Motley Fool Money - Can a New CEO Fix Boeing?

Episode Date: March 29, 2024

Boeing CEO David Calhoun is stepping down – who can step in to fix the company’s engineering woes and a culture issues? (00:21) Emily Flippen and Jason Moser discuss: - Boeing’s hunt for a new CEO, and the difficulty of shifting company culture. - Big deals helping Home Depot corner the professionals market and Johnson and Johnson dive deeper into medtech. - McCormick’s strong earnings, and Amazon’s continued investment in AI. (19:11) Motley Fool Analyst Sanmeet Deo caught up with Elf Beauty CEO Tarang Amin about the beauty brand’s social strategy and the unconventional ways it’s scooping up market share from older competitors. (30:39) Jason and Emily break down two stocks on their radar: Masimo and Mastercard. Stocks discussed: BA, HD, JNJ, MKC, AMZN, ELF, LRLCY, RBLX, AAPL Host: Dylan Lewis Guests: Jason Moser, Emily Flippen, Sanmeet Deo, Tarang Amin Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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We've got news of two big deals and one sweet partnership. Motley Fool Money starts now. That's why they call it money. The best thing. Cool global headquarters. This is Motley Fool Money Radio Show. It's the Motley Fool Money Radio Show. I'm Dylan Lewis.

Joining me in the studio, Motley Fool's senior analysts, Emily Flippen and Jason Moser. Fools, great to have you both here. Hey, hey. Good to be here. We've got deals in the works, earnings with a little bit of kick. And, of course, stocks on our radar. We're going to talk, though, first about one of the biggest, business stories this year, certainly, and that's Boeing. Following issues with its 737 Max

Line, CEO Dave Calhoun is stepping down from Boeing at the end of this year. Emily, the company will be replacing Calhoun with another executive and also replacing the executive overseeing its commercial airplanes unit. Calhoun will be involved in the search for his successor, and I'm curious, what do you think they should be looking for in a replacement at Boeing? Well, clearly somebody who's going to be committed beyond just a couple of years, which to Calhoun's credit, he's only been in the role since 2019. So you may think to yourself, well, gosh, it's really tough to be a Boeing executive these days.

I think Calhoun is jumping for joy, getting the opportunity to get out of the mess that has been Boeing since he took over in 2019 and replaced potentially with somebody who has a bit more experience, I think, in the turnarounds of which Boeing has now easily classified itself. but it's worth remembering. Part of the reason why I'm letting Calhoun off easy here is because Calhoun was brought into the role in 2019 after Boeing had its 737 max incidents when he had those couple of crashes. And there's like, okay, we need to change the culture. We need to have a more emphasis on safety. And let's bring in this new CEO. And obviously, Calhoun was not able to change whatever the cultural issues that I think are struggling with this business right now, the emphasis on quality and control. That's what the business is lacking. So they need to bring in somebody who has a bit more experience. and changing the culture of a corporation, because that's the problem. Jason, we talk about culture a lot, and I think it's one of those things that is very hard to nail down as an issue or really gauge the true culture and the strength of it at a business. I look at what I see with the Boeing story over the last couple of years,

and it actually feels quite a bit like the Wells Fargo story from a couple years ago. You have a company that is an industry leader, absolutely sterling reputation, and massive issue after massive issue, just totally, degrading that over time, and it's taken quite some time for Wells Fargo to figure that out. I feel like Boeing probably has a long road ahead of it. Yeah, I'm glad you brought that up. I think you're right. That's the comparison that I drew earlier in the week when I was looking at this story. To me, the one thing I feel most strongly about in regard to this is I think that no matter who they hire, this needs to be an external

hire. I mean, because to Emily's point there, I bet you Calhoun probably is, you know, low-key, happy just kind of be out of this mess. And it's important. No, this mess is, this mess didn't start with him, right? This is something that's been festering with this company for a while. And, you know, culture is funny. Like, when things are going really well, you just, you know, culture's going really, you can't really nail down what it is, but everything's going well, so it doesn't really matter. When things start going wrong, then you can start looking to say, well, maybe there's some cultural issues that we need to resolve here. So I think this is something that goes well before Mr. Calhoun held the position there. And so, you know,

you look at Wells Fargo. Obviously, a company that was very, witnessing serious cultural issues, right? They hired internally. That seemed to make the problem worse until they brought in Charlie Sharp from Bank of New York Mellon. And it feels like he's started to get this thing turned around a little bit, but it takes a while. And I think in this case, it's going to take a while for Boeing to kind of get things in order. But I think the key to it all, for sure, this needs to be an external hire. It's worth reiterating that takes a while comment because, you know what also takes a while? Purchasing orders for planes. People don't just buy them on a whim. You place your plane purchase orders years out, years in advance. So we're likely

going to be seeing the impact of what's happening to Boeing in 2024, still impacting the company with their orders years into the future. But I'll just reiterate one additional thing I like, because you talk a lot about culture. That's a lot of it. But they're also talking about acquiring one of their third-party suppliers. And I think that could be interesting as well, because you talk about the emphasis on quality control. When you own the entire supply chain, when you own it from top to bottom, that can be a little bit easier to make sure things are done right. It was funny to me, the name that had popped into my mind immediately when I was reading about this, I was like, and I was just sort of kidding, but not really. Alan Malalley, right? And we saw what Alan Malawi did at Ford. And I'm certain that Alan Malawi is probably going to take a pass on this. But I bet you a lot of people out there are thinking he would be a nice candidate for something like this.

So it sounds like anyone who's looking at Boeing shares opportunistically here, we need to add that reminder. It is going to be a long road out of this. And there's probably going to be some lumpiness just due to the long cycle when it comes to airline sales. Emily? Yes, completely fair. All right, we've got two deals to talk through this week. First up, Johnson and Johnson reportedly in talks to buy medical device maker Shockwave Medical, both J&J and Shockwave up on the news. Emily, Shockwave is roughly an $11 billion business. Decent size, not a humongous acquisition for J&J if this one winds up going through, though. Yes, J&J has certainly made larger acquisitions, but it's fair to say that there's likely a fair amount of interest in Shockwave Medical. This may not be the most well-known biotech business, but it should

be. As you mentioned, it's a nearly $12 billion company, so it's a pricey acquisition. And there has been interest in the past from both J&J, as well as a handful of other purchasers that were rumored over the course of the past year to be interested in purchasing Shockwave Medical, who has this intravascular lithotripsy technology that has continued to show out veracity over time and removing calcification from blood vessels. So they have really great technology. I think they know they have great technology, though. That's part of the reason why these are still rumors of this acquisition, because talks fell through, presumably fell through over the course of the past year. I think Shockwave is probably being picky about priceier. They have something good. They know it,

and they don't want to sell out for anything less than their worth. Jason, I look at this news, and I think, okay, we have seen Johnson and Johnson push further into the medical business over the last couple years. The interest here seems like they are continuing to move in that direction and a little bit away from some of the consumer brands that we've seen and kind of familiar with. Yeah, no question. I mean, splitting off that consumer business recently, I think really was the tell in what they want to focus on. And I think in the Johnson and Johnson brand, particularly, a lot of this stuff kind of happens behind the scenes, right, when you're talking about med tech

and surgical equipment. So it doesn't surprise me at all that they're looking at a company like Shockwave that has witnessed so much success that has really, I would call it unique technology, something that separates them from the competition. Makes a lot of sense, Jay and Jay would want to bring them under their umbrella. Johnson and Johnson and Shockwave might happen. We're rumored reports there. We have talks a bit more final for Home Depot and SRS distribution. Emily, Home Depot, will be buying the professional supply company for $18 billion. This, to me, says Home Depot is increasingly focused on the professional side of its business. This is a really interesting acquisition. As you mentioned, this is the largest

acquisition in home depot's history. So while Home Depot has been acquisitive in the past, matching out with that organic growth, an acquisition of this size is certainly, saying to investors, we are all in on the pro. And they spent a good amount of time in their investor conference call talking to investors explaining how they think this could accelerate their sales growth. And that's exactly what this is. For anybody who's wondering, this is Home Depot saying there's an area of the pro market that we're just not able to tap right now. And by acquiring this large kind of, I don't want to necessarily call it a competitor because they're slightly different business models, but I'll use the word competitor for this purposes. Acquiring this large

competitor really will position us better to bring pros who are not currently in our ecosystem to our ecosystem. So picking up that percentage of sales that people are making not at Home Depot, they go and they get 60% of what they need for their project at Home Depot, then they go somewhere else. They're trying to get that somewhere else business. I do think it's interesting. I do worry that regulators, given how tense, I think relationships between large corporations and regulars have been in the United States recently, that there's likely to be some interest in this deal. So I don't think it's as shoo-in as maybe the Home Depot management team believes it is, but it should be accretive for the company moving forward,

even though it will likely lower their margin profile. It is pretty amazing. I feel like on this show over the last month-plus, we have talked time and time again about the interest that regulators have in big businesses, generally big tech. And so I was surprised that we had two $10 billion-plus acquisitions being discussed this week. Jason, when I look at how SRS might fit into Home Depot, We see that they have some expertise in pooling.

We see that they have some expertise in roofing. Those are certainly interesting businesses. As you think about what it means for Home Depot's business financially, what would bringing this on show up in the financials for them? Well, as Emily was talking about, you know, this is going to impact the company's overall margin profile negatively. Now, that's okay, I think, in the sense that they should make up for it clearly more on volume. when you look at the markets they're tackling here, pools, roofing, landscaping, fairly specialized things. I mean, you think about all of these local landscaping businesses, for example, all over the country.

I mean, if they're going to be able to look at Home Depot as a reliable supplier, I mean, that continues just to bring in more and more business. They attach a rewards program with that. So while the pro business is something where it's going to be a lower margin, you make up for it on volume, then it works out very well. I think, you know, when you look at Home Depot from the financials perspective in regard to this deal, I mean, it's obviously a very big one to make happen. They don't have unlimited cash on the balance sheet. So this is something where they're going to be adding debt to the balance sheet. And on top of that, they're also going to build out another four massive distribution centers

in order to basically shorten that distance, right, between the customer and the supplier. And so I think it makes sense. It requires taking that longer-term view. And again, I think in regard to the debt that they take on to do this, it's okay. It's a reliable business. The debt they have on the balance sheet at this point is staggered out very nicely over long periods of time. And when you consider the importance of the housing market to our economy, we know home improvement's not going anywhere. So this is business, not necessarily Home Depot's but the business itself, this is business that's as reliable as the sun coming up, right?

If Home Depot doesn't do it, Lowe's is going to do it. So Home Depot's trying to beat him to the punch. Yeah, I will say, if I'm lows, I'm scared. But here's the question I would have asked management. If I had the opportunity to ask Home Depot a question about this acquisition. And that is, this is a business that is based out of North Texas, this distribution company they're acquiring. And I'm curious how much of their sales are geographically centralized around Texas and North Texas in particular because management is extrapolating their previous growth rate or the last couple of years into the future. If they're centralized there, that could be a problem. All right. Coming up after the break, we've got Amazon upping its bet on AI and earnings that brought a little spice. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Dylan Lewis, joined in studio by Emily Flippen and Jason Moser. Tough news this week that hits close to home here in Washington, D.C., where we're based. Earlier this week, a cargo ship hit the Francis Scott Key Bridge in Baltimore, taking the bridge down, causing several deaths.

The cause is still being investigated. So many of the implications still being figured out in Baltimore itself, still looking at a long road to rebuilding here. But, Jason, the bridge is not only a major access point for the Port of Baltimore. It's also a big part of how people get around in the city. I'm sure it's a bridge we've all been on driving around. Yeah, yeah, I've been on that bridge a number of times. I mean, it's obviously a tragedy for those lives lost. You know, in regard to the economy and the economic implications here, you know,

capitalism always seems to find a weight, right? I mean, this is something I think that it sounds maybe worse today than it actually will be. And that's based partly on what leadership from some of these companies that are in the area have said. I mean, Amazon, Home Depot, McCormick. I mean, they've all said the same thing like, yeah, there will be some disruptions, but it's not something that really is going to impact our business too terribly much in the near term. I mean, it's worth saying. I mean, the American Trucking Association estimates that 4,900 trucks per day carrying an annual average of $28 billion worth of goods is going to have to be rerouted, right?

So there are economic implications here. But I don't think it's going to be something that we feel too terribly much, at least in the near term. Now, a lot of this depends on how this problem is ultimately able to be solved. In Baltimore, being the number one automobile port in the U.S. as well, we're going to see a lot of that go to other parts of the country. I think the port of Virginia being one of them. Emily, I think as we look at this story, try to process it. A lot of people, when these things come up, try to become experts very quickly. and a lot of different things, whether it be insurance, whether it be logistics.

This is just another one of those very complicated stories to process. I appreciate Jason here bringing some of the, okay, maybe it won't be as bad as we think. What's your take as we process this? Is it too soon to use the word unprecedented? Yeah, it feels that way. It does, it does. But this is something where I think the reason why the tonality from a lot of management teams that could be impacted has been muted is because people just simply don't know yet.

There's no timeline for the port reopening. they need to dredge the harbor before they can do so. So it's really anybody's guess for how long it will take for the port to be back operating. But to Jason's earlier point, there's a lot of extrapolating and a lot of armchair experting we can do as investors, not that we should. But one of the things that I think is worth keeping eye on are those automobile manufacturers because the port of Baltimore did have a fair number of train staff for roll-on, roll-off car import and export and not every harbor, apparently, as I've learned,

and that's armchair experting again. is suited to take these types of vehicles. So they'll have to find a new port with the level of trained staff that they have there in Baltimore, and that could be challenging in the interim. I think the thing to really keep an eye on here, to me, it's the smaller businesses in the area. We're talking 8 to 9,000 jobs that have essentially been put on hold here. And we don't know for how long. There are local businesses all around this area that are going to be impacted.

Now, that's not obviously. There are implications for public companies, not necessarily the same thing. And so we as investors might not feel that pinch. but you really do have to be thinking about the smaller businesses in the area. Jason, you did mention McCormick there as we were talking about some of the companies that put out statements have been possibly affected by this. In addition to the news affecting them, we also had earnings from that company this week, shares up 10% following the company's report.

What did you see in the results? Yeah, better than expected. I mean, this is a company that is certainly not immune to macroeconomic pressures. They have felt the pinches from inflation over the last couple of years, but it sounds like they're coming out on the other side. of this in pretty good shape. They did note on the call, consumers remain challenged. When you look at the results, very respectable, I would say. Constant currency that saw sales up 2%. They did see gross profit margin expansion, 140 basis points there as they are able to maintain

some pricing. And they do a very good job of bringing all of that down to the bottom line, right? This is a company that benefits from those economies of scale. They did make some, they made a conscious decision in 2023 to discontinue a few low margin businesses, and that has played out a little bit in the near term there, but this is a business I think that was trading in a lower multiple than it deserves to, as I'm not surprised to see the market react positively. Are we going to wrap our news updates? Checking in on the world of AI. Amazon deepening its investment in Anthropic this week,

the company committing another $2.75 billion to the generative AI startup and open AI competitor. Emily, we've seen a lot of money flowing into AI over the last year or so. I think for a lot of these big tech companies, a couple billion dollars, just a drop in the bucket, but probably a pretty meaningful amount of money for a lot of these startups. What are you thinking about as you're seeing capital flow to a lot of these types of projects? You can imagine that you're the leadership of Anthropics, suddenly getting billions of dollars at investments. You're then thinking to yourself, what's the best use of this capital? And I think for a lot of these unproven management teams that have obviously spent time developing some of the most powerful,

large language models that we've seen when it comes to generative AI doesn't necessarily make them great capital allocators. So in the next couple of years, we're going to get some insight into how this money is spent. But in this case, which, by the way, Anthropic is the business that is behind the large language models that power Claude, which, as you mentioned, is one of the biggest competitors to Open AIs chat GPT. So there's a lot of money that's being invested into anybody that can kind of dethrone the chat GPT rivals, of which Claude is probably the next best large language model that we're looking at. It's interesting, though, from Amazon's perspectives, because people point to this investment and say, look, Amazon is putting as much capital

as they could have initially committed, right? They had some upfront and then would say, oh, later on we'll decide if we should increase this amount. They decide to increase it to $4 billion. Their hands were kind of tied in that decision. If they chose not to increase their investment in Anthropic, that would send a message to the entire industry, all of artificial intelligence that, look, one of the biggest investors in the space is no longer investing. They don't see an opportunity there, and that could really degrade the value of their initial investment. So they really had to put more money behind Anthropic here. But what the business will do with that capital. It just remains so uncertain. I think I hear you say there's a little bit of

potentially sunk cost fallacy here, or they need to protect their own investment. Jason, Amazon has always been a kind of leader in the AI space, both operationally and with how they've invested. It seems like we are basically in an era here of big tech companies lining up their AI futures with some of these investments. Bit of a leap of faith that comes with this, right? I mean, we know that AI is going to play some big role in our lives. It's still a little bit unclear as to how. It's becoming a little bit more obvious. I do think it's fascinating that Google and Salesforce are also investors here in Anthropics. I wonder if Amazon didn't feel a little pressure to kind of up their game there, because if they take a pass on that, maybe Google or Salesforce step

in there. All right, Jason Moser, Emily Flippin. Fools, we're going to see a little bit later in the show. Up next, we've got the CEO of a company that's mastered their social strategy. Stay right here. You're listening to Motley Full Money. Well, I sold the farm to take my woman, where's she long. to be. We left our kin and all our friends back there in Tennessee. Then I bought those one way. Welcome back to Motley Fool Money. I'm Dylan Lewis. Beauty may be in the eye of the beholder, but there's plenty of to like about this makeup company. Elf Beauty has seen net sales growth for 20 consecutive quarters, and it's taken TikTok by storm. Motley Fool analyst Sanmete Deo caught up with Elf CEO,

to rang him in about the beauty brand's social strategy and the unconventional ways it's scooping up market share from older competitors. One thing that really stood out to me when I was looking at Elf is this very popular amongst a Gen Z demographic in teens. Like I said, my daughter, who's technically a tween, I guess. But have you been able to appeal to that younger generation? That's a demographic that many consumer products companies and businesses in general try to try to capture, but it can be difficult and challenging. Well, I'd say, you know, there are three main drivers overall for the business, particularly work well with Gen Z.

So if I think about our value proposition, our ability to make the best of beauty accessible at these incredible price points, definitely speak to them. Our powerhouse innovation, that unique ability of taking inspiration from our community, as well as the best products and prestige and offering out these incredible prices, definitely speaks to them. And then most importantly, I think our marketing approach, the engine, that we have that's really focused on engaging and entertaining them. So we do things well outside of traditional beauty norms.

You know, we don't do much. I'd call it broad-scale-based advertising. We do a lot of things on social. We do a lot of things on a number of different platforms. And we try to find ways that are native and speak to them. So we were one of the pioneers on TikTok from a beauty brand standpoint. And when we first approached TikTok, I remember our CMO, Corey March Soto, came to me and said, hey, we got to be on TikTok because that's where Gen Z is.

And my response was, well, if that's where Gen Z is, we definitely should be on TikTok. Now what's TikTok? This is five years ago. But when we approach a platform, we didn't approach it from an advertising standpoint. We tried to figure out what was Gen Z doing on TikTok. And we saw a lot of self-expression, which speaks well to our overall mission, and a lot of music, a lot of dancing. So we approached the platform with humility, and we basically said, all right, let's do something that makes sense for Gen Z. So we commissioned our own song. Our eyes up's face,

hashtag challenge was born. And we had, I think, that first challenge, four billion views. We kept going. We kept getting more creative on the platform where we created a rock brand with Simon Fuller, the co-founder of American Idol. The challenge on that one, I think, was near 15 billion views. So we find ways that really engage and entertain that community. And we continue to do that, not only on TikTok, but we have our own channel on Twitch. We have the best branded experience on Roblox. We try to find different ways of really engaging that audience, and it's definitely working. And it goes very much hand in hand with that value proposition and the innovation that we're able to offer that really resonates with them.

Yeah, you know, it's interesting how your marketing is not afraid to go to platforms and really test them out, even if someone might say, why are you on TikTok or what is TikTok? What can you get from it? You know, be on Roblox. I mean, that has so many monthly users over 65 million, I believe. And now you're also having an app on the Apple Vision Pro. You know, who knows how that's going to turn out, but you're there. So if it does kind of gain prominence, you know, Elf will be right there, probably one of the first.

So it's amazing to see how you've done that. You know, in addition to Gen Z, you know, you're growing awareness amongst millennials and Gen X. So one thing that I thought about was like, how important is like aging up to your growth strategy? You know, like not only retaining those Gen Z customers as they kind of grow up, but, you know, capturing current like millennials and Gen Xers and older customers. Yeah, I mean, it's definitely part of our strategy in terms of bringing new consumers to Elf. If you take a look at our journey just in the last few years, you know, we've doubled our unaided awareness from about 13% to 26%. So the growth itself has been great, but we still only have 26% unated awareness. And, you know, so many of the brands we compete against, while we're 20 years old,

many of those companies are over 100 years old. Mabelene, I think, has been around for 115 years. L'O. Paris has been around close to 100 years, Cover Girl, close to 80 or 60. So we have a long way to go. And part of our strategy is certainly take that strength we have amongst Gen Z. but also bring other consumers into the franchise. So as you mentioned, we've been growing our audience, amongst millennials, Gen X, Latinx,

and we feel the strategy we're using is attracting more consumers. But beyond what we're doing, what we're also finding is a different phenomenon going on where maybe historically a lot of the legacy brands, the mom would teach the kid all about makeup and, you know, go down kind of generations. What we're now finding is sometimes mothers just sit And they're going like, why is my teenager dragging me to target so many times to go get this elf?

And then the moms are trying elf and being like, oh my God, I can't believe this is, this is so good at this price. Why am I spending $50 on foundation when I can get one of the elf ones for a fraction of that price? So I think we're aided really by both things. But our approach in terms of broadening our distribution, I mean our awareness, but also in terms of just the overall quality of our products at the price that are attracting people that might not. have historically known about health. Beauty is a tough industry. You build a motin. As you know, there's so many of the bigger entrenched competitors who've been around for

such a long time. How do you build customer loyalty in the space? And how do you maintain that passion and that drive for that brand? Yeah, I know. You're right. I mean, if you look in the U.S. on the mass side, Nielsen tracks, I think it's 1,800 cosmetics and skincare brands. Wow.

And so it's a relatively low. barrier of entry category. There are a ton of brands. But the other thing is very few of them have been able to scale. So out of 1800 brands, only 50 have more than $50 million retail sales. Only 27 or 28 have more than 100 million of retail sales. Elf is one of only five with more than $700 million in retail sales. So while there are many brands in our space, it's typically hard to scale. The ones that are able to scale usually possess a few key characteristics. One, they have a real brand that people love. The quality of the products is really good.

And the value is acceptable. And I feel like all those things are working for Elf in terms of how we've been able to not only scale, but continue to grow year after year. Yeah. You know, one thing I've always been interested in companies with strong loyalty program, loyalty rewards programs, you know, Starbucks and Alta, where your products are in. So you have your Beauty Squad loyalty program. It has over four and a half million members and drives.

over 80% of your website sales. How do you continue to grow this? What impact does it have on your business, even just outside of sales? Yeah, I mean, Beauty Squad has been phenomenal for us. As you say, not only does it drive a big portion of our online sales, but it's also a rich source of first-party data. If you think of a lot of the Apple privacy changes,

that's been a real issue for a lot of brands in terms of what's the quality of data that they're getting from some of the social platforms, having our own data, the four and a half million members we have, where we can do lookalike targeting, a number of other things, in terms of minding what their preferences are, and what they want to see from Elf is, I think, a huge advantage that drives our overall business well beyond our web sales.

Yeah, and you know, you mentioned about it a little bit earlier, but, you know, can you talk a little bit more about the Elf's kind of holy grail innovation approach, the kind of building growing franchises and how that kind of stands out from how other beauty companies go about product development. Yeah. So in beauty, I mean, there's a real love, like I said, it's a category that's a fantastic consumer category because consumers love new ideas, they love new products.

There's high level of engagement. It lends itself really well to social media and sharing, since it's all about expressing yourself empowerment. So it's a great category as we think about kind of the core dynamics within it. So it's a terrific category. And if I think about what really drives it, I would say innovation is probably the biggest driver. And our approach is different. So a lot of beauty companies will launch a bunch of products in a given year and then have to go anniversary that launched the next year and have to launch a bunch of other products. And you get a lot of proliferation of SKUs. Our approach is fundamentally different

in a couple of different ways. One, we really focus on what we call these holy grail innovations, things that we can take inspiration from our community or the best products in prestige, put our elf twist on and introduce it a much better value. And this kind of community-driven approach, I think, really helps us. I'll give a recent example. Our community is not afraid to tell us what they want. They recently came to us and said, hey, there was this prestige lip oil. We love it, but it costs $40.

I can't afford $40. So, elf, help me out, come out with something that is more affordable. So we'll study that prestige product. We'll say like, hey, what do people like? They like that it had a glossy finish. Call it pigmentation was good. And then we'd also ask what they didn't like. And they'll say, well, this one kind of dries my lips out sometimes.

The applicator is small. So we'll study that. We'll take all that data in. We'll put our elf twist on. And we come out with our own lip oils that have a much better hydrating formula, a bigger dough foot for application. And we'll introduce them at $8. And that, like I said, the next day, they blow up virally because people can't believe that this thing is $8 versus the prestige item at $40.

So one, that approach of really trying to take the best of beauty, but making it accessible, what we call these Holy Grails, I think is one part of our approach. The second thing we do is instead of these one and done launches, launch something this year, and then have to go anniversary next year, introduce even more skews. We tend to focus on franchises. We have a few key franchises, I call our Halo Glow franchise, our power grip, putty primer, Camel, and on skincare, holy hydration, and some touchables. And what we find is every time we launch something new in a franchise, the entire franchise grows. So you have this sustaining growth. And the franchise, like every one of our franchises have grown every single year.

And they've been fed by innovation, but innovation really shines a light on the overall franchise, where you see this continued growth, even in your core. addition to your name. Coming up after the break, Jason Moser and Emily Flipin return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Emily Flipin and Jason Moser. We've got stocks on our radar coming up in a minute, but first, something's really.

week to help us round out our news updates. Shares of Krispy Cream up almost 20% this week, Jason, on news that the donut maker is expanding its relationship with McDonald's nationwide by 2026. That would put Krispy Creams in thousands more McDonald's. This has been something it's been developing for a while. What do you make the story? Yeah, well, I mean, I think it's important. You say this is something that's been developing for a while, and I think that's an important point to note there because it's not like Krispy Cream nor McDonald's wouldn't know this just willing-nilly thinking, hey, maybe this is a good idea, right? I mean, they've been testing this out. It follows a testing at 160

different McDonald's restaurants. And clearly, they saw that it was worth expanding the relationship. And I mean, I think, you know, when you compare the two businesses, this is a bigger deal for Krispy Cream than it is for McDonald's. I mean, I think that's obvious, right? We look at Krispy Cream today as a standalone business. They could be doing things better. They're working in a pretty difficult market, I'd say. Coffee is one thing, but convincing people to just eat as many donuts as they can possibly eat. It's a little bit of a, that's a bigger stretch, right? The older we get, it becomes even more difficult. But I like the idea. I mean, Krispy Cream will continue to generate incremental sales from this. I think it's tremendous

brand-building opportunity as well. You just, you consider how many McDonald's restaurants there are just in the U.S. alone. I mean, that really is going to put that Krispy Cream brand front and center, at least as far as being the donut expert. And I will say, crispy cream donuts are better than Dunkin' Donuts. And don't at me. It's a pride there. That's kind of the problem, though. What you just said, right?

Crispy cream donuts are better than Dunkin' Donuts. Why do you think that? Because they taste better. Because they taste better. Now tell me, will Krispy Cremes at McDonald's taste better than a Dunkin' Donuts? Well, that remains to be seen. I guess we're going to have to do some market research. Exactly.

One of the places my head went to when I saw the story is we have seen a lot of success with the store within a store model in retail, especially with the cosmetic companies and some of the big box retailers. But I see this, and I say, you know, it's pretty interesting that McDonald says, we don't need to make donuts, Emily. We can just have someone come in and provide the donuts every single morning as a brand extension, a cheap way for us to test out whether the market is here or not. And I think to be fair to McDonald's, they're a franchise-based model.

So it's a little bit harder for them to roll something out and say, we're just going to test making our own donuts in store in a few locations, because then you have to get the franchisee buy-in. So it's a little bit easier for them to just outsource it. Basically, it's no skin off the franchisee's back, right, by integrating Krispy Cream, if anything, increase sales. But I do think the big risk is for Krispy Cream. I mean, if quality is impacted, they have this hub-and-spoke model now

that typically ensures, and they say, you know, delivered fresh daily, all that stuff, it keeps the quality that you expect. when you get a Krispy Kreme donuts. McDonald's is benefiting from the name brand of Krispy Kreme, but Krispy Kreme needs to be careful not to dilute their own name brand in this deal. All right, let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Jason, you're up first.

What are you looking at this week? Yeah, an interesting development this week for Massimo, company I've talked about here before, Ticker, is M-A-S-I specialist in the pulse-oxymetry space. I know that sounds like a lot, but really it's just about measuring blood oxygen levels, which is something that hospitals and doctors' offices all need. But a while back, Massimo made an acquisition, an odd acquisition at the time of Sound United being a company that really focuses on high-end speaker systems and whatnot.

And ultimately, founder and CEO Joe Keani of Massimo said that this acquisition was in order to help them pursue more of a consumer side of the business, wearables, focusing on a particular market opportunity and hearing aids. whatnot, as those become more accessible to consumers. The investor community has taken this acquisition with total skepticism since it was announced. I just don't think they're very complimentary businesses, and so activists got in there and really started pushing for some changes. They kind of wanted to see maybe this separation happen. So it's nice to see that it sounds like it's going to happen. I mean, they've given this plan to the board. The board is deliberating it.

Keani would remain the CEO of Massimo, but also would play a role. as a chairman on the consumable side of the business because he really was the one that spearheaded that Sound United acquisition. But the market received the news fairly positively this week. I think to me it makes a lot of sense because the Massimo business on its own is a very successful one. It benefits from that Razor and Blade model where they get those machines into the hospitals and sell the consumables that are required to make those machines work, very high margin revenue there. But when this acquisition was announced, it just seemed very odd, and it just hasn't made much more sense since. Dan, a question about Massimo.

Jason, this is like the fourth or fifth time you've brought Masimo to the table here. Is this replacing McCormack as your most favorite stock? Well, Dan, as they say on Letterkinney, to be fair, I was going to go with a different radar stock today, but the Massimo's story took precedence here. So I decided to go ahead and bring Massimo to the forefront so we could make sure to at least give the story a little airtime. I'll come to the table with a new radar stock next time, I promise. you know, at least just pick a different letter. You know, it doesn't all have to start with MJ, Jason.

We get it, Mozer, all right? You know, plain and simple. All right, Emily, what's on your radar this week? I don't know my excuses, because my radar stock also starts with an M. And that's MasterCard. So MasterCard is on my radar this week after them and a handful of other card network and issuers settled what was a decades-long antitrust lawsuit that was brought against them by U.S.-based merchants,

who felt that their swipe fees were too exorbitant. They had a settlement this week. which can still be appealed, so nothing is finalized yet. But under the terms of this settlement, it seems just like a minor slap on the wrist for MasterCard and other card networks. They're reportedly losing at least 4 tenth of a percentage point on their swipe fees, which is, I mean, it's not nothing, but it's as close to nothing as you can get, as well as freezing those rate fees for at least five years. So, again, a minor slap on the wrist for a lot of these businesses. I think MasterCard and Visa

are probably looking at this settlement and thinking to themselves, that could have been a lot worse. It's not over yet. But what the settlement does do is give mergers, the power to impose surcharges based on the type of card that they use, which could cause a major chain for consumers who are currently accustomed to all forms of their card being accepted. If you accept Visa Visa, you accept this Visa card and this Visa card. Now, the fees and the prices could be different depending on which type of card you have, because the fees associated with each card under these plans are different. So there's the potential for merchants to basically steer consumers towards their preferred cars,

which could really change landscape for MasterCard. Dan, a question about MasterCard or credit cards? Emily, do you actually think people are going to be doing that having a preferred card? I think it's possible. I'm afraid to my, I always assume, just stick with the status quo, right? Unless you have a reason to believe that something is changing. Chances are things typically stay the same. So I don't want to overstate the impact that this could have, but I feel like it's a very reasonable outcome.

If this suit does not get appealed and the appeals don't work, that yes, we go to a merchant. They say we will give you a X percent discount if you use our preferred card, which maybe is a master card or maybe it's a visa. Dan, two M names. Which one's going on your watch list? I think it's hard to bet against the MasterCard or Visa or any of the credit networks. Like, they're just, they're not going anywhere, man. All right. And a follow-up watch list, Dunkin' Donuts, Krispy Cream. Which one's going on your watch list? Krispy Kreme, 100%. Duncan Donuts is, I mean, Dunkin' Donuts is the donut we have at home. I'm sorry. That's not a great slogan, but I do appreciate it.

Dan, thanks for weighing in. Emily, Jason, thanks for bringing your stocks. That's going to do it for this week's Motley Full Money Radio Show. Show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.