Motley Fool Money - Show Me the Earnings!

Episode Date: July 28, 2023

The earnings parade is on, and this quarter it pays to be in the black. (00:21) Matt Argersinger and Emliy Flippen discuss: - The Fed’s latest rate hike and why another seems in the cards.  - Why earnings updates ended epic runs for Chipotle and Spotify. - How big tech’s cost cutting is going.  (19:11) Bonus earnings coverage from Matt and Emily on Roku, Mastercard, Coca-Cola, and Live Nation. (31:31) Emily and Matt break down two stocks on their radar: BorgWarner and Invitation Homes. Stocks discussed: CMG, SPOT, META, GOOG, GOOGL, MSFT, ROKU, MA, KO, LYV Host: Dylan Lewis Guests: Matt Argersinger, Emily Flippen Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by Colagard. Do you know what's really scary? Not screening for colon cancer when you turn 45. The Colagard test is non-invasive, requires no special prep or time off work, and ships right to your door. In just three simple steps, Colagard takes the scare out of colon cancer screening.

If you're 45 or older and at average risk, ask your health care provider about the Coligard test. Colagard is available by prescription only. Learn more or request a prescription today at colagard.com slash screen. Rates keep going up, and the earnings results are pouring in. Motleyful money starts now. That's why they call it money. Cool Global headquarters. This is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me in studio, Motley Fool senior analysts, Emily Flippen, and Matt Argersinger.

Great to have you both here. Dylan. We've got a parade of quarterly updates from companies, stocks on our radar, and the early themes of earning season. But we're going to start with the Fed and the big picture. This week, the U.S. Central Bank decided increased rates a quarter of a point, marking the 11th rate increase and bringing the baseline Fed funds rate to its highest point in 22 years. Matt, something that I think we were kind of expecting and are now confirmed. This is what we're working with. I think this was totally expected. Maybe the most expected move by the Fed that we've had over the past, say, 15 or 16 months. Yeah, 11th straight hike, or not straight hike, I should say. They did skip last month,

but brought the target range to 5.5 and a quarter to 5.5. Highest level and more than 22 years, by the way, for the Fed funds rate. And that was followed up on Friday, but we had more news about inflation cooling. You know, you had the core PCE, which is a Fed, widely tracked, or at least by the Fed, a number of inflation. That rose 4.1% from a year ago. That was below estimates, and the lowest annual rate since September 2021. And, by the way, goods prices, the goods component of that actually decreased 0.1%. So it's all kind of happening for the Fed. And I hate to, it kind of conjures up this image, an unfortunate one actually, including one of an aircraft carrier. But dare I say, mission accomplished? It seems like they've been able to increase rates without

massive spikes in unemployment, without too much economic disruption. This is pulling something off that I think a lot of people weren't sure they'd be able to do. Right. I mean, it's a monumental move if you think about it. I mean, we've gone from zero. roughly a year ago to 5.5.5% on the Fed funds rate. That's a monumental move. But like you said, Dylan, the economy is holding up. We had a Q2 report this past week from the BEA showing a 2.4% increase in GDP. I used to work for the BEA, by the way, in a previous life. The unemployment rate is still near historical lows at 3.6%. Consumers continue to spend, especially on services. There is no recession in sight, at least as far as I can see. And inflation's cooling. Mission accomplished.

I think it's too early. Let's say it's too early to say mission accomplished, only because I think what the Fed has done really well is control expectations. And that's great. And people will make judgments about how to run their business, how to run their employment numbers, all of those things based off of what the Fed says they're going to do. And they've been incredibly consistent, which is great. But all it takes is one level of data coming out of whack, right, for somebody to then pull back and then change those plans. So it's great right now because every number is coming in in the Fed's as they're solely increasing rates, but all it takes is one. So I'm cautiously optimistic.

It sounds like you're getting a little bit there at the idea of Fed credibility and willingness to stick to what they're saying. And I think one of the things that I'm watching with this narrative, I'm curious for your take here, Matt, is generally it's been easy rate hikes for the Fed so far. We've needed to moderate inflation. But what's going to happen when we need to get from 3.5% down to that final 2%, that long-term target? It seems like they've really wanted to push down to that and are going to maintain their rate hike schedule.

That's my read, at least. I think that's a good read. I think what you're saying is the easy work and expected work has kind of been done. Now, the last leg or the last few legs to get us down to that 2% target, realistic as that might be, that's going to be tough. And that might really grind the economy to a halt. Let's hope not. But that's what it might take to get inflation down to that level.

From the big macro to the big movers, we're going to start the earnings look talking about Chipotle and Spotify. to companies that made big moves after their quarterly reports. For Chipotle, earnings came in ahead of estimates at $340 million, but revenue and same-store sales were both slightly below expectations. Emily, the stock fell 10% post-earnings. Is that because the Q3 outlook wasn't as rosy as people were expecting? Yeah, the key word there is the expectations, and Chipotle has had an incredible couple of years

as they've successfully increased price hikes and proven that they have a little bit of resilience and pricing power when it comes to the people, who will pay up for the Chipotle experience. But I think part of the reaction is the writing that's on the wall for Chipotle heading into the next couple of quarters when they don't have the same ability to raise prices as they did in the past. And management has so much has said that. But now they're lapping some quarters in the previous year where they actually did raise prices and had some great growth on top of it. So there's just some near-term pressure that Chipotle is

experiencing. But you have to give credit where credits do with this company, which is despite these question marks about the economy and the question marks about the massive price, price increases that everybody, Chipotle included, has seen our last couple of years, is they're still driving transaction growth. And the comp growth in this most recent quarter was really incredible, 7.4%. And that's driven mainly by increases in traffic. So not just those price increases. People are still coming in and paying up that Chipotle experience. And one of the things that they do that I've been so skeptical about, but it's incredibly powerful, is the launch of new kind of limited-term products. They had a chicken alpaste store over the most recent quarter,

which performed incredibly well. These little upsells they get people into when you walk into Chipotle, you end up spending a little bit more money for these new products, and that strategy works out well for them. I would say, yeah. I mean, I think this is an example of a company, and there's probably several that we're going to talk about today, where it's been such a good period of time for the company coming into earnings,

and I think Chipotle was trading for around 60 times earnings, roughly, if I have that right. So I'll have really no room for error for a company that's just done so well. So, you know, it's not surprising maybe that the market, on a slight missed expectations, it's going to hammer the stock as much as it did. One of the things that jumped out to me with the report is Chipotle opened 47 new locations during the quarter. 40 of them, including drive-through lanes. It seems like so much of the focus for this business is the digital ordering, being able to get people in and out as quickly

as possible, almost a little bit more fast food-like than maybe fast casual-like, Emily? Well, they're competing with both fast food and fast-cassual. We've seen competitors like Sweet Green and Kava in our public markets are their most recent couple of years. So they have new competition while at the same time trying to pull people who would normally make that stop at, say, McDonald's or Wendy's or Taco Bell, maybe they have the opportunity to just as conveniently order from a business like Chipotle. But I will say this, and I have to give credit where credit is due in terms of this management team. Brian Nicol has been so focused on the minutia of running this company that it is really turning into an operational

machine. And if you don't believe me, go back and read the transcript from the most recent quarter because management sends a lot of time talking about things as small as what grill they're using or what the expediter is doing, whether they're working on mobile orders or on the line that's building in front of the store. I mean, they're trying to focus down on what makes a really efficient business so they can compete with these new customers and some of it being really efficient fast food businesses, too. We also saw some big moves from Spotify post earnings. The company added 10 million new premium customers in the quarter,

bringing the tally to 220 million, over 550 million monthly active users total. I look at this business assembly, and I say, all of the things seem to be moving in the right direction. What's going on here? Thank you. Thank you, Dylan. I'd say Spotify is probably most underappreciated company on the market over the past couple of years. This is an operational machine, in my opinion. They have an incredible ability to monetize and grow their user base, but because the ad revenue market has in general been so soft, their podcasting business has been draining on their gross margins. And so Spotify, following the lead of so many other tech companies, has gone through the process of trying to turn their business a little bit more operationally efficient. And that involved

things like layoffs. They might not be done quite yet. But because Spotify is a company that's based outside of the United States, the cost that they have associated with things like layoffs are a bit higher than I think what American investors are accustomed to. So when they saw this quarter and they saw ballooning losses, they attributed that to a failure of their ability to drive efficiency, when in reality, after adjusting for these one-time severance costs, the operational improvements have been pretty dramatic. Their adjusted gross margins have grown over time. Their operating margins have grown over time. They're still loss producing. But the actual business itself, and the way that management's running the company, I think, continues to perform really well.

550 million monthly active users? If I'm still listening to Pandora, which I am, does that make me a dinosaur? I think so, Matt. Can I ask you a question? That $550 million, how much do you think that was a percentage increase year-over-year? I couldn't guess. 27%. That is. Incredible.

Monster growth. Monster growth. So I am both a shareholder of Spotify and a user of Spotify, and I saw some news related to the company this week. That was a little bit of a mixed bag for me because prices are going up. The standard plan pricing is going from $999 to $1099 as a shareholder. I say, oh, this is great, we're seeing some pricing power. As a user, not exactly thrilled to be paying a little bit more. Emily, what do you make of that? Yeah, the exact reaction I had. This is the first time they've raised prices on their U.S.-based

consumers. So this is that question mark. Okay, do they have the pricing power? Because there is competition in streaming, Amazon Prime, Apple Music. I mean, they have options. Consumers have options. But I like to believe, as both a Spotify investor and a Spotify user, that they've built a little bit of a moat in terms of the content, not only in terms of podcasts, but playlist and other sort of, I dare to say, AI generated. But really, they have a deep understanding of what their customers want in a way that I think is better than a business that is a bit more diversified in their focus, Amazon being a great example. So I think this price increase will work out for the better for them. All right. After the break, we've got updates from Big Tech.

Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Dylan Lewis here in studio with Emily Flippen and Matt Argersinger. The Big Banks kicked off the reporting season, but big tech is really what I like to pay attention to. It's my bread and butter. We have updates from Alphabet, Meta, and Microsoft. Matt, for Alphabet, Google Parent posted revenue and earnings ahead of expectations. Top line grew 7%. Shares up almost 10% since reporting. What's going on here? Very solid, and I would say it really comes down to, I think, two things that got investors excited. I'm also a shareholder, so I was pretty happy to.

The first, the core business is definitely bouncing back. really struggled over the past year or so. But Google's ad revenue rebound at 3.4%. That was higher than consensus. There was growth in both search and YouTube, which kind of had been a little bit of a slowdown as well. So it looks like the headwinds that were really affecting the overall digital advertising space have started to dissipate.

Then you have the Google Cloud business, which was up 28% year-over-year in terms of revenue, but more importantly, also had its second straight quarter of operating profits for that segment. And operating margin there was much higher than it was in the first quarter. So I think that has investors excited about, well, finally, we see this Google Cloud business on maybe the same ramp that ADWS took several years back for Amazon and really going to start contributing massive amount of profits to the business.

Yeah, everyone's focus on cloud revenue for this company. You can understand why, but I will say, and I'll reiterate this, I think YouTube continues to be an underappreciated asset for Alphabet. And there's a reason why the ad market, I think, is firming up a bit more for them than it is for other players, in part because they have these platforms, that are much easier for advertisers to monetize on in YouTube, especially with their YouTube shorts, I think has something really special. And when you consider the fact that there is a writer's strike and an actor's strike right now,

the fact that all the content on that platform is user-generated content can help them potentially grow streaming hours, which further improves their ad revenue in future quarters. In fact, if you look at total U.S. TV viewing over the course of May in this year, YouTube was the single largest platform at more than 8.5% of total viewing hours. That's larger than Netflix, that's larger than Hulu, HBO, all of those streamers. So there's something powerful on YouTube, but yeah, everyone wants to talk about cloud revenues, though. Cloud this, cloud that. One of the things that jumped out to me in the report was Ruth Porat, the company CFO, is leaving the role to become president-in-chief investment officer.

Matt, you have talked a little bit before on the show about Alphabet's capital allocation decisions, and I'm curious, knowing that there's a new person heading into the CFO seat sometime soon, any advice. I would say, please, please, new CFO, new wonderful CFO, initiate a dividend. I think that's what investors would really love to see. You've done a lot of buybacks, but I think a dividend, we know throughout history, companies that initiate and grow dividends over time are the best performing stocks. Do it, Alphabet. They've got the cash for it.

They certainly do. Speaking of cash, we're talking meta as well when we're talking big tech. Shares of the company up 9% following earnings. Company grew revenue 11% year-over-year to $32 billion, while earnings increased. by 21%. This seems to be indeed the year of efficiency based on those growth rates' separations there, Emily. Yeah, it's great for meta because they've set out these efficiency targets, and they've certainly been hitting all of them. But the company is now trading at a very similar valuation as it was around two years ago, right before the giant metaverse-fueled

crash that meta-experienced. And so now there is this question mark about what management strategy looks like from this point forward. And I'd say that this is the type of business that, in my opinion, succeeds not because of its capital allocation strategy, but in spite of it. They have these really highly profitable platforms that have been fueling massive losses for this Metaverse venture that Zuckerberg continues to lead the company towards. And I like some of what they're doing. I like the partnership with Roblox, as one example, right? Getting that platform on Quest headsets can just further expand the actual real-life use cases. But we are still so far away from this being a material contributor to not only revenue, but earnings as well.

But I have to ask the question about when meta shareholders get impatient with the company again. I'm not sure that this company is substantially different than it was two years ago. To your point, Emily, meta has lost $20 billion since the beginning of last year with its Reality Labs division. I do wonder if there's going to be a point where investor patience kind of wanes on that. It seemed like that was something that was happening, but maybe the company's bought itself a little bit of time, Matt?

I think it has, Dylan. Because here's the one number I was looking at. If you look at all of 2022, meta-generated about $18 billion in free cash flow. In just this second quarter alone of 2023, it generated $11 billion in free cash flow. So that's the year of efficiency result that Mark Zuckerberg got. And I think that's what's buying him time to pursue this, I don't know, meta-verse strategy that Emily kind of laid out that, you know, who knows where that's going to go. but I think he bought himself time and the company time to continue to pursue it.

You mentioned, Emily, the incredible year-ish couple years that this business has had, and shareholders have had. It's been kind of a wild ride. The company, over the last year and year-to-date, has performed fairly well for shareholders. Do you feel like, to some extent, the easy money with meta maybe has been made? Yeah, it's always this kind of curve whenever you see a business pursuing efficiency, which is this first couple of quarters after launching these new targets are really easy because you're trimming the fat. But at some point, that easy fat's gone,

and you're down to actually trying to grow the business while also not allowing yourself to get too bloated. And the issue with this investment in the metaverse is it's really easy to get bloated because you don't quite know where your money is best spent yet versus when you've been running a platform like Facebook for so long. You've a pretty good idea about where you're going to invest money and generate substantial growth from that or earnings from that.

With the metaverse, it is prone to be very expensive very quickly. Now, that doesn't mean it can't be successful. successful, but it does mean that meta-shareholders had to be mentally in our wallets, it's right, prepared for that reality. And after this past couple of years, I'm not sure if investors are prepared the way that they might need to be. Microsoft reported this week and didn't quite participate in the rally in the same way that some of those other big tech names did.

Earnings and revenue came in ahead of expectations. The top line grew 8%. But the stock is down about 5% since reporting, Emily. Yeah, it's a punishing time for Microsoft because they've had such a tough year. No, I'm teasing. The expectation for Microsoft have been incredibly high. They're an early investor in OpenAI, the owner of ChatGPT, so they've benefited a lot in terms of their valuation from AI hype.

And this quarter was probably going to be a rough quarter for them no matter what, just because the expectations heading into it were so high. But revenue growth of like 10%, not anything to scoff that for a company of their size. What I really like is that while there are a lot of companies looking to benefit from AI, Microsoft actually has AI that is driving revenue, which is really what I care about. How is that actually going to impact the financial goals? of a business and with their new co-pilot, which is an AI-generated kind of productivity tool, costs $30 a month per user. That's expensive, but they're selling it, so somebody out there

who's clearly buying it. And they've clearly established that subscription productivity market already. This is not a big stretch for them to add this to something that someone might already be paying for in their office suite. Yeah, I like the practical use cases. I think Adobe and Photoshop being another good example of a company that has practically used AI to generate sales. I like what Emily said about expectations going in, because I think, you know, rather than, like, if you look at Microsoft coming into earnings, it was trading about 35 times forward earnings, whereas alphabet and meta, closer to 20 times forward earnings. And so it's like what we talked about with Chipotle in the beginning of the show. It's just companies have done really, really well and come in with a lot of expectations. If they haven't just crushed a grand slam with these earnings, they're selling off a bit.

And that's kind of to be expected. Matt, this is one of the first times we're talking about Microsoft without also talking about Activision Blizzard and the will- they won't they close that deal? Anything up there with the updates? I would say, no, but I would say at this point, there's probably a 90% chance it closes. And by the way, if you're a shareholder in Activision, which I am, you're going to get a dividend payment in August, which is kind of nice. But I do think it's going to close. After the break, we've got more earnings updates from Live Nation, Roku, Coca-Cola, and more. Stay tuned. You're listening to Motley Full Money.

Chill out what she yelling for. Lay back. It's all been done before. Welcome back you could only let it be you see. Welcome back to Motleyful Money. I'm Dylan Lewis, joined again by Matt Argusinger and Emily Flippin. Too many earnings updates to count this week, so we've got more company updates instead of our usual Friday interview, and we're going to jump right in, starting with Roku. Emily, Roku smashed expectations with its quarterly update,

massive top line beat, sales hitting nearly $850 million. Loss is a little narrower than expected, sending the stock up 20%. Emily, so much for a soft ad market? Well, the power of low expectations. I'd say the ad market is still soft for Roku, but they managed to grow revenue on their platforms, which is mainly ad revenue by 11%. And they said they saw some firming. But let's not forget that Roku is a little bit different than a lot of other advertising-based businesses that they compete in the scatter ad market. So they don't have contracted ad revenue the way that other competitors may, which tends to be a bit more volatile for them. So it was a good quarter considering the fact that traditional TV ads for the scatter market

were down something like 17% in the quarter. So just continuing to transition away from traditional TV towards more connected TV, and Roku is a natural beneficiary of that. This is the type of business that has always had me scratching my head. I'm a shareholder. I've been a fan of it over numerous years, although my competence has waned as I've been confused by how management is spending their time and their money, getting into the smart home business, getting into the original content. But it seems like this is a company that is poised to succeed in spite of these decisions, which is to say the operating system that Rokaneh created is just incredibly sticky, both in the United States or they're still growing streaming hours and active accounts,

but also internationally as well. In Latin America, they're the number one selling operating system. And just as long as they keep growing their users and their engagement, it's really hard to see a world, they're not better monetizing those viewers over time. So a lot to like in this quarter. Emily, you were talking before about how their ad business maybe is some of the easier spend to cut or some of the more nimble spend that marketers use. I'm wondering, given that a lot of their advertisers are also in the entertainment space, and we have a writer's strike and an actor's strike right now, do you have any concerns about reduced ad spend for new shows, new movies, hitting a company like Roku maybe more than other advertising companies?

Yes, and I would expect that it will. So obviously, Roku alongside so many different companies, are hoping for an end to this rider strike sooner rather than later. But ultimately, what drives engagement, what drives ad spend, not only from the people who are placing advertisements for the people who are watching them, is good content. And without good content, people aren't going to be turning on their TVs as much. So that's certainly pressure in the near term. But I do think Roku benefits over the long term from things like ad-based tiers for streaming,

more expensive streaming prices, all those naturally flow into. a better business for Roku. So these are some near-term headwinds, but whether or not I think it'll actually impact a thesis for holding Roku shares or the long-term, I'd say no. From the small screen to the big stage, Live Nation reported this week, Matt, revenue for the ticketing business hit 5.6 billion earnings per share came in at a dollar, up 55% year-over-year. Seems like people are very happy to dull out money for the live experiences. They certainly are, Dylan. So impressive. 27% growth in revenue, to what you said, 5.6 billion. That was way ahead of consensus, which was right around 5 billion. The lion's share of

that revenue comes from the company's concerts business. And what's interesting is that the number of events produced by Live Nation in a quarter actually fell about 2% to 12,241, but the number of fans intending rose 9% to 37 million. That's a huge number. But I can't get this number out of my head. 12,241 events. That means Live Nation is putting up roughly 136 events per day, and there's 90 days in a quarter. That's mind-blowing to me. Now, I know some of those concerts, quote, can be kind of a short, single artist show, small venue. That's still a lot of events in a single quarter. Yeah, they only put on 12,000? That was down to year. Yes, it was down. I mean, it's just an amazing number. And then tickets sold, which is another part of the business, that climbed 70% to over

150 million tickets sold. So just an absolute monster of a quarter for Live Nation. I think when people hear the name Live Nation, they often think of Ticketmaster. And this is one of those businesses where I think if you're a shareholder, you're happy. If you're a user, you have your gripes with the business. This is a company that often catches flack for some of its practices. They've had executives on Capitol Hill in the last year or so. Are you worried at all about regulatory intervention with this company? You know, I'm not so much worried as I think I was six months ago. I assume, by the way, after all the scrutiny they got, that they were going to spin off this business.

I still think that actually might be a good move down the road. But, you know, they've addressed how they handled the big surge in ticket sales for big artists like Taylor Swift. They're working on all those little fees that it could attach to these tickets. And so I think they're taking action. I still think they'll spin it off at some point. I actually looked at this company a while ago for one of our services, the real estate winter service here at the Motley Fool, because I really like the real estate behind this business.

They have some iconic venues, some just real estate that you can't be replicated anywhere in the world. But I got scared away a little bit by the Ticketmaster's scrutiny. Maybe I need to revisit that thesis, but of course, the stock's already run away from me, so I don't know. Emily, all of the spending that we are seeing on events bodes well, especially for the credit card companies. Last week, we were checking in on American Express. They saw record spending. I imagine we're seeing some pretty strong spending looking at MasterCard's results this week as well. Yeah, whether or not you think that's a good thing or bad thing, I think remains to be seen.

But MasterCard is certainly benefiting from an increase in spending over the most recent quarter. In their most recent quarter, they beat on both the top and bottom lines. Not unusual for MasterCard. But it was largely, in this case, thanks to international travel. They saw cross-border payments rise 24% in the quarter, which is spectacular. And you may wonder, well, why is the stock not really moving here? And it really hasn't moved. And part that I think is because the market is betting that these benefits are short-lived in nature,

We're still seeing some post-COVID weirdness. Management called out, you know, travel into China picking up, but still being where it was or below in 2019. So there's a bet that all. The slowdown is probably going to come for this company. But for right now, it's a decent quarter for MasterCard. The big question mark remains of what does the health of consumers look like in the second half of the year? And MasterCard, in comparison to a company like Visa, does have the benefit of being a little bit less reliance upon revenue generated from the United States. They have a bit more diversification in terms of global exposure. I think less than one-third of their revenue comes from the U.S. It's larger for most other card makers. So they have that benefit. But they need that increase

in spending because they make their revenue from increases in transactions. So they need, use your card, use it more often for smaller or more frequent purchases. And let's just keep our fingers crossed that regulators don't come in and say, hey, you know, Ticketmaster, Master, This little fees that you charge. Yeah, we're going to do something about that. Yeah, I was going to say this is going to sound similar to our Live Nation segment, but I'm wondering, is this an industry that you worry about lawmakers saying, you know, I see what you're doing there, and this seems awfully consolidated. I do. And I know that our regulators, at least in the United States, have been a little bit all

over to place. So betting on any sort of regulatory change, I think, is a fool's move in one direction or another. But it's hard not to see the pressure that businesses are getting from consumers. or in this case, card makers are getting from smaller businesses when they have to charge 2% of that transaction going to the Visa or MasterCard. That's very high. It's very owners, and it causes price hikes for consumers. So there could be some regulatory pressure there. We also saw results from Coca-Cola this week. The company reported earnings and revenue ahead of estimates and raised its full-year outlook.

Matt, is this a continued example of a pricing power story? It is, Dylan, but before we get to that, I'm just so glad we're talking Coca-Cola here. Because, you know, today, as you know, Dylan, I'm here as Clark Kent. But as you know, my alter ego is Superman. No, no. No, it's not. I'm so glad you said Superman. No, it's Ron Gross.

Oh, yes. Ron Gross, of course. Our other superhero. Right. Or maybe Super Grossman. I mean, I can almost hear Dan Boyd shaking his head behind the glass. But Super Grossman loves boring, stodgy dividend companies like Coca-Cola. And so do I, and why shouldn't he? I mean, this is a company still putting up impressive results,

even as matured as it is. But, yeah, like you said, it's all about pricing power. Because if you look at Constrate volumes, they were up only 1% in the quarter. Case volumes were flat. They were even down 1% in North America. But sales were up 10% on a price and mixed basis. So overall, if you strip out the currency effects and some of the non-recurring expenses, Coke's organic revenue was up 11%. earnings per share on the same basis, we're also up 11%. So, this is a company that's still a very modulently growing company, especially in overseas

markets, paying a 3% dividend. A lot to like. Ron Gross would love it. Astute listeners may note that it's been a while since both you and Ron Gross have been on the show together, Matt. Do I need to start investigating whether you are the same person? We might be the same person, Dylan. You never know.

With a company that operates in kind of a lower-tier, kind of like lower-priced product, do you you worry more about the pricing power fueled elements of their growth? Do you think that there's a little bit more sensitivity? Well, so far there certainly hasn't been, but I do question how far that pricing power extends. Coca-Cola has done a great job, sort of building out their portfolio brands. So there are many more things besides just soda, water, fruit juices, teas, and the brands have exceptional followings. But I would say at some point, you can't raise the price five, six, seven, nine, ten percent, and before it starts hitting demand. So there's that issue, and I think they're also facing some scrutiny, as we know, with the diet soda,

whether or not there's negative health effects there. So far, though, pricing power has held up really, really well. The question is, will it continue to hold up as we go forward? Before we head into the break, I want to take a step back and look kind of just broadly at what we're seeing so far this earning season. We've gotten some interesting looks at ad spending. We've been able to see a little bit of where there is and is not perhaps some pricing power. Emily, what are you seeing this earning season and what stories are emerging for you? You know, it's funny, despite the fact that this has been a great year for tech companies in a way that 2022 was not, I still feel like there's a little bit of skepticism around companies that are not generating sustainable profits right now.

I think the bar is higher. If you're coming into this earning season with ballooning losses, an example being Spotify, then investor tolerance for the numbers you put forward is going to be smaller. And that's despite the fact that the economy is strong, it's been a good year. I just think that there is still this fear that is hanging in the back of Wall Street's mind that is causing some knee-jerk reactions on many of these companies. Do you think that some of that is a reflection of the higher borrowing environment that we're in with higher rates, or do you think there's something else there?

I think there's something else there because I'm seeing this, regardless of whether or not that company is in a decent cash position, right? There's companies with billions of dollars on their balance sheet and cash are marketable securities that are still unprofitable. They don't need to go to public markets anytime soon, but the market is treating it. like they do. Matt, what about you? What's jumping out in the turning season? Yeah, I think, just based on the companies we talked to on this show, I think valuations matter a little bit. I think if you were a company like Microsoft or Chipotle coming in on a bit of a heater,

lots of momentum, you know, your stock gave back a little bit because maybe results weren't quite as amazing as analysts expected, whereas companies with some question marks, like a Roku or a Live Nation even, are outperforming. And I think that's kind of the story here so far. It's companies that are demonstrated a lot of momentum, kind of giving back some. Companies that maybe not have participated so far are catching up. All right. Coming up after the break, we've got stocks on our radar. Stay right here.

You're listening to Motley Full Money. You had plenty of money in 1941. You lost it all, and then a way you run. Why don't you do like some other men do? Get out of here and get me sick. 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 ourselves stocks based solely on what you hear.

I'm Dylan Lewis, joined again by Emily Flippin and Matt Argersinger. We've got stocks on our radar, but we are checking in first on the summer box office. People are back in theater seats, thanks to Barbie and Oppenheimer releases both performing strong, but Barbie's posted an eye-popping half a billion dollars in the global box office. for its first week. Matt, did you have any notion that it was going to register a number like that? Absolutely not, Dylan. I can't believe when you said the number this morning. I just cannot believe it's been that popular. But credit to, Mattel, credit to the director, credit to the producers, because they made a movie that obviously has wide, wide appeal. Because I've heard, anecdotally,

you know, men in their 50s going to see Barbie. I mean, it's just, it has that brand has that nostalgic feeling. And years ago, if you'd said, they're doing a Barbie movie, I would have said, okay, maybe girls between the ages of seven and 15 will go see that movie and be great. But this obviously has a universal appeal. Yeah, this is a really conscious decision on Mattel's part. I think they were trying to modernize the Barbie brand a bit. And for people who are familiar with the movie, the movie is rated PG-13, for instance. So they're kind of dismissing that younger female audience that would typically be what you would associate with a Barbie brand and going towards a more mature audience, updating Barbie for the modern era.

Now, does this lead to a sustainable increase in Barbie IP? Maybe, but what we can see is that it has widespread appeal, and I think in part thanks their decision to focus on a slightly more mature audience with slightly more mature themes that has, obviously, in combination with Op and Higher, taken the internet by storm. So Mattel, it seems very clearly, is looking at what Marvel has done over the last couple years and saying, we have IP, we're interested in doing this. They reportedly have 14 properties in active development making use of their intellectual property library. I want to run a couple

of these by you and see if any of them seem to have half a billion dollar box office potential. We have Barney, Polly Pocket, Thomas and Friends, an American girl. Emily, do any of those jump out as something that has the appeal of Barbie? I feel like the only one that stands out to me, and maybe I'm showing my age here, is Barney. Because I feel like that's probably the brand that people will. When you say the word Barney, you know immediately what somebody is talking about. The same way when you say Barbie, you know what Barbie is. Now, can I picture an American girl doll in my head? No. Can I picture Polly Pocket in my head? Definitely not. So I feel like that's what they have the most potential. But I do feel like trying to modernize Barney for potentially

a more mature audience is going to be harder, I think, than Barbie. Matt, are you seeing a Barney movie? Matt, are you seeing a Barney movie? I am not, Dylan. I mean, yeah, I'm very skeptical I think this is a very cautionary tale to look at what Marvel's done and see if you can replicate that. I mean, look at Hasbro, for example, to use a company very similar to Mattel, which had some success with those Transformers movies, but then try to do battleship and a few other movies that just didn't kind of fell flat. So, you know, take it slow and focus on your best IP. So one of the things I'm curious about with this IP extension thing is there's a clear playbook here,

and we are seeing these properties that have really large libraries say, you know what, we can update this, maybe make it relevant to a new audience. Barbie's a big splash. But I do wonder, as we become more aware of what these companies are trying to do, Matt, will the consumer appeal for some of these movies start to wane? Well, right. Look at Nintendo this year. She's a really recent example. Super Mario Brothers, you know, wide appeal that the movie did incredibly well. And Nintendo's already come out just like Mattel and said, hey, we've got, we're going to have Zelda. We're going to have all these other movies potentially around our IP. I think the playbook gets old really fast, as Emily kind of alluded to. So is it's a sustainable.

I'm not sure. 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. Emily, you're up first. What are you looking at this week? Yeah, I have an interesting company on my radar this week. It's Borg Warner. The ticker is BWA.

And over the last couple of years, Borg Warner, who is a traditional kind of like auto parts manufacturer, has been solely transitioning its business to a more electric future. So they were known for their internal combustion engine parts, but now they're getting into the EV parts. they actually made a big move earlier this year to spin off their traditional kind of diesel-focused parts into a separate business that's now publicly traded called Finia, leaving just this really electric-focused Borg-Warner business. And I like it because I think it's a more under-the-radar, picks and shovels-esque play on the trend of electrification.

So if you're an investor who likes companies like Tesla and you kind of believe in the future of electric vehicles, but you're looking for a way to play that same growth without buying and manufacture themselves, I think Borg Warner is one to consider. Resistance is futile. Dan, a question about Borg Warner, and can you say it three times fast? I'm not even going to try that second one, Dylan, but I do have a question. Emily, did you make this company up to bring to the show today? Because I don't think anybody at the table has heard of this one.

This is actually a recommendation in Stock Advisor for listeners who have a subscription to Stock Advisor. I definitely recommend it. It's an old company. It's been through a lot of changes over the last couple of years, but I think their leadership team is very forward-looking. I love it when people bring new ideas to the show. Matt, what's on your radar this week? I don't think this is a new idea because I think I've talked about this one before, but invitation homes, ticker I-N-V-H. It's the country's leading single-family rent-react.

They have over 80,000 single-family homes, many of which reside in kind of the faster-growing Sunbelt states like Florida, Georgia, Arizona, and Texas. Outstanding second-quarter results this week, rent growth on new and renewal leases. average 7%, and that's coming off double-digit growth last year. This is about the housing market, if you think about, low inventories of existing homes, multi-decade high mortgage rates. Millions of millennials are just now entering those prime homebuying years. Like Emily just bought a house recently, but a lot of them are priced out. It's just a really expensive market, and you can rent one of Invitations' homes from about $1,000 less, get the privacy, get the yard, get the bigger space that you're looking for. I think it's a huge value prop.

Dan, a question about invitation homes. Yeah, Maddie, yesterday on the show, Matt Frankel was talking about how there is an affordable housing shortage. Is Invitation Homes investing at all in affordable housing? Well, not directly, but if you think about their portfolio, it includes a lot of relatively affordable housing. So if you're a resident or looking for a home or looking to buy a home, you're going to pay a lot less to live in one of Invitations homes. And so in a way, I think, yeah, it is more affordable. Dan, which company are you putting on your watch list? Invitation Homes or Borg Warner, Borg Warner, Borg Warner.

It's hard, Dillon, because they actually do both seem like good companies, but they're not making any more land here. So I'm going to go with Invitation Homes this time around. All right. Makes a lot of sense. Good call, Dan. Emily Flippin, Matt Argersinger. Thank you both for being here and bringing your stocks on the radar. Thank you.

That's going to do it for this week's Motley Full Money Radio Show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll catch you next time.