In this episode of MarketFoolery, Mac Greer talks with Fool analyst Jason Moser about some of the day's biggest business news. Shares of Pepsi popped on a nice earnings report, but what's led PepsiCo (NASDAQ:PEP) to outperform Coca-Cola (NYSE:KO) for the past one, five, and 10 years? Jason offers up some possible explanations.
Uber (NYSE:UBER), meanwhile, stretches further into the gig economy with Uber Works -- which might be just what the company needs going forward. Tune in to find out more.
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This video was recorded on Oct. 3, 2019.
Mac Greer: It's Thursday, Oct. 3, Welcome to MarketFoolery. I'm Mac Greer and I am joined in studio by Motley Fool analyst Jason Moser. Jason, it is just you and me. How you feeling?
Jason Moser: Just the two of us. I'm feeling all right about that.
Greer: Just the two of us. We're going to talk some Uber. They're launching a new app, a new business, because, well, the current business, there's some problems. You may have heard.
Moser: It's not quite getting it done.
Greer: Not quite getting it done. We'll talk about that. We're also going to talk about a company in terms of not getting it done -- I'm going to say this company may have a marijuana problem.
Moser: I like what you did there.
Greer: Curious? There you go. But we begin with Pepsi. Shares of Pepsi up around 3% on stronger than expected earnings. Jason, among the highlights here, Frito-Lay North America. This isn't just about Cheetos and Doritos and, of course, Fritos. They're having a lot of success with healthier options.
Moser: Sure. Anytime you have a business that has done such a good job through the years of catering to a specific audience, when that audience starts changing its tastes -- and it is, as we've seen. People are focusing more on eating a little bit better for them. You have the ability to go in there, test, and try new things. Frito-Lay and Quaker have always been strengths of this business. I think it's worth remembering always that diversity really is Pepsi's biggest strength. It's not just a soda company. The efforts to branch out beyond just soda clearly are paying off. The organic revenue growth for the company of 4.3%; last quarter, they had set the expectation of 4% growth overall for the year. They did something pretty clever in the release here today, I thought. Last quarter, they said they expect to meet that 4% number. This quarter, they said they expect to meet or even exceeded it. So, they didn't really change much. The guidance is still the same. They just verbalized the possibility that they could beat it. A little bit of clever earnings language on management's part, I guess.
You go back to Pepsi, as we said, the diversification in the business is really working out. It's a dividend aristocrat. They have a nice, healthy yield that will continue to grow, given that aristocrat status. Fiscal strength, that yield should continue to get better. I do think that this is a company for income investors. They should almost perpetually keep it on the radar.
Greer: Here's one thing that surprised me about the earnings, though. Pepsi owns at 50% stake of Sabra, and there was a double-digit sales decline of Sabra hummus and guacamole dips. What is going on there?
Moser: Well, better Sabra than Sabre. Wait, is it Saber? You Office fans know what we're talking about.
Greer: OK, I got you. I'm sorry, I was a little slow there.
Moser: No, it's a little weird. I'm not a hummus guy. I'm more of a guacamole guy. But I like making my own guacamole, Mac. Guacamole is very personal. People do like to make their own guacamole, have it fresh. I don't think you need to concern yourself maybe so much with that.
The one thing that I go to every quarter with Pepsi, in the earnings call, is trying to figure out what is going on with SodaStream. If you remember, they acquired SodaStream shortly before Indra Nooyi decided to go ahead and step down. We've not seen a lot on SodaStream's performance since then. Nothing concrete. They talk about how it's doing better than the business case that they made for the acquisition. Globally, it seems to be doing well. Domestically, there's still challenges. All of those things were still very true when SodaStream was just its own stand-alone business. So there's not a lot of light being shed on what they're doing with SodaStream at this point, other than, I do think it is a good mechanism for them to communicate their efforts to battle excessive waste, or I guess, waste is excessive, really, by its nature. But, battling plastics -- plastic bottles, plastic waste, whatnot. We will continue to see them centering that SodaStream message around the waste side. Maybe one day, we get a better idea as to some of the economics of that business and how it's working out for Pepsi. I'm still a little bit skeptical of that acquisition. I think down the road, we'll see them write a decent chunk of that off, and probably not center the calls around it so much. It just didn't seem like it was the strongest business from the get-go anyway. But, it is, again, just one piece of the greater business, and that is a good thing.
Greer: OK, let's bring it back to the stocks here. Pepsi shares have outperformed Coke -- that surprised me -- over the past one, five and 10 years. Do you expect that to still be the case going forward?
Moser: Until we see Coca-Cola make some real, tangible progress beyond just the beverage market, I don't see why Pepsi should underperform Coca-Cola. And let's be very clear: I'm a Coca-Cola guy.
Greer: Given the choice, you're drinking a Coke over Pepsi?
Moser: I'm taking a Coke over Pepsi 10 times out of 10. 100 times out of 100. But, it goes back to the diversification of the business itself. Pepsi has performed well because they can lean on a few more things as we see the headwinds in the soda market continue to build up. We always talk about, when we look at these businesses that we analyze here at The Fool, from a competitive landscape, who's the Pepsi to their Coke? It was always saying, "Who's the Pepsi? Who's the second? Who's the closest competitor?" It's time we probably flipped that thing on its head and start saying, "Who's the Coke to their Pepsi?" Pepsi is clearly the winner here over the last one, five, and 10 years, from a stock perspective.
Greer: I think we should also ask, who's the RC Cola? I always felt like RC Cola never got enough respect. Did you ever drink RC?
Moser: Oh, yeah. That takes me really far back to my childhood.
Greer: Where'd it go wrong for RC? I had a friend who insisted that RC was better than Coke or Pepsi, but I felt like they just didn't have good marketing, or, what? What happened with RC Cola?
Moser: Probably didn't market it very well. I tell you, they had a partnership locked up there that really could have taken this thing all the way. We're talking about RC and moon pies. You remember moon pies? Everybody remembers moon pies.
Greer: That was the name of your first band, right? RC and a Moon Pie?
Moser: [laughs] I had a buddy in the golf business back in the day; his name is RC. And one of the members of the club always called him Moon Pie because his name was RC. "Moon Pie, what's up?"
Greer: That's great. I want to bring in our producer Austin Morgan. Austin, how do you come down on the RC Cola vs. Coke vs. Pepsi?
Austin Morgan: I'm definitely a Coke guy, 100%. The only Pepsi guy I've ever known is my dad. He's a Pepsi guy.
Greer: Is that right? Through and through?
Morgan: Through and through.
Greer: How about Dr. Pepper vs. Mr. Pibb?
Morgan: I hate both of them.
Greer: Really? I remember as a kid, when Mr. Pibb came out, it was second only to the moon landing for me. And it was a close second. It was a really, really big deal. And now, I look back on that -- I mean, I do like Mr. Pibb, and I think I like it more than Dr. Pepper. But I think I was just seduced, also. I think the name is so strong.
Moser: It's a very strong name. I like it more than Dr. Pepper. When I think back to my childhood, it was always about Mr. Pibb and Mello Yello.
Greer: Mellow Yellow. You're going Mello Yello over Mountain Dew?
Moser: Yeah, every time.
Greer: Austin, what about you?
Morgan: Mountain Dew.
Moser: For me, the Mr. Pibb and Dr. Pepper thing is almost irrelevant because root beer takes precedence over all of them.
Greer: Oh, agreed. A cold root beer in a frosty glass? Come on.
Moser: Oh, yeah.
Greer: RC and the Moon Pie. The title track was great on that album.
OK, rough day for Constellation Brands. Their brands include Corona and Modelo beers. Shares down 6% on earnings, Jason. And this isn't an alcohol problem. This appears to be a marijuana problem. Constellation's investment in Canopy Growth, which is a Canadian marijuana company, that investment, not going too well.
Moser: Not going well as of now, you're right. This really is a tale of two companies. When we look at Constellation itself, Constellation is doing very well. Beer is moving. They're pushing into this premiumization strategy in regard to wine and spirits. Cannabis, not doing so well right now. We'll get to that. But let's focus on the good news first. The core business, beer sales, rose 7% from a year ago to $1.64 billion. Wine and spirits sales, they're witnessing a little bit of a turn their toward the worse. Those sales were down. But again, we also have to remember, they're in the midst of a little bit of a strategy change there in regard to their wine and spirits portfolio. Going back to beer, depletions grew 6.2% with Modelo leading the way. Again, when we talk about Constellation, it's good to remember, they have this portfolio of different beer offerings, from Corona to Modelo to even Ballast Point.
It was noteworthy, for the full year, they affirmed expectations for beer sales to rise 7% to 9% in 2020. But it is pulling back on that wine and spirits guidance for now. That could be a little bit of a headwind on shares.
But, as you mentioned, really, most of this trouble today stems from this investment in Canopy.
Greer: "Stems" from this investment? I see what you did there.
Moser: We can throw all sorts of puns out there. To me, this is like, if you or I go out and buy a stock, and then a quarter or two later, that stock is down 20%, 30%, maybe even 40%, it doesn't necessarily mean it's a bad idea and it's not going to work out. It does mean that you've run into short-term headwinds, perhaps there was something you didn't see. But it doesn't necessarily mean that the long-term investment case is busto. Marijuana in general, the cannabis investing market right now, is in a bit of a state of flux. They're running into some headwinds. Demand is maybe not as robust as was initially ---
Greer: The future, hazy?
Moser: [laughs] A little. But, also, we're seeing the legislative landscape changing so much, and it still needs to change a lot for this full market opportunity to really be realized.
Greer: I would be worried right now about anything involving cannabis just because of the crackdown on vaping. It feels like relatively overnight, vaping has gone from being tolerated, if not embraced, to potentially, it could be gone in a month or two.
Moser: I think you're right. We've hit a point now where, this could be something that vaping could never recover from. It sounds like that's probably a good thing. Now, the fortunate part there is, as it pertains to Canopy and a lot of these companies that are going to be really successful in the cannabis market, it is beyond just vaping and smoking. There's an entire edibles market. Obviously, Constellation investing in it more for the beverage opportunities there. We've even seen Boston Beer, for example, management last quarter talking about, they will definitely be dipping a toe into these waters in regard to beverage opportunities. It's all a matter of intake. It's figuring out a way to intake it so that it's not hurting you, it's not a health risk. Vaping, it's becoming clear, is a health risk. Whereas consumables, edibles, drinkables, and whatnot, that might not necessarily be the case.
Again, short-term headwinds. I don't know that I would say that's a problem for the cannabis market longer-term. But it does make you wonder, when we go back to leadership, talking about Pepsi, talking about Constellation here, if you look back to Constellation's initial investment in Canopy Growth, this was back when Rob Sands was CEO of Constellation. Rob Sands was the CEO behind that investment. And then he promptly stepped down from his position at Constellation.
Now, CEO Bill Newland's in there, and you have to at least wonder how Bill is looking at this Canopy investment -- if he would have made that investment, I guess, is what I'm wondering. I'm not entirely sure he would have. But, maybe he would have. I don't know. He's been a little bit more critical. He's been a little bit more of an impetus for change there at Canopy. I look at Pepsi the same way. Indra Nooyi made that SodaStream acquisition and then left. And it was not very clear as to how they were going to monetize it. Now, Mr. Laguarta, the CEO of Pepsi, I wonder behind closed doors how he really feels about that acquisition today, given that the path the monetization isn't as clear. Just kind of goes to show you what goes on behind closed doors with leadership and leadership changes.
Greer: Let's close out with Uber. Uber is launching a new app, Uber Works, that will pair businesses with temporary workers. Jason, Uber, looking for some additional revenue. Now, just to review, the state of Uber -- and it's not a pretty state right now -- Uber, not profitable. They IPO-ed in May at around $45 a share. Today, the stock trading south of $30 a share. What is Uber Works and this new app? What do you think it means for investors?
Moser: On the surface, I think it's pretty easy for us to make a little fun of this, perhaps dismiss it as not core to what they do. And you're wondering, well, I don't think it's going to really matter. But if you think about it, everything that we've talked about on these shows when it comes to Uber, this really is exactly what we're looking for them to do. We want them to figure out ways to leverage this massive network of users and monetize it. This is probably a fairly small bet on their part to try to figure out if there's a real opportunity for this. I was listening to yesterday's MarketFoolery. And, yes, Mac when I'm not on MarketFoolery, I love to listen to it.
Greer: I appreciate that!
Moser: I was listening to you, talking about crypto with Emily and Andy. It was neat, because there was that mention from Aaron Bush about Facebook, where he said Facebook's scale is its superpower, but its brand is its kryptonite.
Greer: Yep. I actually blew the line. I asked Aaron afterwards -- I know, sorry. This is going to kill your point.
Moser: It's not.
Greer: He actually said, scale is their superpower; their reputation is their kryptonite.
Moser: That's similar, it's close enough. I feel somewhat the same way with Uber. I feel like their scale is their superpower. They can do a lot with that massive user base. You're talking about 100 million folks logging into that app and using their services last quarter. They have a brand, a reputation issue they're still trying to recover from. There was a big culture issue from the days of Travis. I think they're making progress toward fixing that, but it is not there yet. So, you wonder with something like Uber, is this something they can do well? Is this something where their brand helps or hurts them? When you think about what they're trying to do, helping employ people through not only driving, but helping you find a job with anything, do you feel like Uber is going to be a trustworthy source there? A trustworthy place to go? That's probably one of the biggest hurdles they need to clear. I would imagine they're going to work very hard to build that trust, but that's the big question we have to answer.
Greer: Speaking of questions, let's put this question out to our listeners -- what will be Uber's next line of business? You've got Uber Eats. Now you have Uber Works. What will be next? email@example.com if you have an idea. Do you have an idea? What do you think?
Moser: You've got Uber Eats, Uber Works, the freight and logistics, you've got the alternate forms of transportation like scooters and whatnot. This is investing, right? Let's see around the corner, let's make a prediction as to what the next step is, because you have to figure there has to be one. I've got an idea.
Greer: I've got an idea, too.
Moser: In line with the sin stock theme we've got going here with alcohol and marijuana and everything -- I'm just kidding about the sin stock thing, I don't really care about that stuff. But listen, sports betting is coming online here. It's something that has taken the world by storm. Perhaps there is a crowdsource type of benefit that could exist there. Go on Uber, get your ride, place a bet.
Greer: Uber Bets.
Moser: Maybe they throw a little video streaming in there. While you're in your Uber, you're placing bets and watching the game. I don't know. It could work.
Greer: You're thinking much bigger. I was thinking Uber Pets. Like, if you need a pet sitter, or someone to come walk your dogs. I know there are plenty of services like that. But if you're an Uber driver and you're in between picking someone up, you can come let my dog out.
Moser: Mac, I'm not lying to you, that was one of my first thoughts -- Uber Pets. Pet sitting, pet walking. But it all came back to, do I really trust just any Uber driver to come by my house, unlock the door, and then start walking my dog? That was the brand, the reputation hurdle I couldn't quite overcome there. Whereas, I thought with betting, maybe there's a little bit less risk there.
Greer: I haven't worked out the details. There will be some problems.
Moser: [laughs] We'll couple up after the show here and start hammering out some ideas.
Greer: OK. Jason, thanks for joining me! As always, people on the show 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. The show is mixed by Austin Morgan. I'm Mac Greer. Thanks for listening and we will see you tomorrow!