Earnings Roundup: UPS, Hasbro, Facebook

UPS (UPS 0.34%) hits an all-time high as revenue in the third quarter climbs 9%. Hasbro (HAS 0.22%) warns of supply chain issues, but shares rise on strong results. In this week's episode of Market Foolery, host Chris Hill welcomes Motley Fool analyst Jason Moser, who analyzes those stories and discusses the underrated versatility of Heath bars.

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This video was recorded on Oct. 26, 2021.

Chris Hill: It's Tuesday, October 26, welcome to Market Foolery. I'm Chris Hill. With me today, back in the saddle, it's Jason Moser. Good to see you.

Jason Moser: Good to see you.

Chris Hill: We've got an eye on the holidays with two companies that are reporting today, but we're going to start with actual results from the social network. Facebook's third-quarter profits came in higher than expected, but revenue was a little light. Revenue guidance for the fourth quarter was lower than Wall Street was hoping for. Shares of Faceook (META 1.54%) down nearly four percent today.

Jason Moser: Yeah, a little bit of a one, two punch there today on the results. There were mixed, but then I think also the guidance going forward. Clearly, there are going to be some headwinds that Facebook in other ad-based models are going to have to deal with. But I think it's so fascinating to me, the tug of war between the media narrative, the public perception of this business, and then how the market views it. It's a really good lesson, I think for investors to keep in mind because you look at the company and its leadership, they just continue raked over the calls, and I think that's right. There are good reasons for that happening, but for the most part, you look at the five-year chart for Facebook shares. 

This has been a strong investment over the last several years. It's hard to imagine that five years from now, investors aren't making money from today's share price. Now, obviously, there are things that could happen, but I think it goes to the size of the network that Facebook is built out today, being so important, very difficult to disrupt. When you say size, we're talking about daily users at 1.93 billion up six percent, monthly active is 2.91 billion up six percent the performance. This company is still growing revenue at pretty rapid clips. Revenue was up 34 percent for the quarter or excluding currency effects, and so all things considered. I think it was a respectable quarter. I think they painted a fair picture of some challenging times ahead. That's probably what has the market on the fence today, maybe.

Chris Hill: Yeah, but to your point, you hear the comments from the actual customers of Facebook. The businesses small and large, who use that platform to market their products and services. They're the ones who are making this engine go and they're satisfied with the results that they are getting.

Jason Moser: That goes to the size of the platform, the sizes of these networks. It's just instant reach, regardless how you feel about leadership or just the general privacy issues and whatnot, Facebook and Zuckerberg, they have built something really meaningful, very powerful, and I don't see that changing. Now, it could be modified, it could be regulated, the interesting thing in regard to regulatory concerns. I think one of the advantages that Facebook has is that even though we could be certain there's some type of regulatory implications that will come from all of us, we don't really know what that's going to be because I don't think regulators have really any clue as to how to tackle this problem. It's a difficult one, but you can see time and time again, when he testifies via the Congress. Even our leaders, they don't fully understand the business and what it does, the parlance. You can see they don't fully grasp it. It feels like we [laughs] could probably benefit from some younger oversight to make it a little bit easier to understand. But yeah, when you look at their priorities going forward, the focusing on creators, on commerce, and then I think interestingly, the third priority building the next computing platform and that's where we're seeing that breakout of the Facebook Reality Labs. 

The whole idea of the metaverse continues to be kicked around and they definitely see that as being a big part of this business going forward. If you recall, I had mentioned a while back, well, the metaverse, it could be difficult to grasp, I think for many. Ultimately, it was given to me by the CEO of the Glimpse Group who I interviewed recently. He said that the metaverse is just the 3D Internet. That was a good way to embrace the idea from a big picture perspective, and how that plays out, who knows? But ultimately, it feels like it's going to be participatory. If you don't want to be a part of the metaverse, you have to be, but there's going to be a lot of people that want to be, so then that I think is going to dictate the market opportunity in regard to that. That's potential growth, that's potential pivoting of this business model to something new and forward-looking. The flip side of that coin is there are a lot of companies out there right now really embracing this concept of the metaverse. I think Facebook will be a player in that space, but I don't necessarily see them as being the trailblazer in that space. Maybe they'll participate in it, but I don't see them being necessarily the trailblazer, however, it shakes out. But most of this is such a big company, such a big network, vast virtually limitless financial resources. Whether you love it or hate it, it's very difficult to make a case against it as an investment given what we know.

Chris Hill: The UPS shipped fewer items in the third quarter compared to a year-ago, but revenue was up nine percent and shares of UPS are rising today and hitting a new all-time high. I don't want to read too much into this. You tell me, are there any takeaways for the holiday season? Because global supply chain is a huge theme this year, this earnings season. Did you get any clues from UPS about how they're feeling about handling capacity over the next few months?

Jason Moser: The headline on the Wall Street Journal today, I think says it all. It said, ''UPS revenue rises as it shifts fewer packages.'' That's the dream, and that's what headline you want to see. We're doing less work and we're making more money. That speaks to the strategy that they consciously have pivoted to. They are focusing on not necessarily volume, but working more with their most valuable customers and they see certainly the return to in-person shopping has impacted volume. Probably, we'll see an impact in regard to the holiday season as well, just through the supply chain issues. But it feels like they are less and less dependent on that, which is obviously a very good thing. The business itself really a very impressive, revenue grew 9.2 percent from last year. Operating profit on an adjusted basis was up 23.4 percent. They're actually realizing some pretty strong pricing power. They are reupping with their most valuable clients and they are realizing strong pricing with those clients. It seems like the strategy is working out very well. The domestic business, very strong, 12 percent increase in revenue per piece. International revenue was up 15 and a half percent, the logistics business doing very well. All things put together, you can see why over the last five years, the stock is up 135 percent.

Jason Moser: For a sleeper like UPS that a lot of people probably view as just your stay boring business. It's been a tremendous investment, and it's really feels like they're poised to keep that performance up.

Chris Hill: In defensive of people who look at UPS and think it's a stay boring business, the trucks and the uniforms don't help in that regard. [laughs] I'm not knocking them. No. You could look at that and say, Hey, they're not spending frivolous dollars trying to make their trucks look jazzy and sprucing up their uniforms every year with some new design. They're just like, No brown's good for us.

Jason Moser: It's phenomenal brand equity. I mean, it's just so identifiable, and you always recognize it immediately. It's really powerful.

Chris Hill: Hasbro's third-quarter profits and revenue came in higher than expected. The company also warned that supply chain issues would shit holiday sales, but shares of Hasbro still up three percent so far today.

Jason Moser: I think this is a far more interesting report, not really because of what they delivered for the quarter, but what they see coming this quarter and the next several quarters to come. If you remember, last quarter, they had mentioned costs, and they used ocean freight costs as an example of cost pressure. They were predicting that those ocean freight costs are going to be more than four times higher this year versus last. They are dealing with a difficult environment on a number of fronts. They are passing through price increases that should be fully realized this holiday quarter. That's good. This is a good business, but it's a difficult one for investors just to own. It's been a tricky one for investors to just own over the last five years. The stock is up only around 25 percent. I think the lumpy performance comes from just challenges in becoming more digital and becoming more of an entertainment company. Which they are doing, but when your core competency for so long has been delivering these physical toys, they're just making a lot of investments really to become an entertainment company more. I think that plays out a little bit in the financials. It's going to be interesting to see if they can hit their targets. They are targeting that revenue growth of 13 to 16 percent for the year. They are also noting that they are having some trouble fulfilling orders. I mean, there are $100 million worth of unfulfilled orders over this past quarter because they couldn't get the product from point A to point B. It's certainly not unique to them, but it speaks to the challenges I think that Hasbro's facing.

Chris Hill: Where do you look at the toy industry right now in terms of Hasbro versus Mattel? Obviously, there are other companies at play here, but it really seems like in the same way that there was a good stretch of time where Home Depot could not get out of its own way, and then they righted the ship. Lately, Home Depot's still doing pretty well, but Lowe's has been the better performer the last couple of years. Where do you look at Hasbro and Mattel?

Jason Moser: That's an interesting question to think about. I've always been a Hasbro guy. I've always felt like Hasbro was the better run company. They, I think, sealed some far more lucrative partnerships and relationships that Mattel wasn't able to get a hold of, and you pay a lot of money upfront may be to get that stuff, but it plays out over overtime as is very beneficial. I feel like Hasbro is still going to be the company to beat. I mean, Mattel has really come from a dark place. They went through some very challenging times, and it's nice to see that business doing better. But to me, the big wildcard for Hasbro right now, obviously it's unfortunate we saw CEO Brian Goldner recently passed away, and he was, I think, a real key to the business' success through the years. He just ran the company very well. It's going to be crucial that they get someone in that CEO spot who really is going to be able to embrace this vision of digital and entertainment going forward to be able to realize the most out of this business. It feels like they're headed in the right direction. Maybe that's something to pay attention to, really, is if new leadership just gets in there and just blows everything up, that could be concerning because it feels like Hasbro's set up to succeed. I'd give the leg up to Hasbro there, but certainly nice to see Mattel still fighting.

Chris Hill: Halloween candy. Were just a few days away. I've resisted the urge [laughs] several times over the past week. When I've had the opportunity to buy Halloween candy, I've resisted the urge, but at some point, I'm just going to go to Giant or CVS with a fistful of money and just throw it down and say, "Take it, I need all of these." Where are you with overrated and underrated candies?

Jason Moser: I was giving this some thought, and I will say, and I don't know how controversial this opinion would be. It feels like it shouldn't be, but every time I see those big bags with all the different candies in them, and I see it's things like chock-full of Twizzlers. To me, Twizzlers are just vastly overrated. You may as well just eat a candle, Chris. I don't get it. I just don't get it. Maybe it's just cheap filler to throw on those bags. I'm not a Twizzlers guy. I think they're way overrated.

Chris Hill: Not even at the movies? Because to me, Twizzler, I went through a stretch of time when I was younger. That was my go-to candy at the movies.

Jason Moser: Now, I mean tastes change as we get older. We all know that. It's possible when I was younger, I was giving Twizzlers a little bit more attention just because I was a candy-hungry kid. But I don't know. When I am at the movie theater, I'm more of a popcorn guy, and I like that salty snack to go with the sweet soda. Now I'm hungry. To me, Twizzlers, I just throw them all away. I don't want them.

Chris Hill: Underrated?

Jason Moser: You can't sleep on those little Heath bars. I feel like that's a candy that doesn't get talked about a lot, but it's very simple. It's that toffee covered in chocolate. Here's the thing too, even if you don't want to just eat a little Heath bar, they go very well crushed up on top of ice cream too. You're getting a two for there, really. If you want to enhance your dessert, you have that option, but either way, they're great on their own, and they are complementary to other forms of dessert.

Chris Hill: Now depending on their condition, you might need to take a hammer to them to actually crush them up, but yes. Sprinkle that over some ice cream. You got a winner. Jason Moser, 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. Don't buy or sell stocks based solely on what you hear. That's going to do for this edition of Market Foolery. The show is mixed by Dan Boyd. Am Chris Hill. Thanks for listening. See you tomorrow.