Submit Podcast or Channel

Japan Gets a Trade Deal and Earnings Season Ramps Up

July 23, 20250 comments♥ 0
00:00Who will earn the gold medal for earnings so far this week?Motley Fool Money starts now.I'm Travis Hoyum, joined by longtime Fools, Lou the Legend Whiteman and Matt the Reet WhispererFrankel. Today, we're going to get to earnings from General Motors, Intuitive Surgical, andEnphase Energy, and rate them gold, silver, and bronze. But first, let's talk a little bit abouttariffs. We found out late yesterday that the US and Japan have struck a deal that will lower therate of tariffs from products coming from Japan from 25% to 15%. Japan is also going to invest$550 billion in government-affiliated institutions to, quote, build resilient supply chains in key
00:55sectors like pharmaceuticals and semiconductors. Lou, I'm going to give you today's softball.Is this a massive change to global trade or a nothing burger?So it isn't a nothing burger. Japan is our fifth largest trading partner. So this is an importantdeal to get done. And also, historically, this has been a market that has been somewhat closedto outsiders. So to the extent that whatever this agreement is, they can open up the market for U.S.exporters, that could be significant. But yeah, let's be honest.this is one step in a very long process. Japan, if anything, looks like an easier negotiationthan some when we started. So, incrementally positive, but we still have a long way to go.
01:39Matt, I want to take this back to manufacturing, in particular, some of the auto companies in theU.S., which we'll talk about GM in a moment. But how does this impact companies like Toyota andHonda, some of the biggest auto importers, and also big employers in the U.S.? How are thesecompany is going to be impacted by these tariffs? Yeah. It's a big deal for the automakers.As we've seen from, you mentioned GM, which we'll get to in a minute, the impact of the current 25%import auto tariffs can be in the billions, which they were for GM. Cutting it from 25% to 15% issignificant. It's unclear if this is going to apply to the rest of the auto industry,or if other automakers are going to have to do things like invest in the U.S. and things to that
02:20extent. But GM's already investing $4 billion to bring some of its manufacturing domestic.So, maybe it'll be a give and take with the administration. But it's really unclearbeyond Japan. But for the Japanese automakers, this is a big deal.My question is, and as things stand right now, it's subject to change, but since U.S. automakersdon't import a lot from Japan, the 15% tariff really doesn't matter to them as much. We couldbe looking at right now, Toyota's, for example, paying a 15% tariff to bring vehicles into theU.S. to be sold in the U.S., but GM or Ford having to pay significantly higher tariffs on parts fromChina and elsewhere that go into U.S. assembled vehicles, it doesn't feel like that's a fair
03:05trade-off. And again, we have a long way to go in the global negotiation process, right?Yeah, this is going to be a long story that we'll definitely be covering here more. Let's move overto the US manufacturing space and GM's earnings, which were reported on Tuesday, revenue $47.1billion, adjusted earnings per share, $2.53. Guidance for the year was flat from threemonths ago. That was when after those initial tariffs were announced, but the stock dropped8%. Lou, was this a good report or not? So on the face of it, just looking at theprint on the paper, it was a solid report. Demand is holding up well. GM is doing a good jobcontrolling what it can on the cost side. But investors, understandably, there's a lot more
03:49than just what's going on inside the business. We're focused on tariffs. Net income was down35% on a 2% decline in revenue. That's a great way to illustrate just how much higher costsare taking a toll. And look, the problem is, there's no reason to believe that changes inthe second half of the year. So, we have a situation where the company is operating well,But there just isn't a lot of reason to get excited about near-term prospects.There's just too many headwinds right now.Matt, we've talked about Mary Barra being one of our favorite CEOs.But you look at GM stock, the stock is down over the past four years,
04:25despite great profitability, market share gains in EVs.They're actually taking market share from Tesla.They're the number two player there now.And buybacks have reduced shares outstanding by 20% on a compound annual basisover the past seven quarters.and the stock only has a five price-to-earnings multiple based on their guidance. What is goingon and what do we need to get investors actually excited about GM stock?Well, I've been hearing for years, and people have used this to justify that low multiple
04:51that you just mentioned. I've been hearing for years that the auto industry is about to turn,become unprofitable. They're going to lose their pricing power. The market dynamics are going tochange. And it just hasn't happened. GM keeps making money. You mentioned those aggressiveof buybacks. Investors just generally don't seem to be sold on the fact that GM's EV strategy willbe as profitable as the current sales mix is. And to be fair, they are lower-margin vehiclesas it stands right now. But there's a lot to like about what GM's doing right now. You mentionedthey're the clear No. 2 in the U.S. EV market. They had a 16% market share. That's disruptingeven Tesla. There's a lot to like about the quarter. $2.8 billion in free cash flow despite
05:35the tariffs impact. The market just really is not rewarding capital-intensive businesses right now,especially those with uncertainty from tariffs, from EV strategy and all that. I just think themarket is not convinced that this is going to go well. They're buying back shares at a pace.If this stock doesn't go anywhere, eventually, there just won't be any shares left. We'll seewhat happens with GM. I would be fine with that. Next up, we're going to examine IntuitiveSurgical's quarter with Robotic Precision. You're listening to Motley Fool Money.Guessing is for game shows, not your business. Workday is the enterprise AI platform for HR,finance, and IT. With AI grounded in your context to get work done and done right. It's a new workday.
06:20Okay, Lou. Intuitive Surgical is one of the most iconic Motley Fool companies. It has crushed themarket since its IPO, more than a 200-bagger over that period of time. What did we learnin the second quarter? We learned what we already knew. We learned momentum remains strong.They grew revenue by 20%, earnings per share by 23%. The installed base grew by more than 1,000systems to 10,488. That's important because Intuitive operates the razor-blazer blade model,and a bulk of the profits, a bulk of these sales come from reoccurring sales after the machinesare installed. So, there are near-term headwinds. Tariffs are concerned, they kind of cloudedguidance, and it remains to be seen whether changes in hospital funding coming out of this
07:04new tax legislation, it's possible they will slow sales of new DaVinci devices. I'm not sure whatbecomes of hospital CapEx from this, but those feel like small speed bumps relative to a long-termgrowth story that is very, very much intact. I like that you mentioned the razor and bladesmodel there. It's my favorite thing about this company. One thing to note that I noticed fromthe earnings report, from a long-term investor's perspective, is that the installed base ofDaVinci machines increased by 14% is the year-over-year percentage increase, but thenumber of procedures performed using those machines increased at a faster 17% rate. That tells me thatthe industry is becoming increasingly more reliant on robotic-assisted surgeries.
07:47That's a very positive thing looking long-term.And as Lou pointed out, other than a few minor speed bumps, it really was a solid quarter.Next up, we're going to look at how the solar sector is holding up with Enphase Energy.We'll be back after a short break.And what better way than with a delicious Pret Organic Coffee, starting at just $1 all day, every day, now until December 31st.You gotta try breakfast at A&W at participating A&W locations in Ontario.solar right now. Revenue was $363 million. Gross margin held pretty strong at 46.9%.They've moved more production into the U.S. to avoid tariffs. But is this as good as it gets
08:55for Enphase given the recent policy changes in the U.S.? It might be as good as it gets for now.I don't think it's the best that it gets. It's worth noting that solar technology itself isevolving very rapidly and will naturally become more cost-effective over time, meaning that thegovernment incentives or lack thereof that we're seeing this year, should matter less and lessover time. I agree it was a pretty solid report given the situation. The gross margin you mentionedis 170 basis points higher than it was a year ago. The company's doing a good job of mitigatingtariff impacts, like you said. Just for example, they recently started shipping one of its productswith, quote, higher domestic content than previous models. I think they're doing the right things.
09:35Yeah, similar story to what we just said about GM, I think. I think Enphase is doing the bestof what they can with the situation they are in. Assuming solar is a big part of the clean energyanswer long-term, and I do think it is, I still think Enphase should benefit and should be awinner here. But it's hard to look at the world right now and see any reason to believe there'sa catalyst right around the corner. And that's kind of just where Enphase is.Yeah. The stock is down almost 90% from its late 2022 high. So I'm not sure if we have value there,but eventually this will become attractive. One of the things they talked about during the quarterwas going a little bit more direct to consumer, including what they called IQ balcony solar.
10:17So this is one to four solar panels. You just plug into an outlet to keep critical appliancesrunning. They're starting to build an end around, around the utility connection that is always kindof problematic with solar energy. Matt, are you interested in direct-to-consumer solar products?Yes, especially the ones that are designed to not rely on government subsidies. It sounds likethe balcony solar that you're talking about. I do think there's a lot of long-term opportunityhere, especially with a stock about 90%. I can't believe that. 90% off its all-time highs,which were in the 300s. Enphase could be worth a look. But I do agree that a turnaround isn'tlikely to happen overnight. It's going to be a long tailed turnaround story. And there's a lot
10:58of risk here. So as we look at these results and we try to wrap our heads around what's going onin the second quarter, I want to get gold, silver and bronze for these three stocks and yourtakeaways for so far, what can we take away towards the rest of earning season? Lou, I'mgoing to start with you. Who is your gold pick? So intuitive is clearly the safest pick here,but it also comes at a premium valuation. I'm going to go out on a limb, say the stock thatis my goal. The one I'm most excited about in the group is Enphase. The risks are real. And as we'vesaid, I think patience is required, but I do think that there is a there there and over time it canwork. As for GM, I've been involved in the automakers a lot in my career. Even when times
11:39are good, this is a very, very difficult business. I respect what GM has done, but I have no desireto be a shareholder. I'm not sure any of these three earnings reports are truly worthy of agold. The stock didn't jump afterwards. They didn't raise guidance, anything like that.I'd say GM was the most pleasant surprise to me. I get it, I'm biased. It's one of my largestinvestments, unlike Travis, who ran away when they got rid of Cruise. That was my most pleasantsurprise. They restarted buybacks at the end of the second quarter because of, quote,more tariff clarity. They affirmed their guidance, which, given what's going on in the auto industry,is actually pretty impressive. I'd give Intuitive Surgical the silver. I mentioned the world's
12:25becoming more reliant on robotic surgeries, and that's clear in their earnings. Enphase is by farthe biggest turnaround of the three, but it's making the best of a bad situation. I'd givethem the bronze medal if I had to name one. Looking at these reports, I've got to say mygold here is GM. This is one of those stocks I don't own right now, but I just love the waythat they're operating. And I live in the Midwest, so maybe I have a different view than a lot ofpeople, but I see GM vehicles all over the place. And they have just a dominant position in thosemassive trucks and SUVs. And that's fundamentally where the money is made in the auto industry.I got to say, I'm intrigued by Enphase Energy. That would be my silver. I don't know if I'm
13:08looking for a bottom here trying to find value where there isn't any but this is the one companythat kind of consistently seems to be able to have high margins and doesn't end up gettingdisrupted so sorry intuitive surgical they win the bronze for me as we get through earning seasonwe're getting to some pretty big reports later this week matt what are the reports that you'rewatching this week and what are you looking to take away from i mean there are some big onesthis week. They were recording this Alphabet Reports, but I'm really watching Kinsale CapitalGroup, KNSL. They report Thursday afternoon. They've had two consecutive quarters of,I don't want to say bad numbers, but definitely affected by catastrophic losses due to those
13:52California wildfires that stretched over a two-quarter period. I'm curious to see if theycan rebound from that in this quarter and see if their growth story is really still alive. It isreally hard to tell when things are offset by those catastrophic losses. How can you not sayTesla? Let's grab your popcorn and have Tesla. Well, I'll be watching it. Yeah. And I thinkAlphabet's going to be really interesting. Is search being disrupted? What's the story withtheir cloud business? Is that going to get back to 30% growth? So a lot of things that we'll becovering later this week on Motley Fool Money. As always, people on the program have interestin the stocks that they talk about, and The Motley Fool may have formal recommendations
14:30for or against, so don't buy or sell stocks based solely on what you hear. All personal financecontent follows Motley Fool editorial standards and is not approved by advertisers. Advertisementsare sponsored content and provided for informational purposes only. To see our fulladvertising disclosure, please check our show notes. For Lou Whiteman, Matt Frankel, and ourproduction magician, Dan Boyd, and the entire Motley Fool team, I'm Travis William. We'll see you tomorrow.Thank you.