The Canadian Investor - More Trouble for TD and Apple’s Slowing Sales

Episode Date: May 9, 2024

In this episode of The Canadian Investor Podcast, we tackle recent news and earnings. We start by looking at BCE’s most recent quarter and if BCE is on track to meet its guidance and continue increasing its dividend for years to come. Then we turn to TD Bank which is currently entangled in a U.S.-led anti-money laundering investigation linked to alleged illicit activities by Chinese drug traffickers. With potential fines looming and a significant underperformance compared to peers, TD faces a precarious future. RBI on the other hand reported solid sales growth driven primarily by Tim Hortons, despite mixed results across the rest of its brand portfolio. We finish the episode by going over Apple’s recent quarter in which it saw its sales drop more than 4% and talking about Starbucks which also saw a sales decline. Tickers of stock discussed: AAPL, QSR.TO, BCE.TO, TD.TO, SBUX Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We're back for our Thursday news and earnings episode.

We're actually doing something a bit different this week. We're doing it in two part because there was so many companies reporting that we were interested in doing and talking about on the podcast. There was also some news that came out. It doing and talking about on the podcast. There was also some news that came out. It's like everything came all at once. We have tons of companies to talk about. I think we probably could have done an extra like two or three as well. It's just been a crazy kind of week of news and earnings as well. So pretty excited about that. Dan, how's it going on your end? Pretty good. Oilers off to the second round. It's going to be an interesting Canucks.

Canucks, yeah. So they're the two last remaining Canadian teams. That's it. Okay. There's only one team I might dislike more than the Flames, and it's the Canucks. So it's going to be an interesting series. Yeah, I don't know why.

I don't know why. I don't know why I just, but yeah, it's, uh, it's been crazy busy on the earnings front. Like we do a lot of coverage on, on companies and like, I hate it when everybody reports at once. And this is, uh, this is definitely seeming like one of those earning seasons for sure. Yeah. And even next week, I think there's going to be a few more. I know Canadian Tire is reporting a couple of days, so we'll probably talk about that next week. I always am interested in what they have to say in terms of the Canadian consumer. So I'm really excited. A lot of stuff to talk about. So I guess enough of this. Let's get started. We'll start with some news here because, you know, the elephant in the room, I guess, the Fed or the elephant next door. So they had their announcement last week.

To no one's surprise, the Fed's fund rate remained the same. So it was unchanged. They are slowing down QT, which is quantitative tightening, which means that the rate at which the Fed's balance sheet is shrinking is actually slowing down. means that the rate at which the Fed's balance sheet is shrinking is actually slowing down. I think it's safe to say that the likely path here is a return to QE, which is quantitative easing at some point in the relatively near future. Now, QE means that the Fed purchases assets, typically U.S. Treasury, with essentially printed money, which it grows on its balance sheet. And quantitative tightening is the

opposite of that so they once these bonds let's just say the treasuries come to mature they just let them roll off the balance sheet so that's typically how the difference between the two QE is a form of stimulating the economy while QT typically will help kind of rain down the economy. Now, inflation. Powell said that inflation is still too high and the path forward is uncertain. They are still committed to get inflation to their 2% goal. While answering a question, Powell mentioned that the policy rate was restrictive, although he hesitated on saying sufficiently restrictive. It was really interesting if anyone listened to the press conference someone was asking a reporter was asking the question like

is it sufficiently restrictive and he fumbled and he took a while and i don't know why he was just kind of afraid of saying that word which a lot of people which i find surprising because overall the media reported mainstream that like essentially like rate cuts are coming and that the fed was dovish that's the overwhelming kind of analysis that i saw but just that response there just gave me a night like the perception that he did not want to commit to anything. Then he answered another question about easing cuts. And he basically said it depends on the path the economy is going forward and where inflation is at. Now, economic activity is still growing at a solid pace, according to the Fed. Again, he also dismissed concern that stagflation is starting in the US since that would require weak economic growth,

high unemployment and high inflation. It's hard to disagree here with Powell. I think people just saw that GDP print that came lower than expected. And then inflation has been picking up in the last three prints or so. And I think people were just coming to that conclusion. I think personally personally it could still

happen down the line it's a non-zero possibility but i think it's way too early and a lot of people i know it makes headlines a lot of mainstream outlets were just like had that stagflation word again it may happen but i think it's way too early before i go on any comments uh on what the fed had to say no just on your last thing there i was gonna say like i think it's just because that's such a good headline word to use like it's gonna you know it's it's a it's a click you know it's gonna drive views especially because if you think of the last stagflation environment so i mean even if there's a remote possibility the media is probably going to talk about it because that's what brings in readers.

But it doesn't look like it's occurring or even starting to occur on any level right now. I mean, unemployment is at, what, 3.8%? Yeah, high threes. It's crazy low, like 50-plus year low. I think it's a bit too early for that. Yeah, exactly. And I think that's where it was coming from and uh look fear sells i don't blame mainstream media when they put that word out even with people that don't know it probably google it and then get scared and he even mentioned during the press conference he's like i was there during the 1970s where you know there was high

inflation double digit inflation unemployment I think was around 10 percent at the time and economic growth was like very essentially stagnant very slow so obviously compared to that we are far away but I found it very interesting that he really wanted to quash that and the market increased the chances of rate cuts following the Fed meeting and of course the day after poor US job report for both July and the September meeting. Although July is at a 34% of rate cuts, while September is now at 84%. If we compare that to a week earlier, it was 27% chance of a rate cut for July and 59% chance of a rate cut for September. So pretty drastic changes here. Quite a big jump following those two data points that came out. So the Fed meeting and the job report. And I've said it before and I'll say it again, I do find it quite unlikely that the Fed

would start cutting in September because that would be the final meeting before the election in the US and just the perception of interference. I think that's something they'll want to avoid. Although their discourse has been to say, well, we don't even think about the election. We'll do what we need to do. That's how we remain independent. I don't believe that. I think it's definitely something they would consider. And I honestly think the market here is hearing what it wants to hear from the Fed because a lot of mainstream outlets were saying that he was dovish and I listened to the whole press conference and essentially just left his option

open like he was not dovish the comment he did say that they were not looking to raise rate. But again, when I talked about the sufficiently restrictive, he was very reluctant. So I think it's at the back of his mind that raising rate could potentially happen some point down the line. That's just my interpretation. I could be wrong. But I think the main takeaway is they're still relying on data to make their decision and that the market is, you know, making some assumptions. And let's be honest, the market has been wrong for over a year now on what they

think the Fed will do. So I think the expectations are always fun to look at. But I think it's good to remember that the markets have been extremely wrong on the Fed's fund rate for over a year now. Yeah, pretty well said. I mean, it's very hard to predict this type of stuff. I usually listen to these, but I haven't had time. So I mean, I don't have much else to comment on it. You did a pretty good job. You want to move on to BC? Yeah, let's move on to a company that would like lower rates. Yeah, exactly. A company that definitely needs rates to come down. So BCE has been under a ton of pressure as of late. Soft earnings, soft guidance, pressure from interest rates continue to weigh on the company. On the quarter, they reported operating revenues declined by 0.7%. Adjusted earnings per share declined by 15.3% and operating cash flows by 9.2% decline.

They generated around $85 million in free cash flow, which is effectively flat on a year-over-year basis. Capital expenditures came in at just over $1 billion, which is a 7.7% reduction year-over-year. So capital expenditures are pretty important right now just because a lot of these companies were spending a ton of money during the pandemic. And they're kind of expected now to scale a lot of that back down just in an effort to improve free cash flow. Adjusted EBITDA grew 1.1% year over year. And the company's EBITDA margins came in 0.8% higher on the back of lower operating costs. So the company is seeing a large influx of mobile phone additions. It continues to record record numbers on that front. They're up 4.5% year over year. However, average revenue per user remains relatively flat. The company reaffirmed their

guidance of flat to 4% revenue growth, low single digit adjusted EBITDA growth, and a 3% to 11% decline in free cash flow growth. And in terms of ARPU, like average revenue per user, they had previously stated that they would expect it to still grow but face decelerating growth just because of all the competition right now in the space. But they actually revisited this and they expect ARPU to decline in 2024 just due to the competitive environment. Churn rates were much higher than usual and have been escalating in recent years. They talked about this on the conference call. The company pretty much attributed to the fact that many people are just starting to buy their own device and bounce around from company to company seeking out the best deals. When you own the device, you're in a little bit of a better position because, you know, you don't have that device balance on the contract.

And generally you get a little better pricing. The company's, this was a bit, this was a bit weird to me. So the company's previous leverage targets were 2 to 2.5 x ebita and it currently sits at 3.6 x so the company just moved its target to 3x so they went from 2 to 2.5 and just said they're going to start trying to get down to 3x now and they stated that the old debt targets were a result of stale company policy they didn't really mention anything outside of that but i mean it you would think right now like now would maybe not be the time to boost your leverage targets especially like with the pressure that they're facing but i don't know it's um yeah it's

anything to keep that dividend going there you go it kind of seems like if you can't hit the target just move the goalpost and raise the target. I don't know though. They could have provided some additional commentary as to why this is, but just in general, in the conference call, they just said it was stale policy. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want.

And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable

and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency

because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. So they also got asked about the dividend and like the analyst didn't come right out and ask if they were going to cut it, but they asked any chance that the dividend in as for 2024 as stated.

So, I mean, on a surface level, they clearly have no intentions to cut it. And like overall, it's really difficult to analyze this company right now because a lot of the cost cutting initiatives, like the layoffs, the sale of assets, they haven't really come to fruition yet. And as a result, like they've stated stated themselves there's been next to no impact thus far from those efforts. They're continuing to roll them out and they expect it to come later in the year. But overall right now, there's really no true indication as to how much money it's actually going to save the company. And I mean, if cashflow generation doesn't pick up in a big way, I think there will be a lot of pressure on the stock price, even at the levels it's at now. But if they do start to turn things around, I mean, I think, you know, it probably would be relatively cheap at these

levels. But I would bet the latter just because I don't see any material decline in interest rates, you know, over the next while here. And I mean, but as you said, like the as we talked about the feds, like the odds are getting greater that they're going to start cutting earlier. But I mean, I think they need they need quite a bit, you know, a 2550 basis point decline over the next year, I really don't think is going to move the needle. I mean, they would need a big, big reduction in interest expenses in order to turn cash flows around in a big way. Yeah, it sounds like they don't want to come in in terms of the dividend pass this year. That's kind of the takeaway I took is like for this year, you know, it's what we said, but I think they will, they probably realize that some of the assumption that they gave at

the beginning of the year are kind of going sideways a little bit interest rates for example if we just go back at the beginning of the year and we talk about the fed and of course there's more data on the fed and i think who's kidding who right the bank of canada and the fed and the ecb in europe and the bank of japan all the major banks talk to each other and typically they act in coordination so i think the fed has just more data on it. That's why we do talk about them a bit more compared to the BOC. But the expectations have been pushed out, right? So I think what BC is looking at is a bit harder kind of refinancing situation potentially for that debt that will come due in Q1 of 2025, so in less than a year at this point.

in Q1 of 2025, so in less than a year at this point. And then in terms of the layoffs, just to provide context for people wondering why it's not showing right now, just because often you'll have severance, right? So people keep getting paid for a period of time, or they can take a lump sum. Oftentimes, they'll have the option between the two. Just based on my background, I'm pretty familiar with those. There could be also some total compensation implication for a pension and things like that. So it does take some time to trickle through. I would say probably after like 12 months to 18 months, you'll really start to see that the effects of of those cost cutting initiatives at least for the jobs kind of show up in the financials but to me i mean it really looks like a lot of i agree with you if all things go well for bell this could be an incredible value play and it

could perform extremely well the problem is the amount of things that need to go well for BC. There's quite a few of them. And one thing I know you mentioned in a video you published is just population growth, right? If population growth starts slowing down, that's been a big tailwind for these telecos. It's going to probably slow down their revenues big time it's pretty much like the only tailwind in terms of you know overall growth like i think i i can't remember what i had mentioned in the video but i did i did look up the numbers and it was it was crazy like how much of canada canada's population growth is hitting all-time highs like it's definitely we are growing at a very fast pace but like it's all immigration

virtually all immigration i i'm pretty sure it was like 90 plus which is and i would have to go back and kind of confirm that but it was large if it wasn't 90 it was it was huge and i mean our birth rate are quite low so i would believe that yeah and i mean it's yeah it's it's well as i was mentioning like if you once you if you get off a plane in yyc and you and you walk through the airport first thing you hit once you come out of like say security and stuff they got phone like rogers bell tell us they all got the phone booths and you just go up there and sign up for a plan you know i mean like it's they rely a ton on immigration because they need new customers. Because obviously we mentioned with ARPU, like it's not moving.

And I would imagine it's like, what are these companies going to do to drive like cost increases? We already pay like the highest phone plans in the developed countries. So like, if anything, that's going to decline so they're going to rely a ton on um just overall customer growth which is currently sitting at records for sure yeah yeah and exactly and i can relate to that right if you're new to the country i mean i've traveled before in europe i was in sweden in 2013 and even then i had like a you know i think an iphone 4 or 5 or whatever it was at the time. But, you know, one of the first thing I did when I got into the country because I was there for like six weeks is you try to, you know, get a local SIM card. A phone, yeah.

Get a plan, a phone exactly to make sure that your phone works while you're there. So obviously, if you're coming here, whether it's, you know, just a temporary worker's permit or a student, whatever it is, that's going to be one of the first purchases you make pretty much everyone has a phone, right? So it's definitely something that'll be interesting to keep track of. Anything else you wanted to add for Bell before we go on to the next on the slate here? Nope, that's it's it okay so now we'll talk about one and well I guess the second largest bank in Canada so TD which has seen some AML trouble so anti money laundering and there's some news that came out this started more than a year ago when news came out that the first horizon deal

that TD would purchase first horizon the the U.S. fell through, in big part because U.S. regulators would not approve it because of their concerns on the AML practices. Now, the allegations are that Chinese drug traffickers would have used TD to launder more than $653 million U.S. in drug trafficking money. I saw a lot of places saying that it was mostly related to fentanyl as well. I guess we'll know more as there's more details that comes out regarding this. And they apparently would have done so by bribing TD employees. And as a result, TD has already set aside $450 million in provisions to pay penalties. However, it seems like this is

only the beginning and there could be other fines imposed by regulators. And this is being led by the US, of course. And TD has a big presence in the US for those who are unaware. And it's hard to say how much this will cost TD, but I've seen several analysts saying that it could be in excess of $2 billion. And regulators could also impose growth restriction on the bank, similar to what had been imposed on Wells Fargo's cross-selling scandal. So they had some big scandals in the U.S. in the US actually imposed a cap of $9.95 trillion assets on Wells Fargo, which was the amount of asset that they had as of the end of 2017. They imposed that cap in 2018. And that really, really impacted Wells Fargo's growth. The stock essentially for like five, six years, literally went sideways, didn't do much of anything.

Warren Buffett, for example, was a big shareholder of Wells Fargo. He kept being asked at the annual meetings like what he would do. And I'm sharing here my screen for Joint TCI listeners. You'll see that in 2018, the assets are actually a bit lower than they were in 2017. So that cap of 2017 is pretty much followed. So the assets of the bank stayed below that for that whole period. And I think part of these restrictions were lifted just last year or earlier this year. But the reason why it's a big impact on banks is that essentially most of the assets for banks are the loans that they give out. So if you put a cap on these assets, you're essentially not able to loan more money, get more revenues, make more, have higher interest income.

And it really puts a big, big impact on your growth. So something that could happen to the TD, I'm not sure whether it will happen or not. But I think it's definitely worth considering if anyone is looking to buy the dip here, because we're just starting to hear about the implications. We don't have all the information available, so I would be extremely reluctant to buy TD at this point, just because if Wells Fargo is any indication if there's more severe restrictions that are put on TD by U.S. regulators it could really impact the growth going forward and we don't know how long these kind of restrictions can stay in place for several years and of course

because of all this TD has been the worst performing bank in the last year in terms of the big six it's down four percent and the closest in terms of total returns is scotia bank which is up three percent cibc has been the best performing one at 26 percent total returns and everyone else is kind of in between those two now that's kind of what i have my take on it dan like anything you want to add regarding this uh yeah i mean like i think a lot of people obviously when a canadian bank goes down by this much like there's so they're so popular here in canada that a lot of people just tend to just kind of see the price dip and buy the dip but i think like there's a lot of unknowns here like a cap on assets would not be good i mean

essentially if td's capped andpped and the other big five banks are still allowed to grow their assets, it would be really hard to see how TD could ever keep up with them. And as a result, you probably see the stock price not perform very well. I mean, I owned TD, I owned it for actually quite a while. I ended selling it you know the the first horizons deal fell through which like at the time I believe was you know initially thought because of just a regional like the banking crisis in the U.S. like they didn't want to deal with it then it kind of came out that it was because of this and then you know the initial fines and then the fines get bigger and that like there's more underlying issues and I mean I just ended up I ended up selling it I didn't really want to

deal with deal with this too much but um i mean there's a lot of bad publicity right now for td bank i know this is pretty much the same with uh every major bank but they had that uh they were caught pretty much employees were caught selling subpar funds to consumers and stuff to like getting them to not pay off credit card debt and instead buy like high fee funds and all that kind of stuff and i mean that was every bank td was part of it and then like on top of this i mean it's just not a good uh not a good time pr wise for uh for td yeah exactly and the u.s is like, it's not a regulator you want to mess with in terms of AML and AML is just anti-money laundering practices. They tend to take that very seriously. So I think it's just, there's just more information to come out. That's why for me,

I'm not saying sell your shares if you own TD necessarily, maybe it's more of a wait and see. Obviously this is not investment advice, but what I'm doing personally as I would not touch TD with a tenfold pull right now until there's more clarity on it. Because chances are if Wells Fargo is any indication, and there are different types of scandals granted, but if you can learn anything from Wells Fargo is when these things start going on and regulators really start owning in, you probably will have time to get the, you know, get the shares at a pretty similar price and potentially even lower. Maybe it'll go higher. Don't get me wrong. But, you know, if Wells Fargo is any indication, I think that's what it shows.

If Wells Fargo is any indication, I think that's what it shows. And I think it's just a reminder for people who are against crypto and Bitcoin that there's a lot of money laundering, a lot of criminality that happens with the regular financial system. There are ways around it. And I just wanted to mention that, not to say that there's not any in crypto. Obviously, there is some. But I was looking at some data from Chainal which is an on chain analytics company and essentially if you take the highest year of like money laundered through crypto which is 2022 was higher than 2023 that was 31.5 billion according to their figures well if you compare that to what the UN says is about 800 billion to

2 trillion that's laundered every single year through the traditional financial system, while crypto only represents less than like 4%, depending on what figures of the range that you use, it's between 1% and 4%. So I think it's just a reminder that you know you don't have to like crypto that's fine but just making sure you understand both sides of the argument because there's you know the traditional financial system is filled with scandals about money laundering you just have to go back like the next the last like 10 years and uh you will find plenty of them. Yeah, tons. I guess the one thing I would clarify is I didn't sell TD because of this news. I sold TD, well, it was probably

maybe three, four months ago now. It wasn't because of this that I sold. It's like, there's so many unknowns here. But yeah. The truth is you sold it to buy New York Community Bank, right? Yes. That's it.

Buy the dip. Yeah, buy the dip, exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questtrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends.

And there's other stuff like learning Duolingo-style education lessons that are completely free. You can search up Blossom Social in the App Store and join the community today. I'm on there. I encourage you, go on there and follow me. Search me up. Some of the YouTubers and influencers

and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store and I're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. But no, that's it on the TD.

So did you want to go and tell us what's happening with Tim Hortons amongst other companies? Yeah. Yeah, so Restaurant Brands International, they own Burger King, Tim Hortons, Popeye's Chicken, and Firehouse Subs.

Firehouse Subs was a recent acquisition for them. I'll talk about them in a bit. But they reported system-wide sales growth of 8.1%. Comparable sales, which is pretty much same-store sale growth. It doesn't factor in new additions. It just gives kind of a better picture on how they're growing revenue without adding new stores. That sat at 4.6%. So the bulk of the growth

was actually from Tim Hortons, which is in the midst of a pretty big turnaround in operations. So they acquired Tim Hortons. I can't remember when it was. It was probably like 20... No, I don't think it was 10 years ago. I think it was not that far back. I thought it was. You can look it up. I think it was like... Yeah, I'll't think it was 10 years ago. I think it was not that far back.

You can look it up. I think it was like. Yeah, I'll look it up while you. Yeah. But they, it has been like Tim Hortons has, I think this is putting it lightly. It's been a drag on the business ever since it acquired it. But, you know, not anymore. It's like absolutely cruising as of late.

I'll talk about that in a bit but just net restaurants which would be just new additions minus closures grew by 3.9 percent year over year and adjusted earnings per share were effectively flat they declined by 0.9 percent the uh so i found it yeah what is it so i found it it's gonna be 10 years this december okay so yeah 2014 i thought Oh, okay. So yeah, 2014. I thought it was way later than that. But so they reported strong double digit growth in its international segment, 11.6% growth. So this company like its segments, it'll keep, you know, particular data on its North American segment, and then its international segment. And it kind of breaks down really well, like just overall what stores are growing, you know, all that type of stuff. They do actually go pretty in depth in the quarterly reports. It makes for a pretty easy read, but yeah, their international grew by 11.6%. The other double digit increase was Popeyes, which continues to be kind of the growth brand of the company. It grew sales by 10.4%. Tim Hortons grew by 7.8% and Burger King by just 2.6%. So where Tim Hortons really stood out was in comparable sales. So again, that's growth that doesn't include new

store additions. While their Popeyes brand is growing overall sales by double digits, a big chunk of that is being fueled by new store openings. When we remove new store openings from Popeyes, sales grew by 5.7%. Tim Hortons, on the other hand, grew by 6.9%. So it seems to me like there's two main drags on the business right now, and that would be Burger King and Firehouse Subs. It kind of makes sense in a way for Burger King. This is kind of like the blue chip of the company's brand. It makes up a huge amount of their total overall stores. You can't really expect it to grow as fast as something like Popeyes. But the main issue here is you also have Burger King as kind of the driving engine of underlying results as it just

makes up such a big amount of the company. So they saw Burger King segment, saw restaurant count shrink by 2.4%. Comparable sales grew by only 3.8% and overall sales by just 2.6%. So Firehouse is kind of another brand that doesn't seem to be catching a lot of traction either. So they paid 1 billion for it in 2021. Back in late 2021, they expected the company would contribute about 50 million in adjusted EBITDA to their results. So on this quarter, it generated 14 million in adjusted EBITDA. And I mean, if you kind of run this out annually, that's only 56 million. So I mean, over the last three years, it doesn't really seem to be growing all that much. I've actually never even seen a firehouse subs. I don't know if they have them.

And do they have them where you're at? Yeah think there's one i think there's some in all but i've never never been there i feel like i was uh subway was more my thing when i was in my teens and early 20s i haven't been much on sandwiches since then yeah i don't really go i mean we don't have any uh firehouse and i don't really go to subway all that much i mean it's it's, I've heard subways just ridiculous. It's like $20 for a sub and a pop now. Yeah. I've heard it is crazy, but yeah, firehouse, like, I don't know. It doesn't really seem to be working out all that well. Popeyes is still the major growth driver of the business. It's providing some of the best growth rates in the U S and internationally, but Tim Hortons, is just, you know, it's kind of turning things around. And again, when we speak about Starbucks later on,

I really think there is a shift here from, you know, more like premium type of coffee play, you know, coffee and food, to, you know, a cheaper one in Tim Hortons. Particularly, like, obviously, Starbucks is international and Tim Hortons is like obviously starbucks is international and tim hortons is primarily in canada but i mean there's there's clearly a big shift here and my main concern i guess would be if momentum were to slow for tim hortons we'd probably see a slowdown in overall results but like as of right now uh it's been it's been a pretty good good run for rbi yeah and have you tried the flatbread uh pizza we've had

those for like a year here really i tried it a long time ago yeah they're pretty good and then like i saw that they were they were released like what was it a month or two ago i'm like what the hell we've had these in alberta for like probably probably like they were doing probably a trial for yeah exactly yeah oh that's funny it's just i just find it they had these like kind of chipotle bowls too i don't know if they still have them anymore it's just some of this stuff they're offering is just a little strange it seems like they just throw something at a board and just hope it sticks like like they've had like different poutines, like all these bowls,

different wraps. Now they got the pizzas, but I mean, clearly it's, it's starting to work now, but, um, they were throwing the kitchen sink at Tim Hortons in an attempt to try and

turn it around over since they bought it. And, you know, it seems to be doing so now, whether or not it sticks, I guess we'll see. Hmm. No,

but I think the point and we were talking about that last week right the point that consumers are probably shifting a bit more to more affordable option i mean to me it sounds very reasonable and people will question you know oh the coffees at morton's is not as good as starbucks and i agree like i you know yeah i have it from time to time mostly because that's what I started drinking when I was in university and it just gives me a you know a kind of flashback kind of feeling nostalgia there you go that's what I was looking for but it is you know much cheaper than and like something equivalent at Starbucks or some of the local coffee shops are a bit more

premium we have like Bridgehead in Ottawa they're're not in Alberta, but they're, you know, Ottawa, a bit more Ontario, depending on where you're from. And if you get coffee from those places, whether it's them or even Starbucks, just a regular coffee, you'll probably pay like 50% more than you would at Tim Hortons. And, you know, you can argue the quality, and I totally understand that for people. But at the same time, if you want to still grab a coffee on the go and not make your own, and you need to save a bit of money, I mean, Tim Hortons is not a bad alternative there.

They're pretty much the cheapest coffee you can get. I mean, even somethingdonald's is more expensive starbucks is much more expensive like tim hortons is about as cheap as it gets so i mean at some point you know if money's tight you're gonna sacrifice quality for price and i think we're seeing it here and then i mean maybe if you swing by tim hortons to get a coffee you get some food things like that so which is still much cheaper than Starbucks, like by a mile. So I think, yeah, we're really starting to see people's pinching pennies. Yeah.

I am a sucker though for their breakfast sandwich with those ash browns. Like I'll take a combo once in a while, maybe once every five to six weeks, if we're like in a hurry going somewhere, I will grab that. And it's pretty affordable like it's under ten dollars for the combo so that's kind of what i'll get from time to time definitely not healthy but it tastes delicious oh yeah i don't mind them either i don't go there very often just because like if the coffee was better i probably would but i i hate their coffee so if you do breakfast sandwich, bacon or sausage? Sausage.

Okay, me too. I prefer the bacon's not crispy enough. You don't get anything with the bacon. It's like there's so minimal on there. Yeah, and it's so soft too. Like I want my bacon crispy, but... Sausage all the way. Yeah, we'll move on to something else. So something that has a name that you think you can eat,

but is actually not a food company. And I'm referring, of course, with my dad joke about Apple. So Apple released their earnings. So the stock was up high single digits the day of the earnings release. I definitely don't agree with the market here. And I think it was just not a great quarter for Apple. I'll be very upfront. I think the market got hypnotized by the massive buybacks that were announced. And I'll go over the numbers here. So revenues were down 4.3% year over year. iPhone revenues were down 10% to 46 billion. iPad revenues were down 16.6% to 5.6. Which, by the way, they just announced some new iPads.

I think it was today with a fresh video. A kind of a revamp of that. Just a side note, I haven't had the chance to look at it. But I think it was today or yesterday. And wearables and accessories were down 9.6% to $7.9 billion. Now, there were some bright spots. Mac revenues were up 4 percent to 7.5 billion and services revenue is probably still the biggest kind of driver here for apple that was up 14.1

percent to 23.9 billion of course it makes sense now that uh you know apple is really pushing for that but again it's going to take some time until it kind of counterbalance, especially the iPhone revenue declining 10 percent during the call. Tim Cook, clearly, I thought it was honestly a terrible call for Tim Cook. I was listening to it. I'm like, I don't know what people are smoking, what analysts are smoking to me was just on excuse mode as to why revenues were not great. So he mentions that all, he mentioned all the regions where sales were growing. He mentioned that the iPhone sales specifically were growing in mainland China.

I couldn't find iPhone sales for China specifically in their release, but overall sales for China were down the over a year. So it was funny how he kind of picked and choose what was good. And for me, it's actually, China is such a big risk because there's represent 18 of apple sales and if anything there is a big risk that u.s and

china relations get worse in the years to come and when it's essentially uh one-fifth of revenue that's a big risk factor like i just I don't fully understand the market here. I'll be straightforward. He said that if it wasn't for pent up demand from COVID in 2023 for the same quarter, they would have had higher sales. Like that's why I'm like, I was not impressed at all. I was actually, I'm not a shareholder directly anymore of Apple. I do own it because I own index funds. But to me, it was just like excuse mode on to why they're not growing. And I just don't think it was a great call at all. If I'm a shareholder, I want to see the company grow, not like, you know, pick and choosing what was kind of good about your results, but not talking about the elephant in the

room. That means your revenues actually declined 4.3%. what was kind of good about your results, but not talking about the elephant in the room, that means your revenues actually declined 4.3%. Net income was down 2% to $23.6 billion, while EPS was flat at $1.53 per share. And obviously, that's because they are buying back shares. Margins were up across the board with the exception of free cash flow margins which were down more than 400 basis point to 22.8 percent but of course said it time and time again free cash flow can vary a lot from quarter to quarter so i would take that with a grain of salt and free cash flow was down 19 to 20.7 billion the main reason i think the stock was up was because of the massive 110 billion buyback

program that was announced. You know, like I said, I don't own the shares. I do own index funds. My wife has some in the portfolio I manage for her. But for me, it's really where does the growth come from here? Like at the end of the day, earnings are flat. Sure, EPS are higher, but it still doesn't answer the question. There's no growth in earnings and there's actually declining sales. I'm not saying that Apple cannot start growing in a couple of years from now, depending on, you know, the Apple Vision Pro and other things they might have in the works, whether they start integrating AI to their iPhones, like that could be a tailwind for them. But I don't know why, but Apple gets put on this pedestal. And it was just like, it was just

not a great quarter. Like granted, they still generate gobs of cash flow. But it's to me, it feels like a stagnating business. Yeah, it seems kind of weird that they wouldn't be able to find, you know, somewhere better internally to spend 110 billion dollars especially with like all the ai advancements and all that kind of stuff i mean i i've never owned apple but i own i own berkshire so i have like quite a bit of exposure and i mean he even he said it was for tax purposes but he sold off a pretty big chunk of apple like it still makes up like 40 some percent of his portfolio but and he he said it was for tax purposes i mean i would say it's maybe you could probably hedging a bit too i mean like just trimming a little bit i mean it's probably not a

bad move even if like that's the reason like when it's such a big portion of your holdings maybe just hedging a little bit there might be some tax reasons then you're like oh well it just so happens the company is trading at like the highest valuations almost it ever has like it's kind of weird to me how like expensive apple is right now when it really hasn't grown all that much in the last few years but like back you know when it was growing at a crazy amount it was trading at nowhere near the valuation i mean the the phone sales is kind of the same as like when we went over bce i think just people are i don't think a brand new phone is on the top of the list right now like you know normally you can go and you know trade your phone in every two years or whatever and they'll tack it on but now it's kind

of like okay well this iphone doesn't need to be replaced every year exactly yeah so i mean they're just i have an iphone 13 i have a 13 and my so you were talking about bc earlier and you know people financing with uh telecom so my contract is up this month and i think it's going to be 200 bucks that i have to pay and then the phone is mine I think it's usually how it works if not they're like oh you don't have to pay it just you know continue financing you'll get a new phone and you know stay with us longer lock you in for another two years but honestly my iPhone 13 works perfectly fine works super fast the camera is more than good

enough for what I do with it like why would i get a new phone and like you said it'll just give me leverage to negotiate a better price and i am not like i don't mind switching phone companies at all so you know it's something that i'll definitely be bargaining to get my costs lowered because it's not that i'm paying a whole lot but it's uh 60 bucks a month wherein the contract ends for 25 gig unlimited. So I guess they throttled you after 25 gigs, but you can get way cheaper stuff now for the same amount of data. So $40 a month. So I will definitely be one of the ones who will be like, okay, if you don't want to give me a better deal, I'll just switch to one of your competitors.

Yeah, that's the most powerful thing about the, you know, bring your own devices. Like you have the leverage, whereas if you're getting a new phone, I mean, you don't at all, really. I owned a Pixel 3 and I owned it forever. Like I had, I would probably still own that phone today, but I smashed it in the car door accidentally. So I finally had to get a new phone. But I mean, I think like when, you know, times are good, people had a bit more money. Like maybe Apple got away with, you know, putting out a new phone but i mean i think like when you know times are good people had a bit more money like maybe apple got away with you know putting out a new phone every what six months but just now i just don't see the incentive for a lot of people to upgrade it's just not at the top of the list so we'll see if plus it's annoying as hell to set it up too that's the other thing

i've never had well i had an iphone back in day, but I don't anymore. No, I mean, yeah, you can transfer the stuff, but it still takes like probably an hour or so to get everything set up. And I just like, I don't, you know, why would I pay more and then have to deal with that when I just don't see really improvements on, you know, the actual phone. It's just a better camera. Yeah, that's it exactly. Yeah, that's pretty much it for apple anything else you wanted to add there no nope that's about it okay let's go to uh i guess one of your holdings right starbucks they they had a pretty rough quarter i i didn't dig into it as much as you did but it was uh what i saw it was ugly yeah yeah i i i owned starbucks and it was it was a bad

quarter and i actually haven't had time yet to uh they didn't or what was it jim kramer i think interviewed the ceo and apparently the interview was just terrible like he just shredded really yeah i haven't had a chance to watch it i'll probably watch it later this week but apparently it was not good but yeah i mean if you get if you don't know what to answer when jim kramer interviews you that's that's not great i'm i'm gonna have to look at that yeah so i'm i'm pretty bullish on starbucks still i've owned it for a while but i will admit i was kind of surprised at the decline in results because i kind of thought the company's brand and just overall customer loyalty was a little stronger than it seems. Revenue missed expectations by 7%.

Earnings came in 15% lower than estimates. So most analysts had expected the company would grow food and beverage revenue by not like crazy amounts. They kind of realized it was going to get tough for Starbucks, but they expected, you know, one to 2% growth in all these areas. They reported a 1.3% decline in beverage revenue and food revenue declined 0.5%. A large driver of this company's growth right now is, is through China. So it's an untapped market. They routinely put up double digit sales, you know, in comparable sales. However, they actually, I even believe last quarter, they had double digit comparable sales growth in China.

And this quarter it declined by 5.5%. So it was a huge swing in that regard. And just generally, Chinese consumers in China are much more frugal than North American ones. So this is kind of highlighted by the fact that total consumption as a percent of Chinese GDP is around 53.2%, whereas in the United States is 68%. So it's much higher, like North American consumers spend a lot more. This kind of means that, you know, Chinese consumers are likely to lean on the saving side of things over the spending, of means that, you know, Chinese consumers are likely to lean on the saving side of things over the spending, which means if, you know, economic conditions get tough, they're much more likely to either cut out that expense or, you know, at minimum lead to or head

to a cheaper alternative. And Starbucks is definitely feeling that pinch right now. The coffee market is insanely competitive. Brand strength plays a huge part in it. And I think because they're so, you know, kind of early in their, in their, you know, attempt to grow in China, the brand likely isn't as strong. And as a result, like when you combine it with a bit of a stingier consumer, you get, you know, amplified declines in sales. This was, this was actually where the company got hit really hard though. So they ended up revising their guidance downward. So previously they expected 7% to 10% revenue growth and 15% to 20% earnings growth. So it now expects revenue to grow in the low single digits and earnings to either be flat or grow in the low single digits. The company also guided the China sales declining

from previously issued guidance. It would grow in the low single digits. The company also guided the China sales declining from previously issued guidance. It would grow in the low single digits. They bombed, I think they fell 17 or 18% on earnings day. A lot of people were saying it was a bit of an overreaction. And I mean, although I'm a long-term shareholder at Starbucks, I'm not really sure. If you revise your earnings guidance down 20%, I think you can expect at minimum that stock is going to tank 20 like it's uh yeah it's i don't really view it as an overreaction i view it as you know in my opinion temporary i think once consumers get some relief from pricing pressures you know a bit better economy we'll see people you know gravitate back towards it again but i wouldn't necessarily say that it

was an overreaction i mean that's you've pretty much i mean it's pretty standard right like right now especially with multiples like a lot of companies being prized to perfection if there's anything that comes in that's unexpected i mean the market will react pretty violently like it's just the reality of having a stock market with valuations that are pretty rich as a whole. It was more than mag seven, you know, last year. But now I think since the beginning of the year, a lot of the other companies have caught up a bit more in terms of that, you know, valuation being higher. And then you have a company that really takes investor off guard a little bit i mean it's to be expected yeah yeah and i mean when you like it's a this is a company that's

typically delivered as well so i mean when they issue guidance people generally trust it but the market is forward looking so if you cut your guidance from growing at a 20% clip to maybe not growing at all, I mean, I'm surprised it didn't fall more than 17%. But I'm going to continue to add it just because, again, I believe it's going to be temporary. They got a really strong brand. I think the consumer will eventually return, but not until there's some pricing relief. And again, this is the same with with RBI with restaurant brands, like, I think this is actually like a shift you're seeing where their Tim Horton segment is cruising

while while Starbucks is, is kind of suffering. I mean, people just don't have the money to spend $7 on a latte. It's just not Yeah, not on the priority list. Yeah. And one thing I wanted to add to China just to provide more context where people are a bit more frugal. So the safety net for people when they retire is not comparable to what we have in North America, right? In terms of social security in the US and Canada here, CPP, old age security, guaranteed income supplement as well, if you're really low income. So there is some kind of like safety nets for people who retire whereas in China there is very little so a lot of people end up putting their wealth in real estate which has been struggling which is probably the understatement

of the day so really really hit hard and people tend to not invest a lot in the stock market in China. So it makes sense that they would pull back on the spending because of that reason, because they need to be able to actually plan for the future and retirement. And one thing that's interesting, and I don't have the data. I looked at it a couple of weeks ago. But one thing that Chinese people have been doing is there's been a lot more demand for gold in China. Oh, really?

I think they're, yeah, they're using that as a store of value because I think the real estate kind of bubble over there has cautioned a lot of people to, you know, buying more real estate. That's interesting. I didn't know that. Yeah. So, I mean, I think it's definitely a good overview for Starbucks. I think they have a really strong brand.

At the end of the day, I think you're correct. I think they'll be good over the long term, but it could be a couple of difficult years for Starbucks. And I don't know if you had mentioned it. Maybe I missed it when you were chatting, but average ticket price i think was also down right yeah so i think average ticket declined pretty much across the board actually no i think in the in the u.s uh maybe not i'm pretty sure it declined across the board which means like even if you go to starbucks like average ticket would be you know if you typically spend seven dollars there and now you're I don't know what you're cutting out. Maybe you're getting a normal coffee or something like, and you're not spending that much. That average ticket kind of just kind of highlights how people are trimming down.

I think average ticket fell by quite a bit in China. And I think in the US or North America, sorry, it was like maybe negative 4%. So even people who are continuing to go there are starting to trim back on the things they typically order. Maybe they're just getting a coffee, not food. Maybe they're, I don't know, what do they charge you extra for particular stuff at Starbucks? I'm not a big Starbucks guy, but. I mean, I go for once in a while.

I think the lattes are the most expensive and then like the summer i know we're not there yet but the summer kind of you know cold brew and stuff like that but yeah that's a good explanation because it it doesn't mean they lowered the prices it's just you know someone who would normally get a latte and let's say a breakfast sandwich or whatever maybe now they only get the latte. The lattes, the same price are slightly higher, but their average ticket price has gone down because they don't get that breakfast sandwich anymore. Yeah. It's a pretty big KPI for retail companies, just how much people are spending when they go into the store. It's not necessarily that

you have to get foot traffic through the door, but you also have to incentivize people to spend more. And just average ticket price is a pretty good thing to look for for particular retail companies, Starbucks especially. Yeah, no, I think that was a good overview. It was a fun episode. We'll definitely be recording a second one. So when you hear that, we'll have one. Our hope is to release it on Friday. So tomorrow when you're hearing this, if you're hearing it on Thursday when it's released, we have a bunch of

other companies. I think we can tell people the ones that we'll be talking about. So we'll talk about TMX Group, which owns the Toronto Stock Exchange, Allied Property, REIT. I know quite a few people own that, including myself, Air Canada, BP earnings, as well as the big announcement they have with Microsoft, cargo jet earnings as well. So a lot of stuff to talk about. We just had too many that we decided, you know what, we'll just make an extra episode this week. So hopefully everyone enjoys that and tunes in on Friday, well, Thursday and Friday to listen to Boat. Yeah, I think Canadian Grocers, I think, too, reported.

So that'll be interesting to do. Oh, okay. I don't know if Empire has reported, but Loblaws, the boycott is on. Well, we'll have to wait for next quarter if we see that boycott, if it's gaining steam or not. I mean, yeah, that boycott's a bit confusing because i think like loblaws is the cheapest grocery store i mean maybe not loblaw but like no frills and stuff so i mean you're you're boycotting loblaw but you're probably spending more money in the process but well also like yeah i get a little confused with that boycott too because depending on what you're

buying i've found that you know certain items will be cheaper at Loblaws or some of their brands and certain items will be cheaper at Metro and some of their brands, you know, or Sobeys and some of their brands. Like it really depends. One thing that I found interesting. Yeah, you wouldn't think so. I I went to Metro and we have a barbecue that's like kind of wood barbecue, if you'd like so you buy like these like i think hardwood charcoal whatever and the bag at metro was 11 but i'm like i'm going to canadian tire and you know i'll just buy it there because it's probably cheaper and i get to canadian tire i'm like huh it's more13 yeah or 14 something like that but I couldn't really

remember what the price was at Metro so I ended up buying one bag I'm like I'll still check which just kind of shows like you'd expect that this kind of stuff would be cheaper at Canadian Tire and even more so the small bag was actually better value than the large bag at Canadian Tire as well. So the large bag was double the size of the small one, but was like, essentially 10% more than buying two small bags. And I looked at it, I was like staring at it for like 30 seconds. I'm looking at the size and I'm just doing the calculations. I'm like, how does that make sense? Usually you save when you buy more, but it just goes to show that sometimes, you know, you might expect to pay less somewhere or more. And it's actually not exactly what you expect.

Canadian tire is notorious for like pricing things like crazy high and then marking them down like 80%. Like, I'm sure everybody knows this and walked into a canadian tire and there's this pot set or whatever that's 90 off but then you find it regular price somewhere else for almost the same as the sale price they're pretty bad no stuff like that it's crazy yeah but anyways it all goes to show that i find you know like the the boycott i find that a bit of a head scratcher, especially, you know, maybe the intentions are good there. Obviously, they want to show, you know, Loblaws, they want to show that they won't necessarily have their business.

I think because of a price gouging that they're perceiving that Loblaws is doing more than the other grocers. But, you know, not everyone actually has that luxury, right? you know, not everyone actually has that luxury, right? If you don't have a car, are you going to take public transit to go like, you know, five kilometers further to go to Sobeys or whatever it is? So you don't buy a Loblaws that's right next to you. Yeah, it's tough. I feel like, yeah, if I were to guess, I don't think it'll have a huge impact on results because a, they're the cheapest, like they're one of the cheapest grocers i think a lot of people they might do it for a while realize you know they're paying a ton of money and maybe go back and i think it just gets a lot of probably media spotlight because it's the biggest

one and uh there's just a lot of focus on it right now but it's going to be interesting to see next quarter to see if it's actually been impacted they They kind of played it down in the conference call, but we'll see. Yeah, yeah, definitely. Well, thank you, everyone, for listening. If you haven't done so, give us a review on whichever platform you're listening to us. Five Star Review definitely helps. Talk to a friend, family member if they're looking for, you know, to learn about investing, but also, you know, listening to us just having fun while we're talking about it. I think that's why people listen to us, you know, religiously for those who listen to the podcast. But aside from that, we'll be back tomorrow with another part two of the earnings and news episode. Yeah, thanks for listening, everybody.

The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.