In this episode of MarketFoolery, host Chris Hill and analyst Bill Mann discuss some recent stock market headlines. Unlike so many of its peers lately, Delta Air Lines (DAL 1.20%) just reported a fantastic quarter. That probably has something to do with the (comparatively small) number of 737s in its fleet. Bed Bath & Beyond (BBBY +0.00%) is one earnings report closer to bankruptcy -- unless it manages to turn around the company, of course. And Amazon (AMZN 1.97%) announced plans to spend $700 million retraining some 100,000 of its employees, which says a lot about the job market we're in. Tune in to find out more.
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This video was recorded on July 11, 2019.
Chris Hill: It's Thursday, July 11. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio, the one and only Bill Mann. Thanks for being here!
Bill Mann: How are you, Chris?
Hill: Doing well, I'm doing well. We've got some earnings.
Mann: We do, sort of. [laughs] We have results.
Hill: We have actual earnings, and we have "earnings" in air quotes. We have a pretty interesting story from Amazon. We'll get to that. Let's start with Delta Air Lines. Record revenue in the second quarter for Delta. The stock is not up big today, although year to date, it's up about 20%. It's close to an all-time high. This really does seem like what we have seen over the last couple of years from Delta Air Lines.
Mann: Yeah, Tim Beyers from the Discovery services, who works with me, has been a tremendous bull on Delta Air Lines. And I have to say, he's been exactly right about this for some time. These are great results. Their profits are up about 30% over last year, record revenues of $12.5 billion. Per-share profits of $2.35 for the quarter. They raised their estimates for the year.
But the interesting thing to me about Delta and these results is that they come at a time of some real upheaval and some real problems for their competitor airlines.
Hill: We'll get to the stock in a second. It does seem like, if you back out from any individual airline, the No. 1 story in this industry is the Boeing 737 MAX. For now, at least, it doesn't appear to be harming Delta's results.
Mann: No, because they don't have it in their fleet. The Delta CEO came out and said, "Well, it's kind of a marginal benefit to us." Wait a minute, because American Airlines, which has a tremendous fleet of 737s that are parked on a tarmac somewhere, said that it's going to cost them $185 million in pre-tax income for the quarter. Southwest has got them. United, to some extent, was ramping up the 737 MAX. Delta wasn't. That pressure has to end up someplace else. This is thousands of flights that are being canceled. So, yeah, marginal to me seems to be a little bit of, "Hey, we're trying to take credit for stuff that's a little bit lucky."
Hill: I was just going to say. Ed Bastian, the CEO of Delta Air Lines --
Mann: Who's done a tremendous job, don't get me wrong.
Hill: Done a tremendous job.
Mann: I've got no beef with the job that he's done.
Hill: Yeah. It's one of those things where they have to say something about it. Look, we've seen plenty of CEOs in plenty of other industries do far more self-inflicted damage answering questions or weighing in on a given topic.
Mann: I would love a little tongue in cheek, like, "Scoreboard!" or, "Yes, we were very smart. We knew." [laughs] "Of course we knew."
Hill: "Really? You knew the whole time?" In terms of Delta the stock, it's within a buck of an all-time high. Do you look at this stock, put aside how well the company's been performing, just on the merits of the valuation, is it expensive to you?
Mann: No, but, the big caveat is, you have to tell me what jet fuel prices are going to do. Fuel prices have come up a little bit, but Delta has tremendous hedges in place. For years now, they're going to have forward rates that are going to be pretty good for them. I really don't think it's expensive here. Delta itself has done a tremendous job of training up its employees. Delta seems to be in a different place reputation-wise than many of its competitors at this point. It is a preferred airline for a lot of people. I never thought that I'd actually even say that about most U.S. airlines, but Delta has really done a great job. So, no, I don't think that it's expensive.
Hill: Here's something that's definitely not expensive: Bed Bath & Beyond. Shares are down today and hitting a new 52-week low. First-quarter revenue for Bed Bath & Beyond was weak. They lowered guidance...here's the thing --
Mann: [laughs] You don't want to be mean.
Hill: I don't want to be mean, but thinking about when we've talked about this company, it's probably a slight overstatement to say that I have defended this company, but what I have done in the past is said --
Mann: No, you're in the tank. Come on!
Hill: "There's an opportunity there, there is some level of brand equity, there is an opportunity. With the right management, there's a way to execute this business, because they sell things that people need for their homes, and if you're looking to invest in housing writ large, and you don't want to buy Toll Brothers or D. R. Horton, this is one way to play that, the stuff that goes in the house." I look at this latest quarter, and the stock -- which just less than five years ago was at $80 a share, and today it's at $10 -- I really think they are so much closer to the end.
Mann: Yeah. The question is whether it's Bed Bath & Beyond repair. That's really what it comes down to. Now, you and I both have college-aged children. We have both seen, certainly, where you go when you want to outfit someone's new house. You're getting your waffle iron, you're getting your towels -- you're getting them from Bed Bath & Beyond. So, yes, there's absolutely an opportunity there.
I don't know what to extrapolate from what's happened with their most recent earnings. By the way, the comparable sales were down 6.6%. On a same-store basis, it's a disaster. But activist investors have been in there. The old CEO left in May. They've come in, they've got a turnaround plan. I think it's a little early to say the turnaround isn't working. They haven't had time to put things into place. But it just feels to me like we're talking about our grandfather's retail establishment at this point.
Hill: That's a good reminder, about the activists, and giving them some time. I do think, though, that three months from now, if we see another quarter like this, it'd better be accompanied by something to give investors some modicum of hope. Something that says, "Here's our plan. Here's where we're cutting. Here's where we're going to invest." Right now, I'm not seeing any of that.
Mann: Right. They're maintaining their store count. They're holding on to Cost Plus, which is another brand that they own, they bought a couple years ago, which they bought as an incredibly impaired brand. They do have options. They could strip down their store count. There are certainly inventory changes that they can make. But they really, really have to do something. And I think you're right. I don't know that they need to show better earnings three months from now, but the plan had better be defined.
Hill: This morning, Amazon announced plans to spend $700 million to retrain a third of its workforce in the United States, somewhere in the neighborhood of 100,000 employees. One of the examples that they used was hourly workers in fulfillment centers, offering retraining to move into IT support roles, that sort of thing. This is a big plan, but I think it speaks to a number of things, including just how tight the labor market is right now.
Mann: Yeah. I don't know how you reacted to it, but when I saw this, this was a, "Wait, what?" story. The thing that we believe to be true about Amazon, I think the thing that is almost legend about Amazon, is that it is a fully efficient fulfillment center now, that they are really, really good at going down to the penny in terms of cost of getting things out the door. So, for them to come out and say, "We're going to spend $700 million because we have 100,000 employees who may be rendered irrelevant or rendered obsolete in the next five years," that's an amazing story to me. I think it's probably good for Amazon. You're right, it's a sign of how tight the labor market is, and how scary it is bound to be for the lesser-skilled segment of the American workforce. It's got to be terrifying to Amazon's competitors, though. "Oh, they're going to be even more efficient. We already can't compete with them because 100% of their revenue is reinvested back into the business at a zero cost. But now, they're going to be more efficient. That's great." [laughs]
Hill: And the mentality reminded me a little bit of something you and I have talked about for years in relation to Costco, and longtime CEO Jim Sinegal's approach to pay his employees significantly more on an hourly basis, in part because he looked at it, not just through the lens of, "I think this is the right thing to do," but also, "From an efficiency standpoint, it's going to be better for our business if we can significantly reduce the turnover." And Sinegal was always very proud of the fact that Costco, relative to other major retailers, had much lower turnover in the employees. That's a little bit of what I took from this story. Couple that with the tight labor market, and it's like, "You know what? It's going to be money better spent, and more goodwill generated, if we offer this to existing employees and we keep them in-house rather than go out and spend even more money to try and hire a whole new workforce."
Mann: I think that's totally right. There are plenty of IT workers out there. Not that 100,000 people at Amazon are going into IT. But, most certainly, the reason that this is happening is that Amazon is recognizing just how quickly technology is changing jobs. It is probably certainly cheaper for Amazon just to say, "Hey, we're going to hire people just out of school, just out of high school, just out of college, who we can just train up," as opposed to taking their existing workforce and saying, "We're going to teach you how to respond to a new technological reality." Put that way, this is great. I was just surprised to see it from Amazon. It's like the old Chili Palmer line. "Does the pressure get to you?" He goes, "No. I'm the one applying the pressure."
Amazon's the one applying the technology. So, for them to come back and say, "This is actually impacting our workforce as well," to me, was pretty remarkable. Anyway, The Wall Street Journal has a story on it and I highly recommend it.
Hill: That was a nice pull with Chili Palmer.
Mann: Thank you!
Hill: Get Shorty. One programming note, Motley Fool Money this weekend, our guest is Carl Quintanilla from CNBC. CNBC has a new documentary coming Monday night on the e-cigarette industry. I watched a screener of it.
Mann: The surprisingly tall Carl Quintanilla.
Hill: Sneaky tall.
Mann: Sneaky tall, yeah.
Hill: E-cigarette industry. Eye-opening. Among other things, it is an eye-opening documentary.
I want to give a quick shout out to longtime listener Justin Russell. You can always email us, [email protected]. Justin Russell went old school with the mail. He sent a package and a note that said, "My wife and I went to Spain for a wedding, and I figured I'd do some boots on the ground research along the way."
Mann: Love it.
Hill: "When I saw jamon flavored Pringles, it seemed I would be remiss if I didn't get some for you. Keep up the good work." [laughs] Spanish word for ham. We have not opened these. We'll crack them open once we're done taping.
Mann: I'm pro-Pringles and pro-ham. But wait, there's more?
Hill: There's more, because he sent, on a comparison basis, a small, vacuum-sealed package of ham from Spain.
Mann: Spain, good at ham.
Hill: Yes. See, I've not been to Spain, but I hear that about Spain.
Mann: There's a museum of ham.
Hill: No, there's not.
Mann: There is! In Madrid!
Hill: Really?
Mann: Yeah. Museo del Jamon. And all the Spanish-speaking people right now just went, "Oh my god, your accent is terrible." I know, I know.
Hill: But the museum makes up for it.
Mann: [laughs] The museum makes up for it. It's still good information.
Hill: Bill Mann, thanks for being here!
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 Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you next week.
