Tesla (TSLA 2.97%) shares fall despite record profits in the first quarter. UPS (UPS 2.93%) hits an all-time high after a monster first-quarter report. Crocs (CROX 1.07%) pops nearly 20% after raising full-year guidance on the heels of record revenue in Q1. In this episode of MarketFoolery, Motley Fool analyst Tim Beyers joins host Chris Hill to analyze those stories and talk about why investors are giving Tesla the shrug emoji today.
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This video was recorded on April 27, 2021.
Chris Hill: It's Tuesday, April 27th. Welcome to MarketFoolery. I'm Chris Hill. With me today, our man in Colorado, Tim Beyers. Thanks for being here.
Tim Beyers: Great to be here, Chris.
Hill: We've got two stocks that are hitting all-time highs off of their latest earnings reports, but we're going to start with Tesla. First-quarter results for Tesla, I'd like to think of them as a buffet, Tim, because there was something for everyone. If you're a bull, you're pointing to the record quarterly profit and the rising deliveries. If you're a Tesla bear, you're pointing to the increased competition and market share eroding. There's always a lot to get to when we're talking about Tesla. What stood out to you in terms of the quarter itself?
Beyers: Let's first give Tesla credit here. The automotive revenue was up 75%. That's amazing, cracking the $9 billion mark, that's up year over year for $5.1 billion. That's an amazing number, and we want to give them some credit on that. Also, the gross margin was up 95 basis points. That's nice.
What's interesting about this, and we heard Musk say this during the quarter, that this has been one of the most challenging supply chain environments for Tesla, period. That makes some sense. We know because of the pandemic, there were some interruptions particularly in the supply chain for semiconductors, for a lot of chipmakers. Let's be clear: A Tesla is a computer on wheels. It does have a lot of chips; it does suffer from this worldwide semiconductor shortage. The fact that Tesla was able to grow as much as it was and get the benefits that it got, in the midst of this supply chain shortage on the gross margin line, I think that's really impressive, Chris.
Starting from the get-go, I do think Tesla deserves a lot of credit for its automotive business. Yet, looking at the stock this morning, I think the market's just giving Tesla a big fat shrug emoji.
Hill: I'm glad you mentioned the automotive revenue because a lot of the headlines regarding Tesla include the Bitcoin investment and so is the revenue from that. As you said, give them credit for the automotive revenue. That's their bread and butter. I think, however, you're right, the stock is down, it's not plunging, it's down 4%. When you consider the rise it's had over the past year, that's a drop in the bucket. But I think it speaks to a number of things, including the overall environment in terms of competition.
I'm going to use an analogy here. Everybody just relax, just let me get through this.
When I was reading the coverage this morning and watching CNBC, one of the things that came to mind in thinking about all of the other automotive companies in the world who are now pouring resources into the EV market, one thought I had was Whole Foods. I thought about Whole Foods being this revolutionary grocery store focused on organics and leading the way and essentially creating this massive category. For a long time, when Whole Foods was a stand-alone public company, if you were a shareholder of that business, you were rewarded in a big way. Then, over time, even businesses the likes of Walmart got into the organic space. There was a stretch of time before it was acquired by Amazon that Whole Foods struggled as a stand-alone business or I should say the stock. You were not handsomely rewarded for being a shareholder of Whole Foods the last few years it was a public company.
I'm not saying that's what's going to happen here. Tesla is too big a company to be acquired in the same way that Whole Foods was acquired by Amazon. But it does make me wonder, what does the landscape look like three years from now in terms of market share for Tesla? It doesn't mean they can't continue to be highly profitable at what they do, but I think it's telling that a lot of people are interested in electric vehicles, and their starting point is not Tesla; it is some other automaker.
Beyers: Yes. Doesn't it make you wonder about or at least give you not some pause, but maybe some curiosity about 2030? Doesn't it make you think about 2030? Here's why I say this. It's 2021, so that's nine years away. But that is largely regarded as the year when big companies like General Motors and Ford, Volkswagen is already proceeding well down this path. They are very far down the EV path already. They won't be the only ones. But the other two, the big two in the U.S. here, it's largely by 2030 when they are going to have the majority of their build will be EVs and no longer internal combustion engines. It does make me wonder a little bit about that.
Now in the meantime, Tesla stock over the past year, is up eightfold. This is what happens. You do get the shrug emoji from the market when you're up eightfold over a year, and then you report numbers that are very solid in some ways and you have some things that are questionable. When you have that and it's not all blazing all good news, that's what you get: You get the shrug emoji.
Hill: First-quarter profits for UPS were much higher than expected, revenue was up, shipping volume was up, and not surprisingly shares of UPS also up 10%, which, I have to say, that's a big move.
Beyers: That's a huge move.
Hill: For a stock like UPS.
Beyers: Yeah, no doubt. I have to say, we were talking about this off the air, Chris, and I deserve to eat some crow here, because I had predicted that UPS and FedEx were really getting their lunch eaten and were going to continue to get their lunch eaten by Amazon and Amazon Logistics. Well, I like to use the dated reference from Beverly Hills Cop: "I fell for the banana in the tailpipe." I just didn't predict that the opportunity would be this big. There would be so many packages that had to be delivered, that there's no lunch to eat, there's just everybody can gorge, and we're all great. That's really what happened here.
Just some quick numbers here, Chris. If we just look year over year in terms of operating profits, my goodness. This company just absolutely destroyed it. Revenue in the domestic segment alone, up to $14 billion from $11.5, and operating profit in that same segment up to $1.36 billion from $364 million? That is immense. Clearly, the opportunity here is really big. It's not to say that the international segment wasn't as big; it was about a double. But really here in the U.S., UPS just feasted on the amount of e-commerce we've seen over the past year. Boy, what a quarter for this company.
Hill: Yeah. When we were talking earlier, one of the things I was saying was even the companies in the retail industry over the past few months that didn't blow the doors off their quarter, they did fine. Maybe the stock dropped, all that. Even those companies, the silver lining in their report was digital sales up 50%, 60%, that sort of thing.
It is one of those things where the breadcrumbs were there for [laughs] all of us to see in terms of what deliveries were going to look like. I think part of what we're seeing with the rise today is the guidance from UPS in terms of the next couple of quarters as well. Really interesting to see. I'm curious to see what, if anything, we get from Amazon later this week when they report in terms of deliveries and logistics and that sort of thing. They historically keep that sort of thing close to the vest, but who knows? Maybe this and for one reason or another, maybe Amazon gives us a little bit more insight into their logistics division.
Beyers: Let's hope so. The thing I'd be looking for, UPS generously did give us this metric, which I think is interesting, on an unadjusted basis. This is not accounting for currency, the average revenue per package was up almost 14%. That's a big, big number. You're getting efficiency, you're getting margin, you're getting pricing power. That's amazing. Once you adjust for currency, it's still almost 7%.
I would love to see how Amazon did in this area. My prediction had been that because so much was being delivered to homes, that that actually favored Amazon, because Amazon is built to deliver efficiently to just your everyday residents. That's not necessarily what UPS and FedEx are greater at doing. They're really great at delivering to big office buildings, and office buildings have been closed. Turns out they're getting real good at delivering wherever packages need to be delivered. I'm really interested in the revenue per package if Amazon gives that to us. I don't expect they will but, boy, it would be nice.
Hill: Shares of Crocs are up nearly 20% this morning, hitting an all-time high. Record revenue in the first quarter for Crocs. They raised guidance for the full fiscal year. I mean, whatever is the opposite of a silver lining, was there anything bad that happened in this quarter for Crocs?
Beyers: No, man. Plastic shoes, man. Plastic shoes are the thing. I mean, look, I can't see anything that went wrong here but the past two quarters have been immense for this business. We were just talking about digital sales, Chris. Digital sales for Crocs exploded 75%. They now make up roughly a third of all sales of Crocs. That's amazing. This is another one where the digital success story is extraordinary. They do have a store footprint. It's not a huge store footprint and it's not like they're doing billions of dollars in sales; it was $460 million in the quarter. That does make them a run rate close to $1.5 billion over $1.6 billion business. It's pretty impressive. They're getting close to being a $2 billion business.
No, it doesn't seem like there's anything going wrong here. I'll tell you, just the guidance on initial expectations to go from revenue growth of 20% to 25%, now upping that to 40% to 50% revenue growth for the full year, that's extraordinary. Clearly, Crocs is doing a lot right here because they're raising guidance. They're killing it on the digital sales, they're killing it on the overall sales. People like their rubber shoes, man, their plastic shoes.
Hill: I'll give them a little bit more credit, which is, one of the things they talked about was their wholesale business and how they are cutting ties with some of their wholesale partners in North America because they feel like they want some tighter control over their product, over their brand. That's one of those things that it's easy to imagine a company making that move when they're not killing it, when they're struggling and they're looking around, like, "We got to change some things here." When you're firing on all cylinders and you're still making the type of move where you say, "You know what, what we're doing in terms of wholesale, it's good, but it's not where we want it to be, and so we got to make some changes."
Beyers: Right. If they're right about this, so let's presume that management is right about this, they may not be, but let's for a second presume they are. What's really great about that, if you're a Crocs investor, is it will have a nice, healthy impact on operating margins and operating margins are already good. I mean, if we just look at the latest quarter, they moved from $0.22 a share. That's at the very bottom line, but you don't get that if you aren't killing it on the operating margin line. $0.22 a share up to $1.49 a share, that's amazing. They are getting a lot of benefit from the growth of their business.
I think this is a smart move because it makes them, theoretically, over the long term, if they do this right, and they control more of their channel, and they control more of the sale, that's going to be good for operating margins. It's going to be good for profits, it's going to be good for cash flow, it's going to be good for investors.
Hill: Andrew Rees has been the CEO of Crocs for nearly four years. When he took over in the summer of 2017, the stock was around $7 a share. As you and I are talking, it's at $100. In terms of giving management the benefit of the doubt, I'm pretty sure Rees and his team have earned that.
Beyers: I think we can do that. Yeah, I think we can do that.
Hill: Tim Beyers, great talking to you. Thanks for being here.
Beyers: Thanks, Chris.
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's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
