Like spring is doing outside, earnings season is heating up on Wall Street, and green shoots of growth abound in both cases. For example, Twitter's (NYSE:TWTR) earnings were up 9% year over year in Q1, and its daily user count grew for the first time in a year -- in part due to the fact that the company has largely completed its long purge of fake and malicious accounts. Toy maker Hasbro (NASDAQ:HAS) is putting its troubles behind it, too, and not just because it got a huge win from the global box office power of Bumblebee. And staid old consumer products giant Procter & Gamble (NYSE:PG) delivered its third straight quarter of relatively impressive growth -- though it's still tough to explain why its stock is up 40% in the past 12 months.
In this MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management's Bill Barker weigh in on the upsides propelling each of these companies, the investment theses for and against, and the most relevant facts investors should know about them. They also offer a listener-aided update on Burger King's Impossible Whopper experiment.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on April 23, 2019.
Chris Hill: It's Tuesday, April 23rd. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio today, from MFAM Funds, Bill Barker. Thanks for being here!
Bill Barker: Thanks for having me!
Hill: We have a lot going on. We've got some on-the-ground reporting about Burger King's Impossible Whopper that they're testing in St. Louis. We've got consumer products earnings. We've got toy earnings.
We're going to start with social media. Twitter's first-quarter revenue was up 20% compared to a year ago. The stock is having a monster day. Shares of Twitter up 16%. Was it that good?
Barker: It was a good report. It's interesting, the way they started out their announcement, which was to talk about how effective they are at getting the wrong people or the wrong bots off of their service. You don't normally see the initial quote from the CEO being about, "We're reducing the bad part of the business." But that is a big part of the questions that would be hang out about them. So before even getting into the numbers, the narrative was the first thing that management focused on. The market seems to be liking that. I think that's part of it.
Hill: It's an interesting point. You're right, this is one of those businesses that, for the longest time, that it's been a public company, we've focused on growth, we've focused on their monthly active users, etc., that sort of thing. But as you said, the narrative around -- and it's not just Twitter, but I would argue social media in general, certainly Facebook being the classic case -- part of the narrative for them is, they've got some bad actors on there. If they can clean up this platform, and get rid of the bad actors, then yeah, it's going to be a more valuable business and therefore one worth owning.
Barker: Yeah. I think that it has, for a long time, been a business that, they've got many of the attributes that you would want, and they hadn't been monetizing them as well as the competition. But they have something in their arsenal which is extremely effective, which is a product which is addictive. If you only were to invest in addictive products over the course of your lifetime, you would do very well.
Hill: Yeah, that's true.
Barker: Whether it's tobacco, for whatever you think about tobacco, and probably you should think the very worst things about it. I apologize to all the smokers out there. But it's an addictive product. No matter how much we as a society try to educate ourselves about the downside of that product, it remains an extremely, extremely good investment. We've got some addictive products in front of us right now. Much better than tobacco.
Hill: Yes. It's coffee, and it's both addictive and incredibly healthy. Incredibly good for you.
Barker: Oh, yeah, yeah.
Hill: Unlike, arguably, social media.
Barker: But that's one of the reasons why it is so great. It's not just that coffee is great for you, but your body craves it. But unlike many other things which are great for you -- I've heard this claimed about vegetables, but they are not addictive.
Hill: Not really.
Barker: Somebody needs to work on that, getting a little bit of addictive substance into vegetables.
Hill: All kidding aside, the idea of --
Barker: Do you think I'm kidding?
Hill: [laughs] I don't think you're kidding. I think you're being a little frivolous.
Barker: Somebody's going to work on this.
Hill: I was just going to say, it would be interesting to come up with a list of...forget stock performance, let's just come up with a list of things that are addictive and back-check against the stock performance. And it's like, oh, social media can be addictive. Tobacco is addictive. So is coffee.
Barker: Right. Social media, Facebook and Twitter and some other things, work on magnifying the addictive properties of their product. This is beginning to attract attention and backlash. Twitter, understandably, is starting its quarter by saying, "We're working on the bad side." They're not addressing the addiction problem, which they probably don't see as a problem. But, the downside of the users of platform harming other users. At the same time, I don't think that they're pulling back on the notifications and the things that addict one to social media.
Hill: No, I don't think they are. But I also think in the case of Twitter, it makes inherently good business sense to -- as you said, the opening statement from Jack Dorsey -- to get rid of the bad actors. They're in the business of advertising. The more comfort that advertisers feel spending money on your platform, then the more likely they are to come back and spend more money in the future. It's a very smart move by them.
Barker: Yeah. To go to the actual numbers, which we haven't gotten to yet, basically, business was up about 11% year over year. That's at the top line, that's the users. Really, they did much better than that when you get down to the bottom line in terms of the actual profits, which were ahead well beyond that.
Hill: Let's move on to Hasbro. First-quarter profits and revenue came in higher than expected for Hasbro. I mentioned at the top toy earnings. Forget about the toys. The story here with Hasbro is Bumblebee, which is the Transformers spin-off movie that came out at the end of 2018. Bumblebee is getting the credit here for doing close to $500 million in box office receipts around the world. I did a double-take when I saw that. That movie, not only did I not see it, I had no interest in seeing it -- perhaps it's not geared toward me -- but it also seemed like it came and went from the theaters pretty quickly. But then I was reminded of the fact that for whatever you may think of Transformers movies here in the U.S., they keep making these movies because overseas, they do big box office numbers. I mentioned close to $500 million, it was $470 million for this movie, and over 70% of that came from outside the U.S.
Barker: Yeah, there are a lot of different parts to this report. Transformers is one of the things they mentioned. They're sort of lapping a number of the problems, with Toys R Us having closed down and some of the write-offs and liquidation that accompanied that. The part of this that I think bullish investors are going to focus on and find the most interesting is the increasing amount that they are doing with e-games and other mobile. I think that's the growth area. That was up 24%. The rest of the business, you had to make some adjustments on international for currency, but it was closer to flat than you'd really imagine, given the movement of stock price. But the e-games stuff was up 24%, and it's far more profitable than the rest of the business.
Hill: It does seem like Hasbro's move over time, particularly over the last few years, toward intellectual property, has really started to pay off for shareholders.
Barker: Yeah. They've got so many things going on here. Of course, as you look ahead, we've got Avengers coming up any minute now, Frozen later in the year, and Star Wars, and they've got all that. They've got all that here, abroad, everywhere. It just looks now like, not fully completed the cycle of the post-Toys R Us issues, but I think people can see the light at the end of the tunnel today.
Hill: I'm thinking about Toys R Us. It's reminding me of a couple of years ago when Sports Authority went out of business. While that took place over the time frame of just a few months, the ripple effect of that continued to be felt for several quarters for shareholders of Nike and Under Armour. It just continued to come up in those conference calls. It seems like we're, hopefully now, at the end of that happening with Hasbro and eventually Mattel, I suppose.
Barker: Here's something I found interesting in the discussion from management in the conference call. I'll quote this. They said, "As consumers began Easter shopping and new initiatives came on the shelf, including Nerf Fortnite, and Hasbro's line for Marvel's Avengers: Endgame, point of sale improved posting positive Easter-to-Easter comparisons in the U.S." My question is, what are people doing nowadays for Easter?
Hill: Apparently, it involves Avengers and Nerf.
Barker: Nerf Fortnite.
Hill: Yeah. [laughs] Look, the world has changed since you and I were children celebrating Easter.
Barker: [laughs] Is this a big toy holiday now? Back in my day --
Hill: Every holiday is a toy holiday. Are you kidding? Every holiday is a greeting card holiday, every holiday --
Barker: 4th of July, is that a big toy holiday?
Hill: If you consider fireworks to be toys, sure.
Barker: [laughs] As those in Wisconsin do.
Barker: There was a tweet going around about Wisconsin earlier today, Wisconsin's love of fireworks, to get back to Twitter.
Hill: Yeah, I didn't know that there was a great love -- an above-average love of fireworks in the cheese state. Apparently there is.
Barker: According to John Moe, one of our favorites.
Hill: We love John Moe. Let's keep going with the earnings. On a day when Hasbro is up double digits and Twitter is up double digits, the most surprising thing to me is Procter & Gamble. Procter & Gamble's third-quarter profits and revenue came in higher than expected. This is the third quarter in a row they've put up, I would argue, some pretty impressive growth. The stock is actually down a couple of percentage points. It's had this staggering run over the past year. When we say staggering, what I mean by that is, 40%. For a company of Procter & Gamble's size and history, 40% growth in a single year is astonishing to me.
Barker: It is astonishing. You're not going to find the explanation of that in something like the quarterly numbers today, which while good, better than expectations, volume was up 3% for the quarter across all products. They were hurt by foreign exchange a little bit. Net sales up 1%. Organic volume up 2%. These are low-single-digit numbers in terms of your growth. And yet, the stock is up 46% year over year. That's really a lot of multiple expansion. I think that they have completed this reduction of the number of brands they have down to the core 65 that they have today, having eliminated many more than that. It seems like the execution of that reduction has worked out well.
But if you're looking for reasons why the stock is not doing the same thing as the other two companies that we've mentioned today, it's closer to a stagnant kind of sales environment.
Hill: Two things. One, we started doing this podcast in early 2011. At that time, Procter & Gamble had somewhere in the neighborhood of 115 to 120 brands under its umbrella. The methodical reduction in the number of brands in their portfolio has worked out well for them.
Two, this is one of the most surprising things to me about Procter & Gamble, this is a company that appears to be exercising some pricing power in terms of their detergent brands, their laundry brands, that sort of thing. And, oh, by the way, they increased their dividend. This is the 63rd year in a row that Procter & Gamble has increased their dividend. To the extent that you're looking for a Dividend King, not just a Dividend Aristocrat, you might want to take a look at Procter & Gamble.
Barker: Yeah. Everything went pretty well out of their five different sales divisions, other than grooming. I think that's a function of the Gillette brand.
Hill: I was going to say, they have Gillette.
Barker: Nobody uses Gillette anymore, apparently.
Hill: Well, it's not that nobody uses Gillette anymore.
Barker: It's all Harry's, isn't it?
Hill: Yeah. I mean, all kidding aside, Harry's is one of our sponsors. We love Harry's! I'm a happy customer of Harry's and have been for years. But the fact of the matter is, Gillette basically operated a monopoly -- I guess it was Gillette and Schick. There were basically two razor brands, and they had the universe to themselves. Then upstarts like Harry's come along, Dollar Shave Club. And it's like, "Oh, I guess this cash cow that we've been riding for so many years, we're not going to be able to do this in quite the same way."
Barker: Yeah. Part of that was, once you've got a business strategy, the attractiveness of which is literally encapsulated by a phrase that you then try to apply everywhere else -- the razor-and-blade strategy, right?
Hill: [laughs] Right.
Barker: That was repeated enough times over enough decades that others looked at and said, "Huh. What if I literally applied the razor and blade strategy, since that's making so much money off of these two brands? Maybe I could make some money myself doing that." And that has turned out to be the case.
Hill: There was a point in time when Hewlett-Packard was making a nice buck off of their razor-and-blade strategy, which was printers. "We're going to sell printers basically at cost, then we're going to jack up the cost of the printer ink." Again, for a good stretch of time, that worked out well for Hewlett-Packard.
A couple of weeks back, we talked on this show and on Motley Fool Money about a test that Burger King has been doing in St. Louis at around 60 locations in the Greater St. Louis area. They've been testing something they call the Impossible Whopper, which is a meatless Whopper. At the time, because we're nowhere near St. Louis, we're not going to road trip to St. Louis from here because we don't have that kind of time, I sort of put out there, "Hey, if anyone is in St. Louis and wants to do a little boots-on-the-ground research for us, let us know how that goes." Proving once again that we have the best listeners -- I know there are other business new shows out there, but we've got the best listeners.
Barker: Yeah. I mean, we did a study on that, right?
Hill: That there are other business news podcasts?
Hill: Yeah, there are. Bloomberg has some, Wall Street Journal's got some. Yeah, there are others out there.
Barker: But this study included an analysis of everybody else's listeners.
Barker: And while not terrible people --
Hill: No, not terrible.
Barker: Nobody's saying that Bloomberg's listeners are actively bad people; villains.
Hill: Nobody's saying that.
Hill: Nobody's saying that. And by the way, the data in the survey did not prove that. That's why nobody's saying that.
Barker: Right. While the data did not exclude the possibility that they're villains, neither did it prove it.
Barker: And we wouldn't go so far as to say that. Not only Bloomberg, but all the other competitors. However, the data on our listeners --
Hill: We've got the best listeners. From Neil in Rockville, who writes, "The first thing I did when I landed in St. Louis was to head to Burger King to get an Impossible Whopper. A pretty viable alternative to a thin beef patty." I hadn't even considered the dimensions of the burger, but that was backed up in an email we got from Allison Griffith, who writes, "I haven't eaten at Burger King in 20 years, but when I heard your call for someone in St. Louis to test the Impossible Whopper at Burger King, I volunteered as tribute. Delicious. So much better than any fast food burger I've had. My friend bought a regular control Whopper, and it was a sad one-third the size of mine. Here's a pro tip: add cheese, but skip the tomato and lettuce." She adds at the end, "Thank you for making my workouts more fun. I always learn something, and you make me laugh sometimes." It's the "sometimes" that makes that magic.
But, thank you to Neil and Allison, among others who tested this for us. I think Burger King is being really smart about this. Where they're testing it, the size of the test. We've seen other restaurants testing different things at just a couple of locations. The fact that they're going to 60 locations, smack dab in the middle of America, if this works there, they have to feel like this is something that can roll out across the country.
Barker: Yeah. I can't remember what the most common part of America or city is for tests of this type, where they're trying to get the best demographic slice in order to maximize the return on the investment, the R&D. It might be St. Louis. At any rate, St. Louis seems to be a very good choice. According to your listeners, who are, as we know, amazing, it's going to be successful. According to these listeners.
Hill: I mean, the sample size we have -- we haven't gotten an email yet saying, "Yeah, I tried it. It's not good." I don't know, this is encouraging. I think, if you're someone who's looking at these types of restaurants, you have to be watching how this test turns out for Burger King. You have to wonder, what is McDonald's doing on this front?
Barker: Question to you. If you were in St. Louis for work, let's say two and half days, would you spend any of your time and palate on this? That would be subtracting from, what I take it, would be your barbecue time because you're in St. Louis. You're going to go big on that, I think.
Hill: I would absolutely do that, go big on the barbecue, if I was in St. Louis. But I think given proximity, wherever my work was or wherever my hotel was, if there was a Burger King close by, I think I would go in and try one of these. Maybe not eat the whole thing, but at least sample it. I have to leave room for the BBQ.
Hill: But, no, I think I would try this. Let me put it this way: if they roll this out nationwide, there are a couple of Burger Kings around here I could easily hit to try this out for myself. I may do that.
Real quick before we wrap up, I want to say thank you to Bill Velasquez, another amazing listener. When I mentioned a couple of weeks back that I was going to New Mexico for spring break -- Bill lives in Albuquerque -- sent me a list of recommendations of things to do in Santa Fe, including restaurants. Thank you for that, Bill! Great restaurants! New Mexico is underrated.
Barker: Oh, my God! Phenomenal!
Hill: New Mexico is great! Need to get out to New Mexico more. But, because Bill was so nice and helpful with volunteering, "Hey, you're coming to New Mexico? Here are some things to do." In a few weeks, you're going to Singapore.
Barker: Yes, I am.
Hill: If anyone is in Singapore, has just been to Singapore, has some recommendations -- you've actually got some time. Sometimes, you go on business trips and your turnaround time is really tight. You're spending all your time in the hotel, wherever the conference is, that sort of thing. Based on our conversation this morning, I got the sense that you've actually got a little bit of extra time in Singapore to maybe check out a restaurant or two or do a little touristing.
Barker: Yeah. I'm maybe going to have a day on one side or the other of the conference, which is nice. Probably a day on the front side while I'm recovering from the travel. Yeah, if anybody's got any recommendations on recovery from that trip, [laughs] that's probably the move. From the thousands -- sorry, dozens of amazing listeners.
Hill: I guess we're looking for two things then: recommendations for restaurants and/or things to do in Singapore, and, for people who just are dealing with jet lag, massive jet lag, if you have any tips there, we'll take those at email@example.com.
Barker: I don't travel on an Asia trip often enough to have any prediction of how my reaction to the jet lag will be. I've done it and it's different every time. Whereas those that do trips like that five times a year, something like that, they get their systems down.
Hill: They have their strategy.
Barker: They're like, "I need to do X because when I don't do it, problems happen." But, yeah, we'll be checking in on the Fool Singapore office. Possibly.
Hill: Our man David Kuo, down there in Singapore.
Barker: Any podcasts going on there?
Hill: We do. Actually, an update because a couple of people have asked about this -- David Kuo, our man in Singapore, has started a new weekly podcast called Investing in Asia. It is up now on Stitcher. It is not yet up on Apple Podcasts. We're talking to the folks at Apple to see if we can get that straightened out. Hopefully by the end of this week, everything will be up and running smoothly. But yeah, we had David on Motley Fool Money a couple of weeks ago. I always enjoy talking to that guy. One of the most interesting...we've talked before about the most interesting man in the world. David Kuo is in the running, on the shortlist of certainly the most interesting people, just if you look at his career. Gets an advanced degree in chemistry, then goes to work as a bookmaker in England, [laughs], and a great investor and just a wonderful guy. I'm sure he'll have some restaurant recommendations for you in Singapore. But if any of the listeners do as well, drop us an email, firstname.lastname@example.org. Thanks for being here!
Barker: Thanks for having me!
Hill: 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, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!