The Best One Yet - Ikea’s tech pivot — FedEx’s ‘horrific’ profits — Flavors & Fragrances plant-based merger

Episode Date: December 19, 2019

Ikea’s always been focused on furniture, now it aims to democratize smart furniture (but it needs help). FedEx plummeted 10% because it’s losing its profit puppy. And International Flavors & Fragrances makes the scents and tastes you’re touching and tasting daily, but shares fell 9% because its latest merger is all about 1 single bet.Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. This is snacks daily. It is Thursday, December 19th. We're bringing the best snacks daily we've ever done. Jack has got a salmon shirt on. I can't stop staring at this thing. I call it slamming salmon. It's actually quarter wide. This thing is in pants. Is it a shirt? No, it's wonderful. It's my early Christmas product from my wife. No one has any idea what's going on here. First story, Jack. The jealousy doesn't look good on it. I'll tell you that. It's a good slim fit. International flavors and fragrances is literally the company that makes it senses in things that you eat and smell. Is that paprika? Is that essence of vanilla in that conditioner? No, it's international flavors and fragrances. Shares fell 9% because it just announced it's buying a company,

you know, three times its size. You're only going to hear this story on this podcast. Second story, Jack. FedEx shares fell 10% yesterday because its profit puppy is disappearing. And its CFO said some like really wild things. We're also going to introduce you to its profit pig. It's a real thing. Third and final story, IKEA is our suite of the day. You got to have one You go-to, fill this room pal has a new strategy. Connect all of your furniture to the internet so you'll never leave IKEA. But before you get to that, we have to talk about a potty. Snackers, we have an extremely unofficial snack fact for you. Three percent of you are listening while you're doing something

else. You're in the bathroom, most likely. And you're multitasking. Don't send us a picture, but we think we know what you're doing. Yeah, we know what you're doing. And here's the thing. If you're in the bathroom, spending time on your phone, you are probably a productivity killer for wherever you work. Yeah, there's a lot of people who sit on the toilet a lot longer than they used to at work. Because they're on their phone and they don't want to go back to their desk and do work. Offices have lines now. It's like they're waiting for the next iPhone. A UK startup is building a toilet that has a 13 degree slant built into it so that it's uncomfortable to sit on. They've optimized this angle so that after five minutes, you don't want to be sitting there anymore

scrolling on your phone. Remember like back in practice, you'd have to do wall sits. You'd just sit against the wall like your thighs would start on fire. One of them explodes. You almost get injured. So this toilet makes that experience while you're in the bathroom. Now, we know there are definitely some companies out there that think this is a worthwhile investment. Amazon is going to love this thing. We're just calling this right now. They want their 600,000 workers on the toilet as short as possible.

They're like, yeah, this costs us $6 million in new toilets, but it's going to create $10 billion of productivity. Any company that gets acquired by private equity is going to have these slant built-in toilets install. Snackers, Jack and I are calling it right now. The slanted toilet is the productivity booster of 2020. The snacks about to hear ain't food. It's air candy. They don't reflect the views of the Robin Hood family. It's all informational just so.

We're not recommending any securities. It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you. Robohood Financial, LLC, member FINRA slash SIPC. For our first story, I think that's enough. I think that's enough.

International flavor and fragrance is a real company, real legit name. Just acquired a bigger company. You smell and taste enzymes from this company. Like every day and you had no idea. No idea. The company was founded in 1889. Take me back. By a Dutch guy who had an incredible sense of smell.

No joke. This guy was like into juices and smelling them. I have a terrible sense of smell. It's true. It can only smell barbecue sauce and mustard. Worst gift I ever got Jack for his birthday. Scratch and sniff stickers. I had no idea at the time. A few mergers later, this company is based today in New York City and has a publicly traded stock, IFF. Now, this isn't your typical, like, research and development company. They've got a 5,000 square foot greenhouse in Jersey with like 1,300 tropical plants. Right. And they're raising these plants. They're cross-pollinating them. Yeah. And they're like pulling out little strands of extract. They're like, Janice, get me the orchid. You got to smell this thing. I'm telling you.

They raised a rose, like a beautiful red flower. Adorable. And they cultivated it so that it would survive in space. And then they brought the rose back to planet Earth, and it had a special scent. Right. Because it was growing without gravity. Apparently gravity effects, they then commercialized it, turned it into like a perfume. Space Rose.

No way. This is insane. Now, the company's revenues are broken down pretty evenly between, like, scent sales and... Flavor. Taste sales. Fragrances. Or is it the other way around? It's the other round, but it's kind of similar.

Now, customers are big consumer goods companies that make, like, shampoos, they make laundry detergent. Yeah, you're like, you know that fresh cotton scent in your laundry detergent? The fresh cotton smell is coming from one of these greenhousees. Think about it. You're in the shower. You're always thinking about it. How did they get the coconut in there? How many coconuts are they have to mash up for this thing?

It's coming from international flavors and fragrances. In fact, Jack and I jumped into their annual report to learn more about the company. They drop the world, like, molecule all the time. You look at some Trident gum. Let's say it's flavored peppermint. Yeah, true. Like somewhere in the ingredients. list? Like what buried at the bottom? I know you mean. There's going to be like extract of

peppermint. That's coming from these guys. That's who it is. Now, what did they just do, Jack? They acquired a company. And let's talk about why it's awkward. Right. International flavors and fragrances is worth about one lift. Right. $13 billion. That's the value of all of the stock of the company combined, aka its market capitalization. But it's about to do a merger with a company worth $30 billion, aka like two and a half lifts. You don't usually have a small company asking a big company to acquire. It's like me asking Celine Dion to do a duet with me. Which would be weird. Which she would may say no. There's a chance he says yes, but I get terrible vocals. It's likely no. You're too hard on yourself in this project. You're too hard.

So the chemical company that's being acquired here, the bigger one, is called DuPont. Now, DuPont is a giant company based in Wilmington, Delaware, I believe. And it's just spinning off one part of the company and selling it to IFF. The nutrition and biosciences division. So awkward like mismatch in the merger. And investors aren't. into it. The day that the acquisition got announced, the stock of IFF dropped by 9%. So, Jack, that's perfect timing. It takes us to our takeaway. What is the takeaway for our buddies over at IFF, whose stock just dropped? This merger isn't about two companies. It's a bet on one product, plant-based meat. And that's why investors aren't into it, because IFF creates the flavors

and the colors to plant-based meats. And DuPont produces the actual plant-based proteins that, like, fill up that burger and make it feel like a burger. Turns out, their customers are Beyond Meat and Impossible Foods, which make the iconic consumer-focused plant-based meats right now. So now, Beyond Meat and Impossible Foods, they're going to have to go to IFF and ask for both the flavors and the proteins that basically make up their whole product. IFF thinks this gives them a lot more leverage and is a great move because they'll be able to charge a higher price since they have more leverage.

But investors are like, this is a pretty big merger to bet on one single product. This is Jack. Nick and I both still have stock of Beyond Meat. For our second story, FedEx's profit puppy is disappearing. It's getting replaced by a profit pig. Jack and I run like a finance zoo over here. Now, everybody right now is it in case of emotional brown boxes. You walk out of your apartment, you're like, brown box, get out of here.

Brown shipping boxes are everywhere. You're looking for a box cutter. It's exhaust. You'll settle for your sharpest key on your keychain. Can I borrow your tape? How come this isn't working? I broke a nail. Any time I walk to the car, I like, in six.

instinctively grab for the brown boxes that I need to recycle. I broke another nail. I broke another nail. Now, profits for FedEx, which is based in Tennessee. And they're touching all these brown boxes. Profits for FedEx fell by 40% in the third quarter. And the outlook for the holiday quarter is reduced. Snackers, get this. The CFO, the chief financial officer of FedEx referred to the situation as, quote unquote, horrific. The chief freak out officer. Let me tell you, if there's one person you don't want who has like a lot of synonyms for good, bad, It's your CFO. You don't want a colorful CFO.

You want some with a minimal, minimal kind of grammar capacity. Last quarter for FedEx, shipping volume for its profit puppy category fell by 4%. Shipping volume for its profit pig category increased by almost 4%. Snackers, as you know, a profit puppy is something. It's a product that's profitable for you. Really profitable for you. The salespeople are constantly trying to upsell you to the profit puppy. Right.

The profit puppy is key. For Ford, it's the Ford F150. And for FedEx. it's their business to business overnight shipping. Hey, Larry, can you FedEx that to HQ stat? Yeah, I don't care the price because it's for HQ. FedEx loves when employees say that to one another. Right. Because that's big business for them. We're talking FedEx Express, which is ironically Federal Express Express Express. This is the high priority sensitive stuff. You got to get those TPS reports, cross country, business to business, buy plane. It's got to be signed. Expense the thing.

They're overnight. So they're by plane and they're really expensive, but no one cares because the company's paying for it. that's working against FedEx over here is that contracts, they always tended to need physical signatures. Right. So back in the day, you'd overnight a contractor client and ask them to overnight it back with the FedEx envelope that you put in the FedEx envelope. Now using DocuSign and you're doing the whole thing digitally, you don't need to splurge on FedEx and FedEx. Less profit puppy business for FedEx. All right. So now let's talk about FedEx's profit pig, which is, you know, a product line that's profitable, but like not that profitable. You'll do the business, but you're not thrilled about it. And the profit pig for FedEx is, e-commerce.

E-commerce is something that FedEx historically wasn't that interested in. In fact, when it officially broke up with Amazon last year, FedEx was only delivering 1.3% of Amazon's packages. So to effectively deliver for like Walmart or Target or like non-Amazon e-commerce, they need a better ground game over at FedEx. FedEx is reluctantly going to keep doing e-commerce and it's going to work with Walmart and Target, but it needs more trucks, more facilities, more weekend shift. It's even delivering on Sunday year-round.

All that is costly, and that's why this is their profit pig. They're not weak as much profit out of it. So, Jack, what's the takeaway for our buddies over FedEx? The shipping industry is growing, but shipping is getting commoditized. Online shoppers are spoiled. We expect packages to be delivered overnight for free with no extra shipping and handling. I lost my headphones. Why aren't they here with me right now because I just ordered them?

I haven't heard the words shipping and handling since an infomercial from the 90s. Right. That was like third. I think that was the life alert. No, it was the rotisserie Showtime Grill. It was the Amish campfire site thing. So Amazon gives you shipping. They'll like pay you to ship something. And they're also delivering half of their packages themselves. FedEx is fighting in the mud too, though. And investors are depressed. They drop the stock 10% yesterday. Shipping is not that fun in the industry to be in anymore. Some analysts are asking FedEx to like lay off a bunch of workers in order to boost profitability. We're just going to use FedEx's own words and call this thing horrific. This is Jack.

I own stock of Amazon. For our third and final story, Jack, smother me in meatballs over here. IKEA is transforming. From a basic furniture company to a teched-out furniture company. This is a great time to be a Swedish. Can I say that? IKEA is such a massive company. It's privately traded, though, and it's based in Sweden.

So Americans may not know. One billion human beings visited IKEA already this year. That's led to $44 billion in sales last year. Here's our favorite stat. There's a myth that one out of every Europeans was conceived on an IKEA bed. It's like a snack fact-facht-ish. Or a schnacht-facht as it's sweet. Now, IKEA just made Home Smart one of its 10 strategic business areas.

All right. So you got living room, bedroom, home-smart. Prior to Home Smart, the most recent new strategic business area was IKEA food, which came out in 2006. But The Verge, a media company, did a deep dive interview with Bjorn Block, who is the head of IKEA's

smart home business. We dove into the interview and we've got some fun stats to share. So here's what IKEA's focused on. It's not just about this new product line. It's about democratizing the concept of smart furniture. Sono speakers are hella expensive.

So is the AirPods, and IKEA is for the many people. That was the literal quote from the interview. For the many people. No, that's actually the IKEA like slogan despite the botched English. If you look at IKEA.com, you're going to see sofas, you're going to see armchairs, you're going to see storage, and you're going to see smart home as a separate section.

Yeah, the department is called Home Smart Smart, but on the American website, it says Smart Home. I'm glad they fixed that. Ikea's not being, like, overly ambitious over here. No, they're just trying to take the low-cost things that sells for your home and makes them a little bit smarter. All right, say, started this whole thing with wireless charging pads for everything. Yeah, they got really lucky when Apple picked a technology for wireless charging that was compatible with IKEA.

Then they moved on to like Wi-Fi-enabled speakers and lamps and dimmers. So you can control the light with, you know, your voice command. Then they advanced to like smart blinds. Yes. Everything IKEA is making in this division is compatible with the smart voice assistance you love, like the one from Amazon, the one from Google, and the one from Apple.

Hey, Siri, lower the future blinds. Nick, I was intentionally trying not to activate the voice assistance of our lessons. I know it happens. It never now and then it happens. So, Jack, what's the takeaway for our buddy? over at IKEA. You don't have to go full tech to benefit from tech. This is what Jack and I found fascinating about this story. This is a company focused on bare bones, low-cost furniture in Sweden, but it's making moves that look very silicon value. Yeah, that's not easy. It actually tried to do it

itself back in 2012. It launched an all-in-one TV called the Upliva, and it was an epic fail. When I say all-in-one, it had a Blu-ray player built in. It had speakers built in. It came with an IKEA remote, and it also had the surrounding furniture built into the TV. But Jack and I thought it was interesting that they learned they can't really do tech. No, so they're doing furniture with a little bit of tech and partnering with tech beasts like Sonos, which is doing all of their speakers. Sometimes you've got to recognize you don't have to go full tech to benefit from tech. Jack, can you whip up the takeaways for us over there? International flavors and fragrances is merging merging with DuPont and investors are not thrilled. It's a plant-based meat power couple of flavor

and fragrance. Fragrance. The second story. FedEx stock fell by 10% yesterday because of a horrific drop in profits. It's adorable profit. Puppy is shrinking, but its profit pig

is growing. Third and final story. IKEA's 10th business unit is home smart. You don't need to be a tech company to make your products tech-e-ish. Now, time of our snack fact of the day.

This one's sent in by Liam in lovely Schenectady, New York, where are my dad's from, where Jack's brother went to college. Go Dutchman. Wonderful town. Go Dutchman. Incredible city of history. All right. There is one president of the United States who did not have English as his first language. Martin Van Buren, aka the eighth president. Yes, the eighth president. He was raised speaking Dutch. He's also the first president born after the Declaration of Independence. Born in Kinderhook, New York,

upstate to Dutch parents. So he's technically the first president born in the United States of America. Because prior to that, it was the colonies. Well put, Jack, well put. Snackers, this was our second to last pod before we take our two-week break and miss you guys immensely. Tomorrow's going to be the last one, but we're actually going to have a bunch of fun posts on social during the break. Yes. So definitely follow us at Robin Hood Snacks on Twitter and Instagram. Also, Jack's at T-Boy Jack.

I'm Nick of New York. Check us both out. We'll be following you guys too. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood financial LLC and does not reflect the views of Robin Hood Markets, Inc. or any of its subsidiaries or affiliates. The podcast is for informational purposes only, is not intended to serve as a recommendation to buy or sell any security, and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any

investment decision. Robin Hood Financial LLC, member FINRA SIPC.