In this podcast, Motley Fool host Dylan Lewis and analysts Emily Flippen and Jason Moser discuss:
- Boeing's hunt for a new CEO, and the difficulty of shifting company culture.
- Big deals helping Home Depot corner the professionals market and Johnson& Johnson dive deeper into MedTech.
- McCormick's strong earnings, and Amazon's continued investment in AI.
- Two stocks worth watching: Masimo and Mastercard.
Motley Fool analyst Sanmeet Deo caught up with e.l.f. Beauty CEO Tarang Amin to talk about the beauty brand's social strategy and the unconventional ways it's scooping up market share from older competitors.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on March 29, 2024.
Dylan Lewis: We've got news of two big deals and one sweet partnership, Motley Fool Money starts now.
It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me in the studio Motley Fool Senior Analysts Emily Flippen and Jason Moser, Fools great to have you both here.
Emily Flippen: Good to be here.
Dylan Lewis: We've got deals in the works, earnings with a little bit of KYC and of course, stocks on our radar. We're going to talk though first about one of the biggest business stories this year certainly, and that's Boeing following issues with its 737 MAX line CEO, Dave Calhoun is stepping down from Boeing at the end of this year. Emily the company will be replacing Calhoun with another executive and also replacing the executive overseeing its commercial airplanes unit. Calhoun will be involved in the search for his successor and I'm curious, what do you think they should be looking for in a replacement at Boeing?
Emily Flippen: Well, clearly somebody who's going to be committed beyond just a couple of years, which to Calhoun's credit, he's only been in the role since 2019. So you may think to yourself, well, gosh, it's really tough to be a Boeing executive these days. I think Calhoun is jumping for joy, giving the opportunity to get out of the mess that has been Boeing since he took over in 2019 and replace potentially with somebody who has a bit more experienced, I think in the turnarounds of which
Boeing has now easily classified itself, but it's worth remembering part the reason why I'm letting Calhoun off easy here is because Calhoun was brought into the role in 2019 after Boeing had it's 737 MAX incidents when he had those couple of crashes and there's like OK, we need to change the culture. We need to have a more emphasis on safety and let's bring in this new CEO and obviously Calhoun was not able to change whatever the cultural issues that I think are struggling with this business right now, the emphasis on quality and control, that's what the business is lacking. So they need to bring in somebody who has a bit more experience and changing the culture of a corporation because that's the problem.
Dylan Lewis: Jason, we were talking about culture a lot and I think it's one of those things that is very hard to nail down as an issue or really gauge the true culture and the strength of it at a business. I look at what I see with the Boeing story over the last couple of years. It actually feels quite a bit like the WellsFargo story from a couple of years ago. You have a company that is an industry leader, absolutely sterling reputation and massive issue after massive issue, just totally degrading that over time and it's taken quite some time for Wells Fargo to figure that out. I feel like Boeing probably has a long road ahead of it.
Jason Moser: I'm glad you brought that up, but I think you're right. That's the comparison that I drew earlier in the week when I was looking at this story. To me, the one thing I feel most strongly about in regard to this is I think that no matter who they hire, this needs to be an external hire. Because to Emily's point there, I bet you Calhoun probably is low key happy, just to be out of this mess and it's important to note this mess didn't start with him.
This is something that's been festering with this company for awhile, and culture is funny when things are going really well, culture is going really, you can't really nail down what it is, but everything is going well, so it doesn't really matter. When things start going wrong, then you can start looking to say, well, maybe there's some cultural issues that we need to resolve here. I think this is something that goes well before
Mr. Calhoun held the position there. You look at Wells Fargo, obviously a company that was witnessing serious cultural issues, they hired internally that seemed to make the problem worse until they brought in Charlie Scharf from Bank of New York Mellon. It feels like he's started to get this thing turned around a little bit, but it takes a while and I think in this case, it's going to take a while for Boeing to get things in order. But I think the key to it all for sure it needs to be an external hire.
Emily Flippen: It's worth reiterating that it takes awhile comment because you know what also takes awhile, purchasing orders for planes. People don't just buy them on a whim. You place your plane purchase orders years out, years in advance. So we're likely going to be seeing the impact of what's happening to Boeing in 2024, still impacting the company with their orders years into the future.
I'll just reiterate one additional thing I like because he talked a lot about culture, that's a lot of it. But they're also talking about acquiring one of their third-party suppliers and I think that could be interesting as well because he talked about emphasis on quality control when you own the entire supply chain, when you own it from top to bottom, that can be a little bit easier to make sure things are done right.
Jason Moser: It was funny to me the name that have popped into my mind immediately when I was reading about this, I was just kidding but not really Alan Mulally. We saw what Alan Mulally did at Ford and I'm certain that Alan Mulally is probably going to take a pass on this, but I bet you a lot of people out there and thinking he would be a nice candidate for something like this.
Dylan Lewis: So it sounds like anyone who's looking at Boeing shares opportunistically here, we need to add that reminder It is going to be a long road out of this and there's probably gonna be some lumpiness just due to the long cycle when it comes to airlines sales, Emily?
Emily Flippen: Yes, completely fair.
Dylan Lewis: We've got two deals to talk through this week. First-up, Johnson & Johnson reportedly in talks to buy medical device makers, ShockwaveMedical, both J&J and Shockwave up on the news. Emily, Shockwave is roughly an $11 billion business decent size, not a humongous acquisition for J&J if this one winds up going through though.
Emily Flippen: Yes, J&J has certainly made larger acquisitions, but it's fair to say that there's likely a fair amount of interests and Shockwave Medical, this may not be the most well-known biotech business, but it should be, as you mentioned, it's nearly $12 billion company so it's a pricey acquisition. There has been interests in the past from both J&J as well as a handful of other purchasers that were rumored over the course of the past year to be interested in purchasing Shockwave Medical, who has this intravascular lithotripsy technology that has continued to show out veracity over time and we're moving calcification from blood vessels.
So they have really great technology. I think they know they have great technology though that's part of the reason why these are still rumors of this acquisition because talks presumably fell through over the course of the past year. I think Shockwave is probably being picky about pricier. They have something good, they know it and they don't want to sell out for anything less than they're worth.
Dylan Lewis: Jason, I look at this news and I think we have seen Johnson & Johnson push further into the medical business over the last couple of years. The interest here seems like they are continuing to move in that direction a little bit away from some of the consumer brands that we've seen and familiar with.
Jason Moser: Yeah, no question. Splitting off that consumer business recently, I think really was the tail in what they want to focus on and I think in the Johnson & Johnson brand, particularly a lot of this stuff happens behind the scenes. When you're talking about Med Tech and Surgical Equipment. So it doesn't surprise me at all that they're looking at a company like Shockwave that has witnessed so much success, that has really, I would call it unique technology is something that separates them from the competition. Makes lot of sense J&J would want bring them under their umbrella.
Dylan Lewis: Johnson & Johnson and Shockwave might happen. We're rumored reports there. We have talks a bit more final for Home Depot and SRS Distribution. Emily Home Depot will be buying the professional supply company for $18 billion. This to me says Home Depot is increasingly focused on the professional side of its business.
Emily Flippen: This is a really interesting acquisition, as he mentioned, this is the largest acquisition Home Depot's history. So while Home Depot has been acquisitive in the past match and that what that organic growth and acquisition of this size is certainly saying to investors, we are all in on the pro.
They spent a good amount of time in their investor conference call talking to investors explaining how they think this could accelerate their sales growth and that's exactly what this is for anybody who's wondering, this is Home Depot saying there's an area of the pro market that we're just not able to tap right now and by acquiring this large, I don't want to necessarily call it a competitor because they slightly different business models, but also used the word competitor for this purposes
. Acquiring this large competitor really will position us better to bring pros who are not currently in our ecosystem to our ecosystem. Picking up that percentage of sales that people are making, not-at-home, Home Depot, they go and they get 60% of what they need for their projects at Home Depot and then they go somewhere else. They're trying to get that someone's else business. I do think it's interesting.
I do worry that regulators, given how, hence I think relationships between large corporations and regulators have been in the United States recently that there's likely to be some interest in this deal. I don't think it's as shoo-in as maybe the Home Depot management team believes it is, but it should be accretive for the company moving forward, even though it will likely lowered their margin profile.
Dylan Lewis: It is pretty amazing. I feel on this Show over the last month plus we have talked to time and time again about the interest that regulators have in big businesses, generally Big Tech. I was surprised that we had two $2 billion plus acquisitions being discussed this week. Jason, when I look at how SRS might fit into Home Depot, we see that they have some expertise in pooling, we see that they have some expertise in roofing. Those are certainly interesting businesses as you think about what it means for Home Depot's business financially, what would bringing this on show up in the financials for them?
Jason Moser: Well, as Emily was talking about, this is going to impact the company's overall margin profile negatively. Now that's OK I think in the sense that they should make up for it clearly more on volume. When you look at the markets they're tackling here, pools, roofing, landscaping, fairly specialized thing driving me nuts. You think about all of these local landscaping business, for example, all over the country,. if they're going to be able to look at Home Depot as a reliable supplier. That continues just to bring in more and more business, they attach a rewards program with that. While the pro-business is something where it's going to be a lower-margin you make up for it on volume that it works out very well.
I think when you look at Home Depot for the financials perspective in regard to this deal. It's obviously a very big one to make happen. They don't have unlimited cash on the balance sheet. So this is something where they're going to be adding debt to the balance sheet. On top of that, they're also going to build out another four massive distribution centers in order to basically shorten that distance between the customer and the supplier and so I think it makes sense, it requires taking that longer-term view.
Again, I think in regard to the debt that they take on to do this it's OK, it's a reliable business. The debt they have on the balance sheet at this point is staggered out very nicely over long periods of time. When you consider the importance of the housing market to our economy, we know home improvements not going anywhere. So this is business, not necessarily Home Depot's miss, but the business itself. This is business that's as reliable as the sun coming up. If Home Depot doesn't do it Lowe's is going to do it. So Home Depot's trying to beat him to the punch.
Emily Flippen: I will say if I'm Lowe's I'm scared, but here's the question I would have asked management if I had the opportunity to ask Home Depot question about this acquisition and that is this is a business that is based out of North Texas, this distribution company they're acquiring. I'm curious how much of their sales are geographically centralized around Texas and North Texas in particular, because management is extrapolating their previous growth rate over the last couple of years into the future. If they're centralized there, that could be a problem.
Dylan Lewis: Coming up after the break, we've got Amazon upping its bet on AI in earnings that brought a little spice. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis. Joined in studio by Emily Flippen and Jason Moser. Tough news this week that hits close to home here in Washington, DC where we're based. Earlier this week, a cargo ship hit the Francis Scott Key Bridge in Baltimore, taking the bridge down, causing several deaths. The cause is still being investigated, so many of the implications still being figured out in Baltimore itself. Still looking at a long road to rebuilding here. But Jason, the bridge is not only a major access point for the Port of Baltimore, it's also a big part of how people get around in the city. I'm sure it's a bridge we've all been on driving around.
Jason Moser: I've been on that bridge the number of times and it's obviously a tragedy for those lives lost. In regard to the economy, in the economic implications here, capitalism always seems to find a way. This is something that, I think that it sounds maybe worse today than it actually will be. That's based partly on what leadership from some of these companies that are in the area have said. Amazon, Home Depot, McCormick.
They have all said the same thing, there will be some disruptions. But it's not something that really is going to impact our business too terribly much in the near term. It's worth saying, the American Trucking Association estimates of 4,900 trucks per day carrying an annual average of $28 billion worth of goods is going to have to be rerouted. There are economic implications here. But I don't think it's going to be something that we feel too terribly much, at least in the near term. Now a lot of this depends on how this problem is ultimately able to be solved, and Baltimore being the number one automobile port in the US as well, we're going to see a lot of that go to other parts of the country. I think the Port of Virginia being one of them.
Dylan Lewis: Emily, I think as we look at the story, try to process it. A lot of people, when these things come up, try to become experts very quickly in a lot of different things. Whether it be insurance, whether it be logistics. This is just another one of those very complicated stories to process. I appreciate Jason here bringing some of the, OK maybe it won't be as bad as we think. What's your take is we processed this?
Emily Flippen: Is it too soon to use the word unprecedented?
Dylan Lewis: It feels that way.
Emily Flippen: It does. But this is something where I think the reason why the tonality from a lot of management teams that could be impacted has been muted is because people just simply don't know yet. There's no timeline for the port reopening and they need to dredge the harbor where they can do so. It's really anybody's guess for how long it will take for the port to be back operating. But to Jason's earlier point, there's a lot of extrapolating and a lot armchair experting we can do as investors.
Not that we should. But one of the things that I think is worth keeping an eye on are those automobile manufacturers. Because the Port of Baltimore did have a fair number of trained staff for roll-on, roll-off, car import, and export. Not every harbor, apparently, as I've learned and that's armchair experting, again, is suited to take these types of vehicles. They'll have to find a new port with the level of trained staff that they have there in Baltimore and that could be challenging in the interim.
Dylan Lewis: I think the thing to really keep an eye on here, to me, it's the smaller businesses in the area. We're talking 8-9,000 jobs that have essentially been put on hold here. We don't know for how long. There are local businesses all around this area that are going to be impacted. The implication for public companies, not necessarily the same thing. We as investors might not feel that pinch, but you really do have to be thinking about the smaller businesses in the area. Jason, you did mention McCormick there as we were talking about some of the companies that put out statements or have been possibly affected by this. In addition to the news affecting them, we also had earnings from that company this week. Shares up 10% following the company's report. What did you see in the results?
Jason Moser: Better than expected. This is a company that is certainly not immune to macroeconomic pressures. They have felt the pinches from inflation over the last couple of years. But it sounds they're coming out on the other side of this in pretty good shape. They did note, on the call, consumers remain a challenge. When you look at the results, very respectable, I would say.
Constant currency, they saw sales up 2%. They did see gross profit margin expansion, 140 basis points there as they are able to maintain some pricing. They do a very good job of bringing all of that down to the bottom line. This is a company that benefits from those economies of scale. They made a conscious decision in 2023 to discontinue a few low-margin businesses. That has played out a little bit in the near term there. But this is a business, I think that it was trading at a lower multiple than it deserves to. I'm not surprised to see the market react positively.
Dylan Lewis: We going to wrap our news updates. Checking in on the world of AI. Amazon deepening its investment in Anthropic this week. The company committing another 2.75 billion to the generative AI start-up and OpenAI competitor. Emily, we've seen a lot of money flowing into AI over the last year or so. I think for a lot of these big tech companies, a couple of billion dollars just a drop in the bucket, but probably a pretty meaningful amount of money for a lot of these start-ups. What are you thinking about as you're seeing capital flow to a lot of these types of projects?
Emily Flippen: You can imagine that you're the leadership of Anthropics, suddenly getting billions of dollars of investments. You're then thinking to yourself, what's the best use of this capital? I think for a lot of these unproven management teams that have obviously spent time developing some of the most powerful large language models that we've seen when it comes generative AI, doesn't necessarily make them great capital allocators. The next couple of years, we're going to get some insight into how this money is spent. But in this case, which by the way, Anthropic is the business that is behind the large language models that power Claude, which as you mentioned, is one of the biggest competitors to OpenAI's ChatGPT. There's a lot of money that's being invested into anybody that can dethrone the ChatGPT rivals of which Claude is probably the next best large language model that we're looking at. It's interesting though from Amazon's perspectives, because people point to these investments, say look, Amazon is putting as much capital as they could have initially committed. They had some upfront and then would say, later on we'll decide if we should increase this amount. They decide to increase it to $4 billion. Their hands were tied in that decision. If they chose not to increase their investment in Anthropic, that would send a message to the entire industry, all of artificial intelligence that look, one of the biggest investors in this space is no longer investing. They don't see an opportunity there. That could really degrade the value of their initial investments. They really had to put more money behind Anthropic here. But what the business will do with that capital, it just remains so uncertain.
Dylan Lewis: I think I hear you say there's a little bit of potentially sunk-cost fallacy here. [laughs]. Or they need to protect their own investment. Jason, Amazon has always been a leader in the AI space, both operationally and with how they've invested. It seems we are basically in an era here of big tech companies lining up their AI futures with some of these investments.
Jason Moser: Bit of a leap of faith that comes with this. We know that AI is going to play some big role in our lives. It's still a little bit unclear as to how. It's becoming a little bit more obvious. I do think it's fascinating that [Alphabet's] Google and Salesforce are also investors here in Anthropics. I wonder if Amazon didn't feel a little pressure to up their game there. Because if they take a pass on that, maybe Google or Salesforce step in there.
Dylan Lewis: Jason Moser, Emily Flippen. Fools, we're going to see you a little bit later in the show. Up next, we've got the CEO of a company that's mastered their social strategy. Stay right here. You're listening to Motley Fool Money.
MALE_3: I sold the farm to take my woman where she longed to be. We left our kin and all our friends back there in Tennessee.
Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis. Beauty may be in the eye of the beholder, but there's plenty to like about this makeup company. e.l.f Beauty has seen net sales growth for 20 consecutive quarters and it's taken TikTok by storm. Motley Fool analysts Sanmeet Deo caught up with e.l.f CEO, Tarang Amin about the beauty brand's social strategy, and the unconventional ways it scooping up market share from older competitors.
Sanmeet Deo: One thing that really stood out to me when I was looking at e.l.f, is it's very popular among the Gen Z demographic and teen, like I said, my daughter, who's technically a tween, I guess, but have you been able to appeal to that younger-generation, that's a demographic that many consumer products companies and businesses in general try to capture, but it can be difficult and challenging.
Tarang Amin: I'd say, there are three main drivers overall for the business, particularly work well with Gen Z. If I think about our value proposition, our ability to make the best of Beauty accessible at these incredible price points, definitely speak to them, our powerhouse innovation, that unique ability of taking inspiration from our community, as well as the best products and prestige and offering you at these incredible prices definitely speaks to them.
Then most importantly, I think our marketing approach, the engine that we have that's really focused on engaging and entertaining them. We do things well outside of traditional beauty norms. We don't do much, I'd call it, broad scale based advertising. We do a lot of things on social. We do a lot of things on a number of different platforms and we try to find ways that are native and speak to them.
We were one of the pioneers on TikTok from a beauty brand standpoint. When we first approached TikTok, I remember our CMO, Kory Marchisotto, came to me and said, "Hey, we gotta be on TikTok because that's where Gen Z is." My response was, "Well, if that's where Gen Z is, we definitely should be on TikTok. Now, what's TikTok?" This is five years ago, but when we approach a platform, we didn't approach it from an advertising standpoint, we tried to figure out what was Gen Z doing on TikTok.
We saw a lot of self-expression, which speaks well to our overall mission, and a lot of music, a lot of dancing. We approached the platform with humility and we basically said, "Let's do something that makes sense for Gen Z." We commissioned our own song, our eyes, lips, face hashtag challenge was born and we have, I think that first challenge, 4 billion views. We kept going, we kept getting more creative on the platform where we created a rock brand with the Simon Fuller, the co-founder of American Idol. The challenge on that one was near 15 billion views. We find ways that really engage and entertain that community, and we continue to do that not only on TikTok, but we have our own channel on Twitch.
We have the best branded experience on Roblox. We try to find different ways of really engaging that audience and it's definitely working. It goes hand in hand with that value proposition and the innovation that we're able to offer that really resonates with them. It's interesting how your marketing is not afraid to go to platforms and really test them out, even if someone might say, why are you on TikTok or what is TikTok? What can you get from it? To be on Roblox, that has so many monthly users, over 65 million, I believe. Now you also have an app on the Apple VisionPro. Who knows how that's going to turn out, but you're there. If it does gain prominence, e.l.f will be right there, probably one of the first. It's amazing to see how you've done that.
Sanmeet Deo: In addition to Gen Z, you're growing awareness among millennials and Gen X. One thing that I thought about was, how important is aging up to your growth strategy? Not only retaining those Gen Z customers as they grow up, but capturing current millennials and Gen Xers and older customers.
Tarang Amin: It's definitely part of our strategy in terms of bringing new consumers to e.l.f. If you take a look at our journey just in the last few years, we've doubled our unaided awareness about 13%-26%. The growth itself has been great, but we still only have 26% unaided awareness. While we're 20 years old, many of those companies are over 100 years old. Maybelline, I think, has been around for 115 years. L'oreal Paris has been around close to 100 years.
Covergirl, close to 80 or 60. We have a long way to go and part of our strategy is certainly take that strength we have among Gen Z, but also bring other consumers into the franchise. So as you mentioned, we've been growing our audience among millennials, Gen X, Latinx and we feel the strategy we're using is attracting more consumers, but beyond what we're doing, what we're also finding is a different phenomenon going on where maybe historically a lot of the legacy brands, the mom would teach the kid all about makeup and go down generations, what we're now finding is sometimes mothers just sitting there going on like why is my teenager dragging me to Target so many times to go get this e.l.f.
Then the moms are trying e.l.f and being like, "My God, I can't believe this is so good at this price, why am I spending $50 on foundation when I can get what I can get one of the e.l.f ones for a fraction of that price. I think we're aided by both things, but what our approach in terms of broadening our distribution, our awareness, but also in terms of just the overall quality of our products at the price that are attracting people that might not have historically known about e.l.f.
Sanmeet Deo: Beauty is a tough industry to you build a mountain, as you know. There's so many of the bigger entrenched competitors who've been around for such a long time. How do you build customer loyalty in the space and how do you maintain that passion and drive for that brand?
Tarang Amin: You're right, if you look in the US on the mass side, Nielsen tracks, I think it's 1,800 cosmetics and skincare brands. It's a relatively low barrier to entry category. There are a ton of brands, but the other thing is very few of them have been able to scale, outside of 1,800 brands, only 50 has more than $50 million retail sales, only 27 or 28 have more than 100 million of retail sales. e.l.f is 1/5 with more than $700 billion in retail sales. While there are many brands in our space it's typically hard to scale, the ones that are able to scale usually possess a few key characteristics. One, they have a real brand that people love, the qualities of products is really good, and the value is acceptable. I feel like all those things are working for e.l.f in terms of how we've been able to not only scale, but continue to grow, year after year.
Sanmeet Deo: One thing I've always been interested in companies with strong loyalty rewards programs, Starbucks and Alta, where your products are in. You have your Beauty squad loyalty program, has over 4.5 million members and drives over 80% of your website sales. How do you continue to grow this? What impact does that have on your business, even just outside of sales?
Tarang Amin: PV squad has been phenomenal for us. As you say, not only does it drive a big portion of our online sales, but it's also a rich source of first-party data. If you think of a lot of the Apple privacy changes, that's been a real issue for a lot of brands in terms what's the quality of data that they're getting from some of the social platforms. Having our own data, the 4.5 million members we have where we could do lookalike targeting, number of other things in terms of mining what their preferences are and what they want to see from e.l.f is a huge advantage that drives our overall business well beyond our web sales.
Sanmeet Deo: You mentioned about it a little bit earlier, but can you talk a little bit more about e.l.f's holy grail innovation approach to building growing franchises and how that stands out from how other beauty companies go about product development.
Tarang Amin: In beauty there's a real love. Like I said, it's a category that's a fantastic consumer category because consumers love new ideas, they love new products, there's high levels of engagement, it lends itself really well to social media and sharing, since it's all about expressing yourself, empowerment. It's a great category as we think about the core dynamics within it. It's a terrific category, and if I think about what really drives it, obviously innovation is probably the biggest driver and our approach is different, a lot of beauty companies will launch a bunch of products in a given year and then have to go anniversary that launch the next year and have to launch a bunch of other products and you get a lot of proliferation of SKUs.
Our approach is fundamentally different a couple of different ways. One, we really focus on what we call these holy grail innovations, things that we can take inspiration from our community, or the best products and prestige, put our e.l.f twist on and introduced at a much better value. This kind of community-driven approach really helps us. I'll give a recent example. Our community is not afraid to tell us what they want. They recently came to us and said, "Hey, there's this prestige lip oil, we love it, but it costs $40. I can't afford $40, so e.l.f, help me out, come up with something that is more affordable." So we'll study that prestige product, we'll say, "Hey, what do people like?" They liked that had a glossy finish, color pigmentation was good.
Then we'd also ask what they didn't like and they'll say," Well, this one dries my lips out sometimes, the applicator's small. " We'll study that, we'll take all that data in. We will put our e.l.f twist on and we come out with our own lip oils that have a much better hydrating formula, bigger dough foot for application and will introduce some at $8. And like I said the next day, they blow up fire early because people can't believe that this thing is $8 versus the prestige item at $40.
So one, that approach of really trying to take the best of beauty but making it accessible, what we call these holy grails, I think is one part of our approach. The second thing we do is instead of these one and done launches, launch something this year and then have to go anniversary next year, introduce even more skews. We tend to focus on franchises. We have a few key franchises. I call our Halo Glow franchise, our power grid, Putty Primer, Camo, and on skin care, Holy hydration and some touchables.
What we find is every time we launch something new in a franchise, the entire franchise grows. You have the sustaining growth, and the franchise, it is every one of our franchises have grown every single year. And they've been fed [MUSIC] by innovation, but innovation really shines the light on the overall franchise where you see this continued growth even in your core, in addition to you net worth.
Dylan Lewis: Coming up after the break, Jason Moser and Emily Flippen return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against. Don't buy or sell anything based solely on what you hear. I'm Dylan Lewis joined again by Emily Flippen and Jason Moser. We've got stocks on our radar coming up in a minute, but first, something sweet to help us round out our news updates. Shares of Krispy Kreme up almost 20% this week, Jason. A news that the donut maker is expanding its relationship with McDonald's Nationwide by 2026. That will put Krispy Kreme's in thousands more McDonald's. This has been something that's been developing for a while. What do you make of the story?
Jason Moser: I think it's important you say this is something that's been developing for a while and I think that's an important point to note there because it's not like Krispy Kreme nor McDonald's went into this just willy nilly thinking, "Hey, maybe this is a good idea." They've been testing this out. It follows a testing at 160 different McDonald's restaurants. Clearly they saw that who's worth expanding the relationship. I think when you compare the two businesses, this is a bigger deal for Krispy Kreme than it is for McDonald's. I think that's obvious. Maybe look at Krispy Kreme today as a stand-alone business, they could be doing things better.
They're working in a pretty difficult market. I'd say coffee is one thing, but convincing people to just eat as many donuts as they can possibly. That's a bigger stretch. The older we get, it becomes even more difficult. But I like the idea. Krispy Kreme will continue to generate incremental sales from this, I think it's tremendous brand-building opportunity as well. You just consider how many McDonald's restaurants there are just just in the US alone. I mean, that really is going to put that Krispy Kreme brand front and center at least as far as being the donut expert. I will say Krispy Kreme donuts are better than Dunkin' Donuts. Don't at me.
Emily Flippen: That's kind of the problem though, what you just said. Krispy Kreme donuts are better than Dunkin' Donuts. Why do you think that?
Jason Moser: Because they taste better.
Emily Flippen: Because they taste better. Now, tell me, will Krispy Kreme's at McDonald's taste better than a Dunkin' Donuts?
Jason Moser: Well, that remains to be seen. I guess what we're going to have to do some market research. [laughs]
Emily Flippen: Exactly.
Dylan Lewis: One of the places my head went to when I saw the story is, we have seen a lot of success with the store within a store model in retail, especially with the cosmetic companies and some of the big box retailers. But I see this and I say, it's pretty interesting that McDonald's says, "We don't need to make donuts, Emily, we can just have someone come in and provide the donuts every single morning as a brand extension, a cheap way for us to test out whether the market is here or not."
Emily Flippen: I think to be fair to McDonald's, they are franchise-based model. It's a little bit harder for them to roll something out and say, "We're just going to test making our own donuts in store in a few locations." Because then you have to get the franchisee buy-in. It's a little bit easier for them to just outsource it. Basically, it's no skin off their franchisees back. By integrating Krispy Kreme can, if anything, increase sales. But I do think the big risk is for Krispy Kreme. If quality is impacted that is hub-and-spoke model now, that typically insures in this delivered fresh daily, all that stuff that keeps a quality that you expect when you get a Krispy Kreme donut. McDonald's is benefiting from the name-brand of Krispy Kreme. But Krispy Kreme needs be careful not to dilute their own name brand in this deal.
Dylan Lewis: Let's get over to stocks on our radar, our man behind the glass, Dan Boyd is going to hit you with a question. Jason, you're up first. What are you looking at this week?
Jason Moser: Interesting development this week for Masimo company. I've talked about here before. Ticker is MASI, specialist in the pulse oximetry space. I know that sounds a lot, but really it's just about measuring blood oxygen levels, which is something that the hospitals and doctors offices all need. But a while bag Masimo made an acquisition, an odd acquisition at the time of Sound United. Sound United being a company that really focuses on high-end speaker systems and etc.
Ultimately Founder and CEO Joe Kiani of Masimo said that this acquisition was in order to help them pursue more of a consumer side of the business wearables. Focusing on a particular market opportunity and hearing aids and etc as those become more accessible to consumers. The investor community has taken this acquisition with total skepticism since it was announced. I just don't think they're very complementary businesses. Activists got in there.
It really started pushing for some changes. They wanted to see maybe the separation happen. It's nice to see that it sounds like it's going to happen. They've they've given this plan to the Board. The Board is deliberating it. Kiani would remain the CEO of Masimo, but also will play a role as the Chairman on the consumables side of the business because he really was the one that spearheaded that Sound United acquisition. But the market received the news fairly positively this week.
I think to me it makes a lot of sense because the Masimo business on its own is a very successful one, it benefits from that razor and blade model where they get those machines into the hospitals and sell the consumables that are required to make those machines work. Very high-margin revenue there. But when this acquisition was announced, it just seemed very odd and it just hasn't made much more sense.
Jason Moser: Dan, a question about Masimo.
Dan Boyd: Jason, this is like the fourth or fifth time you've brought Masimo to the table here. Is this replacing McCormick as your most favorite stock?
Jason Moser: Well, Dan, as they say on Letter Kenny, to be fair, I was going to go with a different radar stock today, but the Masimo's story took precedence here. I decided to go ahead and bring Masimo to the forefront so we can make sure to at least give the story a little airtime. I'll come to the table with the new radar stock next time. I promise.
Dan Boyd: At least just pick a different letter. [laughs] Doesn't all have to start with MJs. We get it, Moser. Plain and simple.
Jason Moser: Emily, what's on your radar this week?
Emily Flippen: I don't know my excuses because my radar stock also starts with an M. That's Mastercard. Mastercard is on my radar this week after them and a handful of other card network can issuers settled what was a decades-long antitrust lawsuit that was brought against them by US based merchants who felt that their swipe fees were too exorbitant. They had a settlement this week which can still be appealed. Nothing is finalized yet, but under these terms of the settlement, it seems just like a minor slap on the wrist for Mastercard and other card networks.
They're reportedly losing at least four-tenth of a percentage point and their swipe fees, it's not nothing but it's as close to nothing as you can get, as well as freezing those rate fees for at least five years. Again, a minor slap on the wrist for a lot of these businesses. I think Mastercard and Visa are probably looking at this settlement and thinking to themselves, "That could have been a lot worse." It's not over yet.
But what the settlement does do is give merchants the power to impose surcharges based on the type of card that they use, which could cause a major chain for consumers who are currently accustomed to like all forms of their card being accepted. If you accept Visa, you accept this Visa card and this Visa card. Now the fees and the prices could be different depending on which type of cards you have, because the fees associated each card under these plants are different. There's the potential for merchants to basically steer consumers toward their preferred cards, which could really change the landscape for Mastercard.
Jason Moser: Dan, a question about Mastercard or credit cards?
Dan Boyd: Emily, do you actually think people are going to be doing that, having a preferred card?
Emily Flippen: I think it's possible. I always assumed to stick with the status quo, unless you have a reason to believe that something is changing, chances are things typically stay the same. I don't want to overstate the impact that this could have, but I feel like it's a very reasonable outcome if this suit does not get appealed, and the appeals don't work, then yes. We go to merchant, they say we will give you X% discount if you use our preferred card, which maybe is a Mastercard or maybe it's Visa.
Jason Moser: Dan, two M names, which one's going on your watch list?
Dan Boyd: I think it's hard to bet against the Mastercard or Visa or any of the credit networks. Like they're just not going anywhere.
Jason Moser: A follow-up watch list, Dunkin' Donuts, Krispy Kreme, which one's going on your watch list?
Dan Boyd: Krispy Kreme, 100%. Dunkin' Donuts is the donut we have at home. I'm sorry.
Jason Moser: That's not a great slogan, but I do appreciate it. Dan, thanks for weighing in. Emily Jason, thanks for your stocks. That's going to do it for this week's Motley Fool Money radio show. Show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Dan Boyd has positions in Amazon. Dylan Lewis has positions in Salesforce. Emily Flippen has positions in Home Depot. Jason Moser has positions in Alphabet, Amazon, Home Depot, Masimo, Mastercard, McCormick, Starbucks, and Visa. Sanmeet Deo has positions in Alphabet, Amazon, Roblox, and e.l.f. Beauty. The Motley Fool has positions in and recommends Alphabet, Amazon, Home Depot, Masimo, Mastercard, Roblox, Salesforce, Shockwave Medical, Starbucks, Visa, and e.l.f. Beauty. The Motley Fool recommends Johnson & Johnson and McCormick and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
