Motley Fool Money - Weight-Loss Drugs and Coca-Cola

Episode Date: October 24, 2023

Being a CEO is probably a pretty sweet gig. So why are so many leaving their posts?  (00:21) Ricky Mulvey and Bill Barker discuss: - General Motors quarter and the latest in its dispute with United Auto Workers. - A slowdown in electric vehicle production. - Coca Cola’s business and stock performance. - Why a record number of CEOs have left their seats this year. Plus, (13:53) Robert Brokamp and Alison Southwick discuss the pillars of retirement planning. Companies discussed: GM, TSLA, KO Stock Advisor Discount Link: www.fool.com/MFMDiscount Hosts: Ricky Mulvey, Alison Southwick Guests: Bill Barker, Robert Brokamp Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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Strike? Wait, what strike? Oh, oh, that one. You're listening to Motley Full Money. I'm Ricky Mulvey, joined today by Bill Barker. Bill, good to see you. Good to be here. So one of the more exciting companies, at least right now, reported earnings this morning. General Motors beat top and bottom lines, but pulled guidance because of the ongoing United Auto Workers strike. Often when management it pulls guidance or lowers it a little bit. Investors react negatively and there's a big sell-off. Didn't seem to happen in this case. What do you think is going on? Well, I think that pulling guidance is usually a sign that things have gone wrong or are going wrong. And the particular reason that no guidance can be given is already known. The strike really

has no definite endpoint and there's no bargaining power that you can improve by saying, Well, we think this is going to clear up at some certain point. So we just take a step back, say we can't tell you what the next quarter is going to be like. You already knew that. You know, in the market, it's going to react to the actual news, which in this case is what happened in the past quarter rather than what's happening in the near future. Yeah, there seems to be multiple games being played in this case where GM is not just reporting to shareholders, but also there's the political game of what do you do about this strike.

There's a little bit of a disagreement between CEO Mary Barra and the United Auto Workers on it. Barra said, quote, The current offer is the most significant that GM has ever proposed to the UAW. The majority of our workforce will make more than $40 an hour or roughly $84,000 a year by the end of this agreement's term. Continuing, they've demanded a record contract, and that's exactly what we've offered for weeks now, a historic contract with record wage increases, record job security, and world-class health care. A very different picture from the UAW saying, quote, despite having made more than $10 billion in profits in the past nine months,

breaking revenue records for another consecutive quarter and beating Wall Street expectations, GM's latest offer fails to reward UAW members for the profits they've generated. GM's offer lags behind Ford with the company proposing a two-tier wage progression, the weakest 401K contribution offer on the table. A deficient COLA and other shortcomings, end quote. UAW also responding to the earnings announcement by announcing a strike at the Arlington Assembly plant, which makes those very profitable, full-size SUVs. Bill Barker, that is enough setup.

What say you to this argument as an investor? Well, they're both right. You can pick your numbers to make your story look good, and it's a record. offer, I'm sure. That doesn't say that it's a record offer inflation-adjusted, or that GM is making record profits on an inflation-adjusted basis. These are just headline figures that you can use to support the points you want to make. They're not terribly close, it seems like, in the negotiations. And I think that the workers can probably afford in the current. climate to hold out for a bit. I imagine it's a little bit easier if you're on strike to

find some secondary money that you can make somewhere. But I think that this doesn't seem to be all that much closer to being resolved yet. And I don't know what is going to change that. Yeah, I do have a feeling. We talked about this a little bit. And I've discussed this. with co-host, Deidre Woolard, I would be very surprised to see this go past Christmas. I think it would be, I talked to a game theory strategist a few weeks ago on the show named Mark Robinson. Basically, that would be politically unsavory for the union because people get time off over Christmas, not having a salary to buy Christmas gifts might not be the best, and you also have a union leader who just won an election on razor-thin margins. We'll see how it plays out. But you know what,

I'm willing to put that guess on the record. The other part of this earning, announcement is that Barra announced that GM is, quote, moderating the acceleration of electric vehicle production in North America doing this to protect our pricing, saying this is because of slower demand. They're also looking to implement engineering efficiencies to make those vehicles less expensive and more profitable. Seems like the big elephant in the room that GM is responding to as well is Tesla. You think this is also, you know, maybe in response to some of those Tesla price cuts? Well, we'll see if it transatlantic. translates into, they're talking about trying to protect their pricing, therefore trying not

to make too many vehicles that don't get sold very quickly and then have to make price cuts, the vehicle by which you clear the inventory. There is not as much demand as they were hoping for. They pointed to slower demand. That doesn't give you a lot of pricing power. Tesla's price cuts also don't give you a lot of pricing power. They are not playing the game of just building vehicles to look good in the eyes of whoever thinks that making more electric vehicles is the best thing. They've got the headlines for the amount of the business that they are going to focus on, EV, and they're taking a step back. That's not going to make as big a headline when you take

a little step back from that. Worth talking about also a different mission in terms of GM, assuming that they're trying to make a profit by selling cars, Tesla, maybe with a little bit more of a stated existential mission of moving everyone to an electric vehicle future. So I think there's some different incentives at play as well. Yeah, well, I think that right now GM can only afford so many different ways that it's losing money with the strike as well. Now is not the time to invest heavily into something that is not making a profit right now. There's plenty of time to do

that in the future. The demand, presumably, if they are able to get more efficient, which they're talking about implementing these engineering efficiencies, that'll allow them to be more competitive and either lower the prices and maintain margin. or just make more vehicles and make it up on volume. So they don't have it yet. They haven't landed on the super popular item yet, and they've got time to figure that out. In the meantime, the CFO estimates the strike has cost GM $200 million in revenue a week moving forward. While we move forward, let's take a look at Coca-Cola also reported this morning.

highlights organic sales up 11% from the prior year, mostly from higher prices, but volume also grew. They raised full year guidance for the top and bottom line. CEO James Quincy says he expects prices to moderate, price increases to moderate in the coming year. Anything stand out to you about this quarter from Coca-Cola? Nothing really jumps out as exciting. It was a good quarter, solid quarter, better than the market expected. Part of that, of that, I guess if you're looking for something good that's applicable beyond Coke, would be that the transportation prices are better, so that helped their margins a little bit. The profits improved fairly nicely. Organic sales up 11 percent. Of course, that includes a lot

of inflation over the last 12 months. It's moderated in the last few months. But if you take the last 12, I don't know what that is worth, 7 percent, 8 percent. percent of that total top line organic sales number of 11 percent. So better than expected case volumes, sort of everything a little bit better than expected. That adds up to a nice quarter. The one that the CEO was not eager to talk about in prepared remarks, but an analyst sure wanted to hear about it, is the impact, the future impact of those GLP1, the weight loss drugs.

It's probably one key reason the stock is down about 11 percent. on the year while the business continues to perform. I thought is, you know, what if this is an overreaction and, you know, could this be a good time to pick up a defensive stock? Well, it's on a multiples basis. Coke is probably, other than sort of around the panic in 2020 at the beginnings of March, about as good a price on an enterprise value to EBIT or sales, price to earnings. as it's been since about 2016, early 2017.

So the market is not pricing in as much optimism. Still low 20, 23 multiple on earnings. Yeah, I would say it's a more attractive opportunity today made possible by some of that OZempic and other drugs of the same category. Fears, I wouldn't put that much. stock myself in the American public curtailing eating over the long term, but we'll see. Well, as CEO James Quincy pointed out on CNBC, this company is in the liquids business. So even if people are eating less, they still need to drink things.

Also, about two-thirds of Coca-Cola products have low or no calories. So if you're on Ozempic, maybe you don't want regular Coke, but diet Coke is still there for you. Right. Well, I guess the mechanism of the drug curbs cravings for food, but not necessarily cravings for sugary things because of the way that it interacts with blood sugar. So how that adds up to the entire suite of Coke's offerings, I don't know. But it's not impacting things yet. I understand some caution by the market on what might happen. happen. The main sales, as you've said, are in low calorie or no calorie drinks anyway. So I think that Coke is better insulated than its rival Pepsi.

Moving on to the final topic, stepping away from earnings. It seems like more CEOs are leaving. We've covered a few of them on the show. It's because they are. 1400 chief executives have left their positions this year, according to a report by executive coaching firm, Challenger, Gray, and Christmas Incorporated. That's a pair of three names. Anyway, that's up by 50% from the same period last year. Some of the reasons include pandemic burnout and also a greater stability. CEOs tend to leave when there's greater stability. They don't want to leave while things are mixed up.

Any other factors coming to your mind about this wave of CEO departures we're seeing this year? I think it is a lot of built up. The numbers were lower 2020, 2021, 2021, 2022, while people struggle. with how to get through the pandemic. And so you had just as certain things were bought back then in volume and can no longer be bought in volume, the dearth of CEO departures because of the pandemic and people feeling an obligation to stick around and see the companies that they were at through a crisis, built up a little

backlog. I think that's what the number is mostly pointing to. I don't know. I think that the general CEO positions are about as good a thing to have today as they've been in the past. So, I think that there isn't going to be an explosion of departures from those jobs. One of the largest categories was for government jobs. So I think that's an indication of something other than just business being all that tough. As always, appreciate your time and your insight, Bill Barker. Thanks for having me. The analysts you here on the show have a whole other day job, providing premium coverage and recommendations for the Motley Fool's suite of stock investing services. We're giving our listeners a discount on Motley Fool's flagship service. It's called Stock Advisor.

So if you're interested in more analysis from our team, two stock recommendations per month and access to Stock Advisors' Full Scorecard of companies, visit fool.com slash MFM discount. We will also put a link in the show notes. All right, up next, it's always good to talk about the daily news, but some fundamentals don't change. Allison Southwick and Robert Brokamp discuss the pillars of retirement planning. These days, I'm all about quality over quantity,

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Don't keep settling for clothes that don't last. Go to QINCE.com slash motley for free shipping and 365-day returns. Quince.com slash mrs.com. Molly. Retirement. It's the number one financial goal for most Americans. Very few people want to work forever, even those who generally like their jobs. Unfortunately, no one is planning your retirement for you, at least not if you're an American. A recent Wall Street Journal article with the headline, the U.S. gets a C plus in retirement, discussed the latest assessment from

the Mercer CFA Institute Global Pension Index. The U.S. came in 22nd out of 47 countries, partially because Social Security has solvency issues and employers are not required to provide retirement plans. Of course, you're curious who ranked number one, and the answer is the Netherlands. Their pension system gives residents three sources of income in retirement, public pension for everyone depending on how long they've worked in the Netherlands, and then there's also a semi-mandatory requirement for employers to provide a pension. And finally, individuals can also opt to contribute to a private retirement account. Good news for the Dutch, but if you're in the U.S., you're on your own.

Well, except we're here to help. By we, I mean, bro, because today he's going to discuss seven key retirement planning principles that will hopefully improve your odds of achieving financial independence. All right, bro. First up is retirement is a goal within an unknown duration. Yeah, when you think of some sort of a financial goal, you think like, okay, I need a certain amount of money and a certain date. Yet, this goal will last from the day you retire to the day you expire.

And those are two dates that are kind of difficult to predict. And we've discussed on the show before the fact that actually most people retire sooner than they expected. And unless we have some sort of terminal illness, you don't know when you're going to pass on to that great tax shelter in the sky. So, what should you do? Well, first of all, I think it makes sense to assume that you'll retire two to three years sooner than you think you will. And then, on the other end, assume a life expectancy that builds in a reasonable margin of safety. And I think most financial planning experts these days start with age 95, but you can use a tool such as the Longevity Illustrator from the Society of Actuaries found at longevityillustrator.org to choose a more customized life expectancy for you. The second retirement planning principle is that retirement is not one goal, but a series of goals.

Yeah, I mean, I think retirement is often framed as a goal with a single deadline, a single price tag, and sometimes that price tag is called something like your magic number. And a recent survey from Schwab found that workers on average think they need to save $1.8 million for retirement, which is kind of interesting because that's more than the vast majority of people have saved. But I think it's actually better to think of retirement as a series of goals. Essentially, the amount you need in your first year retirement and the amount you need in your second year retirement, and then your third year and so on. Because your budget is going to change throughout retirement.

If you use an online calculator, even if you've seen a financial planner, they will likely assume that your retirement expenses increase annually along with inflation. But many studies have found that actually this isn't true for most retirees. As wage, we just spend less. We do less, we buy less, things like that. So a good starting point is to assume that your expenses will rise, but at a rate that is 1% below the overall rate inflation, It sounds like a small tweak, but compounded over many years, you'll find that this significantly

changes how much you need to save for retirement. Our next retirement planning principle is that your taxes will change from one year to the next. So when you're working, your tax bill is mostly determined by your paycheck, right? And unless you're self-employed, taxes are withheld from your paycheck and sent Uncle Sam for you based on how you completed the W-4 form. But retirement is a whole different ballgame. So you're going to likely have multiple sources of income. Things like Social Security, pensions, annuities, dividends, capital gains, interest, and distributions

from traditional and Roth retirement accounts. Each is taxed differently, and taxes are not automatically withheld from most of these sources. And when they are withheld, it's usually the default rate is the same for all Americans. And then, when you reach your 70s, you were required to take out money from your traditional retirement accounts. So the takeaway here is, as you enter retirement, it's crucial to understand. how your tax situation is going to change and ensure that you're paying enough throughout the year in order to avoid owing penalties to Uncle Sam.

Then you have to reevaluate every year adjusting for changes and where your income is coming from. All right. Next retirement planning principle is to be flexible with how much you spend. So if you were to ask someone how much of their portfolio they can withdraw in their first year of retirement, they'll probably say 4%. And this so-called 4% rule has been around since 1990. It was created by fellow by the name of Bill Bangon.

And the interesting thing about this was, in all his research, Bill has never said it was 4%. The very first study he did, he said it was actually 4.15%, increased it to 4.5% in 2006. Now, he says it's 4.7%, although he till the Wall Street Journal last year that maybe you should bring it down a little bit to 4.4%. Why the changes? Well, throughout his studies, he's basically expanded the number of assets in his study. So he's essentially finding that a better diversified portfolio leads to a higher withdrawal rate. Also, you need to factor in things like where inflation is at the time and stock valuations.

The way it works, I don't think is really understood by most people. And that is you take that withdrawal rate, which now he says is 4.7% from your portfolio in your first year of retirement, and then you throw it away. And you just adjust that dollar amount every year for inflation. But that's not how most people live their life. your expenses are going to go up and down. They probably should, especially when something happens like last year when the stock market is down. What you should do is actually take out less from your portfolio, maybe cut back by 5 to 10 percent if you can afford to do so. That

way, you're not selling investments when they're down. You're leaving more shares to benefit when your portfolio of entry recovers. It'll be one of the best things you can do for the longevity of your life savings. Next retirement principle, assume you'll need long-term care. Yeah, this is not a very happy thought, but unfortunately, we're all going to experience some level of decline, both physically and cognitively. According to long-termcare.gov, approximately 60% of us will need some sort of assistance in our twilight years.

It could range from just help with cooking and driving to full-time nursing home care. That's going to range anywhere from $25,000 a year, all the way up to well over $100,000 a year. And this could include the possibility of getting help managing our finances as we get older, because we're not going to be as sharp. So Americans manage these risks in different ways, including you just rely on your family, you buy long-term care insurance, or you just maintain a big emergency fund, which could include home equity. But ignoring the risks is not an option.

Every retirement plan should have a plan for how you're going to pay for long-term care, have an updated estate plan, and instructions for your spouse. So maybe your kids to read if you die or become incapacitated, especially if you're the primary money manager for the household. Our next retirement principle is working a bit longer can be powerful. If you are behind in your retirement savings, of all the steps you can take to strengthen your retirement, working longer is probably the most effective. So I'm going to give an illustration here from a recent report from T-Roe Price.

Let's say you're 62 years old with an annual income of $100,000 and a portfolio worth $900,000 and projected retirement expenses of $63,000 a year. So according to the firm's analysis, here are the chances that you won't run out of money based on three retirement ages. So if you retire at age 62, the chance that you won't run out of money is 68%. In other words, you basically have a one-and-three chance of running out of money. But if you move that up to age 65 when you retire, your chances of success move up to 91%, or if you retire at 867, the chances of success are 97%, so almost 100%. And that's just from working a few years longer. The impact for you, dear listener, will vary

depending on your unique circumstances, but even part-time employment in your 60s can significantly increase the odds that your money will last as long as you do. In our October 10th episode, we talked about how many retirees are going back to work. About half of them are doing so for financial reasons, and most of them are doing so only on a part-time basis, and it's going to be a huge help to them. And our final retirement planning principle is to find a purpose, or at least some friends. Yeah, so half of the retirees who are unretiring are doing so for non-financial reasons. And in our episode from a couple weeks back, we cited a survey from paychecks, which found

that the reasons provided by this other half included things like getting bored, feeling lonely. Retirement's not what I expected, or I need more social interaction. You may have heard about the Harvard Happiness Study, which has been tracking various measures of well-being since 1938. And as people got older, the surveys began including questions about retirement. And based on these responses, the number one challenge for retirees is replacing the social connections they had when they were working. And then last year, CNBC published an article by George Jurgen. He was forced to retire at age 52 due to health issues that were supposed to give him just six months to live. Fortunately, he survived, and he eventually went back to work. In the article, he wrote,

quote, after my near-death experience, I had been in retirement for 10 years. I found myself bored, restless and stuck. My enthusiasm and energy diminished. My mental health suffered. End of quote. So at age 62, he decided to try something new. He actually conducted a survey of more than 15,000 retirees over the age of 60, and he asked them one question, what is your single biggest challenge in retirement? And some of the responses he received included things like, I miss doing the work that I love. I don't think retiring is for me. I want to go like to teaching. I'm not sure what to do with my time. I feel lost. Jurgen concluded that, quote, the biggest retirement challenge that no one talks about in my experience is finding purpose. And he wrote about this in a book entitled,

Dare to discover your purpose. Retire, refire, rewire. And I'm sure that there are many people listening to this who are rolling their eyes. Basically, they can't wait to retire, and they're not worried about having enough to do. And indeed, the evidence is clear that most retirees are pretty happy. But if anything I said about the Harvard Happiness Study or George Georgian's survey feels like it could ring true for you that a party or retirement planning should be looking for something meaningful to do and people to do it with. All right. So there you have it. Seven retirement planning principles that will hopefully

improve your odds of achieving financial independence and an awesome retirement. Before we go, though, speaking of an awesome retirement, I'm taking you all on a long overdue trip to the corrections corner. As a retirement expert, bro, and someone who listens and nods me, We've kept a keen eye on the villages, the massive retirement community in Florida, known for happy hours that started at 11 a.m., golf carts galore, and shockingly high rates of STDs. We laughed. Oh, how we laughed when we learned that the villages had a system for if a person wanted to advertise their swinger status level. And what they're down for, or I guess up for. Anyway, the system was attached to different colored lufas. that you stick on your car window or a tennah. Blue meant you're into this, yellow meant you're up for that, et cetera, et cetera.

So for our long time's answers podcast, friends, I have somewhat disappointing update for you. Oh, no. Are you going to tell me this was not true? It's the truth behind the shower scrubbies. So just this last week, I thought I would check in on our friends over at the villages for some news. And none other than the Daily Mail. Yes, seriously, the Daily Mail reported that, in fact, the shower scrubbies attached to car windows or antennas are there too. Bro, do you want to guess? I don't know. And I've been to the

village as many times. Not for what you're thinking about, though. They are used to help the owner find their car in the parking lot. Oh, is it their car? Their golf cart. It's like putting a fancy tag on your luggage so you don't get it mixed up with someone else's bag, because golf carts tend to look alike, cars tend to look alike, et cetera. So that's what the Daily Mail is saying that people are reporting on the purpose for the scrubbies, which adds arguably an even more hilarious angle to the story that someone's sweet grandmother who gets turned around in the bigly-wiggly parking lot came up with a clever solution, but instead is being perceived as this wild swinger. So, anyway, whoever decided to perpetuate this myth is a hero and clearly deserves

a golf card parade. As always, people on the program may own stocks mentioned, 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 Ricky Mulvey. Thanks for listening. We'll be back tomorrow.