes. For the Motley Fool Money team, I'm Mary Long. Thanks for listening. We're off tomorrow for Juneteenth, but we'll be back on Friday. See you then. David Meyer, always a pleasure to have you on. Thank you so much for spending your morning with us and for dropping some insights from Motley Fool Money. Thank you for having me. Thank you for watching.