In this podcast, Motley Fool senior analysts Andy Cross and Ron Gross discuss:
- The Fed raising interest rates and GDP contracting.
- Apple and Amazon surprising to the upside.
- Microsoft's cloud division delivering again.
- Shopify's relative attractiveness as a stock.
- Meta Platforms warning investors.
- Chipotle's impressive ability to raise prices.
- McDonald's stock closing in on a new high.
- The war on cash.
- Diageo wrapping up a strong year.
- The latest from Etsy and Roku.
- Unilever shutting down the Choco Taco.
- Two stocks on their radar: Masimo and NextEra Energy.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on July 29, 2022.
Chris Hill: We've got Big Tech, the Big Macro, and a whole lot more, Motley Fool Money starts now.
It's the Motley Fool Money radio show, I'm Chris Hill joining me in studio, Motley Fool senior analysts Andy Cross and Ron Gross. Good to be in the studio with the gents.
Ron Gross: How is you doing, Chris?
Andy Cross: Good to see you.
Chris Hill: It is Earnings-Palooza, we will dig into some of the biggest companies in the market, and as always, we've got a couple of stocks on our radar, but we begin with the Big Macro. On Thursday, the Bureau of Economic Analysis reported the US economy contracted for the second quarter in a row, which meets the classic definition of a recession. On Wednesday, the Federal Reserve hiked interest rates by three-quarters of a percent. Ron, Which one is the bigger deal for investors?
Ron Gross: Well, Chris, thanks for asking. The markets, I think reacted very favourably to the rate hike, and especially the comments by Fed Chairman Powell, that there will come a point when the Fed needs to slow the pace of increases. I think that's a rather obvious statement, but still, the market likes to hear it. He said on Wednesday, that he does not believe the US economy is in a recession. Fast-forward 18 hours, Chris, and as you correctly pointed out, data came in that the US economy did shrink for the second quarter in a row, and as you pointed out, common definition, but it's really the National Bureau of Economic Research that decides if a recession has occurred, and they take into account a number of factors, and actually they won't decide that for quite a while. We don't actually know for sure, but it is semantics in my opinion because we do have indications that the economy is slowing, which is actually a good thing because that's what the Fed is attempting to do.
The trick will be for the decline to not be so severe as to really throw us into a prolonged problem. Now, inflation is still very high, you saw during the week with lots of earnings reports, you saw at Friday with Exxon and Chevron actually benefiting from higher commodity prices, you also saw on Friday a report that the personal consumption expenditure, the price index rose 6.8 percent, the highest level since January 1982. The Fed still has some work to do into higher interest rates still have to flow through the system, but we will eventually be able to, I think, have a short and shallow recession, at least that's what I hope. Then will resume the business cycle with reasonable interest rates, slower but positive growth, and stock valuations that are once again attractive, and I think we can live with all three of those.
Andy Cross: I remember many moons ago during one of the other economic slowdowns, Ron Gross turned to me and said, this is before Jay Powell, Chris, there's a chance that Fed gets this all right, and right now there's a chance that yes, they were behind the curve that 75 basis points were baked in, so that was pretty much a done deal. Don't forget, a month ago we were talking one percent, so there's a lot of concerns that they're just slamming on the brakes and this economy too fast, now his comments said that, hey, maybe we won't have to raise quite as aggressively or some point we won't have to.
That's good news and yes, and maybe a little bit of ah-ha, moment, but it is baked now into the prices, so there's a chance that behind the curve, now they're on top of it, investors are expecting that we're certainly seeing the inflation and we'll talk about this today through so many earnings, we're seeing that impact the performance of our companies. Whether we're in a technical recession or not, doesn't frankly really matter, I don't think we're not going to find out for months anyway, but the fact that our companies are seeing in and making sure investors are understanding how it impacts the companies and their portfolios and obviously being invested in the best companies to sustain that new environment that Ron mentioned.
Chris Hill: Let's get to earnings and we're going to start with Big Tech. Apple's CEO Tim Cook admitted macroeconomic factors affected third-quarter results, but profits and revenue came in higher than expected, and shares up on Friday after the report. As you said, we're going to talk about a lot of companies on this show, not all of them are persevering in a tough environment. Looks like Apple is.
Andy Cross: Yeah. It was a pretty good quarter, Chris, topped rather muted expectations show continued strength, really an iPhone and Services earnings fell a little bit, revenues were up slightly, they have more now they have more than 860 million paid subscribers across their services as they get close to a billion at some point. They're looking for revenues, so accelerate a little bit less. The next quarter when iPhone 14 launched this quarter revenues were up two percent, they did have some foreign exchange challenges, we'll talk a lot about that today. iPhone, obviously the biggest part of their business, Chris, up 2.8 percent, that was a June record.
Wearables, Homes and Accessories were actually down eight percent, Mac was down 10 percent, iPad down two percent, services continued to be one of the bright spots for Apple up 12 percent to another June record, EPS was down about eight percent, but above expectations, the thing we continue to see with Apple as they continue to have one of the greatest brands out there. Very much loyal customers, satisfaction rates that are well above 90 percent, you continue to see them, continue to build out that ecosystem with their iPhone in their services.
I'm looking ahead for the year they expect year-over-year revenue growth to accelerate a little bit next quarter, they still expect those supply chain constraints, Chris, that you mentioned, still expecting the strong dollar and gross margin to be a little bit weaker than they were this quarter. But overall, you got to $2.5 trillion company selling at 25 times earnings. Earnings growth not going to be super high, probably in the high single digits, nice little dividend, Apple continues to be a winner in the markets.
Chris Hill: Shares of Amazon were up more than 10 percent on Friday after second-quarter revenue came in higher than expected. Guidance for Amazon's current quarter was upbeat, which is a pretty key run when you think about how important the second half of the calendar year is for this business.
Ron Gross: Very important to see a company like Amazon providing some upbeat guidance. The stock is still down 27 percent from its 52-week high, even after this week's pop, just to give an indication about how really weak stocks have been. In this particular report, investors are clearly focused on the Cloud segment, which grew faster than most were expecting. Amazon Web Services generated a 33 percent increase, that's pretty strong, continues to be strong as the Number 1 provider of Cloud services. Overall, net sales up seven percent that did beat estimates, surprisingly, ad revenue climbed 18 percent, and that's better than others in the space have fared, and I think we'll hear more about that later in the show. They are actually the standout with respect to ad revenue, so I thought that was interesting.
Not surprisingly, they're seeing continued inflationary pressure and fuel energy, transportation that cuts into margins, net loss was two billion dollars for the quarter, but that did include a loss of $3.9 billion from its wonderful investment in Rivian Automotive, [laughs] which has been a complete disaster, they're still working through there. Too rapid expansion during COVID left them with too much warehouse space, too many employees, they cut headcount by 99,000 people recently, but as you said, third-quarter guidance was solid, they're raising prices over in the UK, operating income guidance was pretty good at between zero and $3.5 billion, so all-in-all, a pretty solid report and the stock prices reflecting it.
Chris Hill: Microsoft's market cap is back up over the two trillion dollar mark, shares up more than six percent this week. After Microsoft's fourth-quarter results were highlighted, once again, Andy, by the Cloud Division.
Andy Cross: I was going to say it's very similar story. It wasn't a great quarter with the slowest earnings growth in two years, but Microsoft pretty much turned the markets around this week earlier when they announced this quarter, and especially on their guidance, I'll get to that in a little bit. I'm going forward with double-digit sales and operating income growth for the year going forward, but the Cloud continues to be the winner. When Satya Nadella talks about Bezos suite value and having every layer of the tech stack covered, Microsoft really does driven by the Cloud. Their TotalCloud business was up 28 percent to 25 billion, driven by their Azure business, which was up 40 percent.
Productivity and business processing was up 13 percent, that's driven by Office 365, Chris was a big driver. LinkedIn actually was a pretty good quarter, even though the advertising business was a little bit weak, so their ad market like Ron had mentioned on the advertising side a little bit on the weak side, the Dynamics analytics business up 19 percent. The big weakness Chris was in the personal computing that was up only two percent with Windows down two percent, search and advertising was lower than expected on that slower spend still up a little bit, but lower than expected, and gaming was down, that was a pretty big weak spot down seven percent.
Overall, their commercial Cloud business really doing well, their bookings are up 25 percent, so what they're going to hopefully get in later of the year, their remaining performance obligations up to 34 percent. Big deals, big clients signing on for more Cloud service, that's driving that. Instead, our guidance is for this double-digit growth and that got people excited about the tech spend again, that is not so dire that companies are looking to continue to spend and that really turned the markets around. Now you have that two trillion dollar company, earnings-per-share growth over the next couple of years, growing like in the mid-teens level, you're paying for 27 times your money, and Microsoft has syllabi.
Chris Hill: More Big Tech after the break, including Alphabet and Meta platforms, or as I like to call them, Google and Facebook. Stay right here, you're listening to Motley Fool Money.
Welcome back to Motley Fool Money. Chris Hill is here in the studio with Andy Cross and Ron Gross. Before we get back to Earnings-Palooza, I want to say a quick word about FoolFest. It is our annual investing conference. It's a two-day event on August 29th and 30th, featuring breakout sessions on different investing strategies. We got a great lineup of speakers, including Motley Fool Co-Founder David Gardner, Trex CEO Bryan Fairbanks, Venture Capitalists' Jenny Abramson, and just to name a few, FoolFest is free for members of Motley Fool services. If you're not yet a member, you can sign up for our Stock Advisor service. Get a complimentary digital pass to the event. Just go to fool.com/foolfest. For all the details, that's fool.com/foolfest. I'll be there. Ron, Andy they'll be there.
Ron Gross: Did you say free?
Chris Hill: Free for members of Motley Fool services. Under Earnings-Palooza, Alphabet's, second-quarter profits and revenue came in, lower than expected, but shares up a bit this week despite that. Ron, you look at the different divisions, YouTube, Google, etc. Not better than expected, but certainly better than feared.
Ron Gross: Yeah, that's exactly. Expectations were so low following snap and then Twitter's disappointing results, that we actually saw a bit of a relief rally with Alphabet or Google, as we like to say. Now, growth did slow pretty significantly from last year. Revenue is up 13 percent, compare that to 62 percent growth a year earlier, so 13 percent is the slowest rate of growth since the second quarter of 2020 when the pandemic took a whack at a demand if you'll recall, for advertising a lot of areas, especially travel. We're revisiting some of that slower growth. Currency fluctuations, as we'll see across global companies, also took about a four percent whack out of revenue growth.
Advertising revenue was up, but only 12 percent. YouTube advertising rose only five percent, and that's in comparison to 84 percent during the year earlier period, competition from TikTok, I think being one of the culprits here, Google Cloud fell short of expectations, lost $858 million. I think it's important to keep an eye on this segment. It's very important to future valuation when that flips and goes positive, I think that will be very important. Operating margins were down to 28 percent from 31 percent and earnings fell 11 percent. But as we said, expectations were so low that the stock has rallied on this news, the company is doing just fine and we're just seeing some slower growth.
Chris Hill: Shopify's second quarter results on Wednesday were overshadowed by the memo that's CEO Tobi Lütke sent to employees on Tuesday. In it Lütke said Shopify would be laying off 10 percent of the workforce, and he took responsibility for mistakes that he made in growth projections that fell short. Andy, for a stock that has fallen 75 percent year-to-date. This is still a $45 billion business.
Andy Cross: Well, and they have 10 percent of the e-commerce market. When you add up all of the merchants who are doing business across the Shopify platform. But clearly a lot of pain for Tobi who founded the business, is still one of the largest shareholders. He gave a very poignant letter outline and taking responsibility for the growth. As Harley Finkelstein, the president said on the call, in short we overshot our predictions and they did, so laying off 10 percent of their staff, mostly in recruiting support and sales. That's going to help manage their cost structure in the second half of the year. Now, this Shopify is a slowing growth story, so growing, but it's a slowing growth story, revenues were up 16 percent about in line with estimates.
Gross merchandise volume, Chris, so all the volumes sold across Shopify platform was up 11 percent to almost 47 billion. The offline business or tied to the offline point-of-sale business was up almost 50 percent. That was a records, that's a bright spot. But it's the big online business that continues to struggle a little bit. Their gross payment volume, so the payments across a platform that's very valuable to the stickiness, the Shopify is now 53 percent of all of the merchandise volume up versus 48 percent a year ago, that was up 23 percent. Payments is a big driver. But the big story for Shopify now is what happens now? A stock's down 75 percent selling less than eight times sales, so $45 billion company. When you look for, they're going to continue to see this market that will outperform the broader retail market, which is growing about seven percent right now, so they aren't going to grow a little bit faster than that.
Their merchant solutions, all those payments network fulfillment, that stuff will grow faster than the other business. That's a little lower margin. That will hurt the margin picture a little bit. They're going to expect further losses, though next quarter is going to be ugly because they're going to have all the charges from their layoffs and then that will slowly improve. They continue to make big investments in their fulfillment business. Bought a company that's going to help with that. They're making the investment, they still a very attractive balance sheet. They are losing money. Hopefully they can turn that around, and this is the start of that turn that gets Shopify a little bit of religion and it's better for shareholders looking ahead.
Chris Hill: Over the past year, we've talked about a number of former high fliers that have lost 50 percent or more of their value. When you look at the valuation, even if they've been cut in half, it's still an expensive stock. When you look at Shopify down 75 percent year-to-date, how expensive is it now?
Andy Cross: Well, it's much more in line reason, anything less than 10 times sales, I think as it gets to be much more normal realized for these high-growth stories. But they got to turn the growth and these innovations like their Twitter shopping channel, tap to pay on the iPhone, B2B functionality. Those are all big investments. They need to make to stay competitive to continue to grow their market share. They can do that. They may be able to turn it around.
Chris Hill: Shares of Meta platforms down a bit this week, after a disappointing second quarter report, highlighted by the amount of money the company is investing in the Metaverse. [laughs] Meanwhile, Ron, if the advertising businesses of Alphabet and Amazon are faring pretty well in this environment, it seems like Facebook is struggling.
Ron Gross: Things are not so rosy in the Metaverse, Chris. This is a week report, shares are down 60 percent from the 52-week high. Overall sales were actually down slightly. It's their first every year over year decline in revenue. Online ad business, as you said getting hit by a variety of factors, marketers are spending less obviously due to economic pressures. Apple's iOS privacy update has clearly hurt Facebook. Then again, there's competition, including from TikTok also having an impact. Facebook app had 1.97 billion average daily active users up three percent. Ad impressions across all the family of apps increased 15 percent, but the average price per ad decreased by 14 percent. Now the Reality Labs business unit, which is the whole Metaverse augmented reality, it brought in 452 million in sales.
But as you noted, investments there, they ended up recording $2.8 billion loss in the second quarter. That's a huge number and of course we're building for the future here, but it's hard to see that right now. We'll have to keep a really close eye on that. Operating margins pummeled 29 percent now versus 43 percent a year ago. Profit down 32 percent. Guidance was also weak, FTC trying to block and acquisition of within unlimited, which is the supernatural fitness app. A lot of things not so great right now, your morality, your love of Zuckerberg aside, only 18 times forward earnings. If they get their acts together, it's something you can keep on your watchlist and maybe take a nibble.
Chris Hill: Reasonable to expect though that the next quarter in terms of investment in the Metaverse is going to look like this last quarter.
Ron Gross: I've seen no lead up at this point, no, they will let up and things like employees and other expenses, but investments there will stay the same.
Chris Hill: Coming up after the break, we've got retail restaurants and a lot more, so stay right here. You're listening to Motley Fool Money. [MUSIC] Welcome back to Motley Fool Money. Chris Hill here in studio with Andy Cross and Ron Gross. Chipotle's continued ability to raise prices led to strong second-quarter profits and shares as Chipotle were up 15 percent this week. You got to be honest Andy, I did not think this would continue to be the story with Chipotle. I didn't think they could continue to raise prices the way they have and I was wrong.
Andy Cross: I don't think they're done with that either as a very impressive quarter, they ran into some headwinds on the sales side as comp growth slowed a little bit, still very attractive up 10.1 percent. Margins were solid with the in-store purchases coming back where people come in store and they are much more likely to buy a soda for example or a drink than they are when they order from home. Pricing definitely helping in showcasing that pricing power and the brand power that Chipotle has. They're doubling down on these investments Chris, to help push more and more people. They talked a lot about this on the conference call, doing a lot of investments very similar to what they did Brian Niccol did back in 2019 when they got all the troops together and really tried to help them understand what makes the best throughput to really improve the amount of customers they can serve in any 15 minutes span.
They want to get that up North of 30 and they're not there yet. Sales up 17 percent I mentioned comps up 10.1 percent. The trend through May was actually strong and then it weakened a little bit with the economy slowing down a little bit as we talked about and that hurt on the comp side but transactions up 3.5-4 percent, they opened 42 stores. The restaurant operating margin was up 70 basis points to 25.2. They didn't have as much delivery and that helped on the cost side. Overall these new initiatives that are doing for Chipotle, they continue to get it done. They do have some struggles as they work through this new environment with more people now coming back into the store. But overall you have a business that is $43 billion market cap, selling at 40-ish times forward earnings and growing and that 25, 30 percent per year. Still very attractive and opportunities as they continue to grow from 3,000 stores up to 7,000 stores.
Chris Hill: Again, against the backdrop of higher inflation, higher food costs and it's impressive to see them manage those food costs in such a way that they're not alienating customers.
Andy Cross: They are seeing higher-cost when it comes to avocado and chicken and steak and all their input costs, they continue to raise their prices. Their comp growth is going to slow a little bit. They think more in the mid to high single digits from 10 percent. They have some things to work through, but overall still more than the more impressive operating stories that they've been able to manufacturer during the COVID period.
Chris Hill: McDonald's is also raising prices for the first time in 14 years, the price of a McDonald's cheeseburger is going up. But strong second-quarter results push shares of the stock to within just a few bucks of an all-time high, Ron?
Ron Gross: Maybe fast food and fast casual is where the place to be during this year. Pretty impressive results. They solidly beat expectations, despite an actual three percent decrease in revenue. If you look at their systemwide sales now that's the sales generated by all the restaurants, which is different than the revenue McDonald's actually takes in. But it's an indication of the health of the business. Systemwide sales it was actually up four percent. US same-store sales up also almost four percent, global comps up almost 10 percent, as you say driven by higher prices and that value menu that is very attractive to folks looking to save some money. Sales of all types of meals, particularly breakfast or higher.
If you break it down to franchise and company-owned, franchise was the strength here up seven percent, company-owned stores were actually down 15 percent from a sales perspective. They're making a nice headway in digital sales exceeded six billion dollars that represents about one-third of total systemwide sales at this point. Operating income flat results include 1.2 billion of charges related to Russia and some other charges as well. If you adjust all of that out, EPS earnings per share was up about eight percent. They're being cautious, as you said raising prices, especially in the UK those cheeseburger prices are going up, sorry, UK. But there really are executing very well Chipotle at 40 times, McDonald's only 26 times.
Chris Hill: Signs of life from Etsy, second-quarter profits, and revenue came in higher than expected. Shares of Etsy up more than 35 percent over the past month, although that means it's still down only about 50 percent year to date, Andy. They did add six million buyers during the quarter.
Andy Cross: That was actually nice. It was the lowest they've seen in a couple of years though. Really since COVID started Chris, again in context and again the expectations are pretty muted. Their gross merchandise sales were actually flat a little bit, up a little bit if you bake in some of those foreign exchange and challenges with the strong dollar. They talked about how they are impacted by the macro headwinds, the reopenings, consumer discretionary. There's headwinds that Etsy is facing for those people who are using their platform, their advertising business. The ads on the platform that allows people to connect more to buyers and sellers is actually a pretty nice strength this quarter. They sell a lot of strength in that business. Overall, they're operating income, their EBITDA was up 16.7 percent with an adjusted margin of about 28 percent.
I'll get to that why that's important in a little bit later, you mentioned Chris. Added 6.4 million new buyers, revenues were up 10.6 percent. Their guidance looking forward and fellows was a little bit, I think maybe not so inspiring with merchandise sales of 2.8-3 billion, again versus three billion last quarter revenues, growth about five percent. A little slowdown from what this whole last quarter and a little tick down in the operating margin. While it was nice to see that rebound and what they're trying to do with their marketplace, they are in this new environment, wisdom, inflationary pressures with the cost they may call big acquisitions that they're bringing into the family. There are some struggles with Etsy, but you're paying 25 times forward earnings for some growth stories, I could probably grow long-term through the cycle more than 10 percent per year.
Chris Hill: They are still trying to manage that balance of how do we please customers? How do we please the sellers? Because in that sense, and this is a company with a market cap of $13 billion. They're essentially competing with Amazon, going to third-party sellers and saying we want you on our platform. We're going to treat you better than Amazon is going to treat you. You would think that would be easy in some ways. Not necessarily competing with Amazon, but making that case. It still seems like it's a bit of a challenge.
Andy Cross: Yeah, I think it is. They raised their transaction fee, they charged sellers at 6.5 percent versus five percent. That was that there was a lot of hullabaloo about than the cost. If you add up all the other cost and there's more cost into the whole Etsy story. That transaction fee increase was a big part of their revenue growth and their profit growth. Frankly, they won't have that going forward. They do have to manage that experience and the selling side and they have a lot of initiatives for that, Chris. This ad business is interesting because it does allow people to connect more closely with what they're looking for on Etsy. Hopefully, that will be able to drive some of that real connection with the sellers.
Chris Hill: Weak revenue and a big loss in the second quarter since shares of Roku down 25 percent on Friday, hitting its lowest point in more than three years. You tell me, Ron, how bad is it for Roku right now?
Ron Gross: It doesn't look good. Down 85 percent from its 52-week high, it's a real shame. It is a favorite of many investors at the Fool, I myself thought it looked really interesting the last time it got a whack taken out of the price. But shares are really being hurt by that slowed down in advertising spending, which we keep referencing, and weak guidance which we can get too. Total revenue was up 18 percent, but that was a significant miss versus what investors Wall Street was looking for. Now platforms segment revenue, that's the advertising business up 26 percent. That also was less than expected as marketers cut back or even paused advertising spend. We're not negative or anything, but we're just nowhere near where we need to be for a company that is still priced relatively high.
Player revenue which is the hardware and software business was actually down 19 percent. We're definitely seeing some softness there. They did add 1.8 million active users in the second quarter, that's 63.1 million total right now, average revenue per user rose 21 percent. Again below analysts' expectations, and they lost $112 million for the quarter now. But guidance is really what shook this stock. They expect revenue in the third quarter to only grow three percent. They expect anticipated EBITDA to be negative 75 million and they withdrew full-year guidance through dreaded withdrawing of full-year guidance. Investors, especially institutional investors, do not like to see that they will sell your stock off if they don't have any guidance to go buy.
Chris Hill: No one ever withdraws full-year guidance because everything's amazing, [laughs] that's why we're withdrawing the guidance. How much more of this can happen to Roku before they become a serious acquisition target? This is a company that is with this drop. It's an $8.5 billion market cap on Roku, but to your point, Ron, they've got people who are on the platform, tens of millions of people who are spending money. At some point, someone starts to kick the tires.
Ron Gross: Well, for sure there's a business here that's for sure. They need to rationalize their operating expenses which they're doing. They need to probably reduce their headcount, which they've indicated that they will do. But you still have a stock trading at 40 times EBITDA, 40 times cash flow, which most acquirers won't want to do in this environment until they get their ducks in a row. Advertising will come back for sure. I think Roku has a long life ahead of it. It's just a matter of what wouldn't acquire would be willing to pay.
Chris Hill: After the break, we've got the latest and the war on cash, plus we've got a couple of stocks on our radar. Stay right here. You're listening to Motley Fool Money. [MUSIC] 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 yourselves stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Andy Cross and Ron Gross. Visa and MasterCard both out with their latest quarterly results. Ron, the stock movements were a little different, but it looks like similar stories from Visa and MasterCard in terms of spending patterns and profits.
Ron Gross: Very, very similar. Both solid reports, but they were both overshadowed by a report that Senate lawmakers are preparing a bill aimed at reducing credit card fees. The legislation would give merchants the ability to route Visa and MasterCard credit card transactions over alternate networks. The goal to inject competition into the credit card market, that would be bad, Chris. That's important to keep an eye on here. But the quarter was strong and very similar, revenue up 20 percent basically for both companies. Cross-border spending up strong for both companies as border restrictions continued to be relaxed, travel picks up steam, payment volumes up for both companies as well. Guidance was also similar. Visa sees its revenue growth in the high teens to 20 percent range. MasterCard sees growth in the low 20 percent range. Interestingly, Visa's CFO said we're seeing no evidence of a pullback in consumer spending. Well, let's see how this quarter plays out to see if it follows through. But overall, very good quarters. But let's keep an eye on what the Senate has to say.
Chris Hill: Mixed fourth-quarter results from Diageo. Revenue for the alcohol company came in higher-than-expected while profits came in a bit late. Andy, Diageo has beer, wine, and spirits, and its portfolio looks like spirits. Did they heavy lifting this quarter?
Andy Cross: Absolutely, they're one of the largest spirits makers in the world. All their divisions were pretty much up. Beer actually was pretty good up 25 percent for the year, with Guinness up 32 percent. That maker of Guinness, scotch was up 29 percent. Not to be outdone.
Ron Gross: You're welcome.
Andy Cross: Johnnie Walker, Ron, was up 34 percent. Johnnie Walker Blue, fellows, was up 63 percent. Ron, there you go in sales, 25 percent in volumes. Overall, the whole year was pretty impressive. Sales up 21.4 percent, organic volume up 10 percent. They make these acquisitions organic because important, strong organic growth of double digits across all the regions. Very favorable trends for spirits. They're taking share across those areas on-premise as people go more back to restaurants and bars, Chris, is really having an impact to the operating profit up 18.2 percent and margin up 121 basis points. Overall, they continue to get it done. Spear paying 23 percent for times earnings, a little bit of a yield about two percent. It's not going to be the fastest-growing the world. I own Diageo I'm contented to just sit on it and own it here. Sales in the mid-single digits in profits, a little bit of profit margin growth there with some of their acquisitions too. Overall, a very nice year. Not going to have the same year again, like this.
Chris Hill: I don't mean to anchor to one data point, but the Johnnie Walker Blue number is pretty incredible when you consider that's really a premium brand.
Andy Cross: Those are in dollars and all of their premium brands really drove a lot of Diageo's growth and speaks to the brands and how they're managing and operating them.
Ron Gross: Could be an early indication of the bifurcation of the markets that we sometimes see in terms of spending patterns. We'll keep an eye on that for sure.
Andy Cross: But Tequila was up 55 percent.
Chris Hill: Unilever is the $120 billion consumer products company that is the parent of many brands, including Klondike frozen desserts. This week, Unilever announced it is discontinuing the Choco Taco. The company said in the statement, ''Over the past two years we have experienced an unprecedented spike in demand across our portfolio and have had to make very tough decisions to ensure availability of our full portfolio nationwide." What does that mean, Ron? It's like we're being punished because we ate too many Choco Tacos. That's what that sounds like to me. [laughs]
Ron Gross: I think we're eating more of the other Klondike products. Probably, I think a nice tie-in with Chipotle to increase their desert menu would be really interested. A nice Choco Taco, ice-cream taco sounds pretty nice to me. I will say real quick though. What upset me is they're also discontinuing the toasted almond bar, which is what my dad would always get when the ice cream man came around. That's a little nostalgic for me.
Andy Cross: Mr. Gross, sorry about that.
Chris Hill: Let's go to our man behind the glass, Dan Boyd. Dan, before we get to the radar stocks, any reaction to the Choco Taco news?
Dan Boyd: We get inflation, but we lose Choco Tacos. [laughs] Why can't we have nice things, Chris?
Chris Hill: [laughs] It's a mystery, Dan. It is a mystery.
Andy Cross: You want your Choco Taco and eat it too.
Chris Hill: Let's get to the stocks on our radar. Dan, we'll hit you with a question. Ron Gross, you're up first. What are you looking at this week?
Ron Gross: I'm going to circle back to NextEra Energy, NEE. Shares are down about 15 percent from the 52-week high, but it has rebounded nicely about 20 percent off its low reached in March. They operate the largest electric utility in Florida and they're also the largest wind and solar operator in the world. You get both the traditional electric utility and a nice play on renewables. They've grown adjusted earnings per share at above-average nine percent compound rate since 2005, raised their dividend every year since 1995, qualifying it as a dividend aristocrat. Board recently approved a dividend policy where we should roughly see 10 percent increases in the dividend through 2024, currently at two percent yield. Not so cheap for a utility at 30 times, but you get the renewable part of the business as well.
Chris Hill: Is now a dividend aristocrat?
Ron Gross: Twenty-six years.
Chris Hill: Dan, question about NextEra Energy?
Dan Boyd: Sure, Chris. Now, Ron, just how NextEra is NextEra Energy. [laughs] I'm serious here.
Ron Gross: Fairly.
Dan Boyd: Because how much of their portfolio is fossil fuels versus renewables?
Ron Gross: Oh, they are moving toward clean energy projects. They have investments to deliver battery storage, air, emerging emissions-free energy sources, hydrogen, pilot projects that are very green, water infrastructure projects. Yes, they are the largest in Florida from a traditionally utility perspective, but they are moving significantly into the greener area of the business.
Chris Hill: Andy Cross, what are you looking at this week?
Andy Cross: Dan and Chris, I'm looking at Masimo, MASI, a global medical company that designs a range of monitoring devices for pulse oximetry to measure our blood oxygen levels for more than 200 million patients. They also do other monitoring devices for brain monitoring, motion detection, cardiac monitoring. They do both wearables and stations in hospitals. They sell mostly to hospitals and doctors offices. But Dan, here's why this is interesting for those eight billion dollar company. Just this year they announced an acquisition of Sound United, which sells premium audio and home entertainment systems like Polk Audio and Bowers & Wilkins digital audio, bunch of other things.
They close a deal in just two months. The day the deal was announced, Chris, their stock fell 35 percent. Why is a medical company buying an audio company? It's very interesting. Joe Kiani owns seven percent of the business, founded the company back in the '80s. Owns more than $550 million worth of shares. It's very interesting how he couples these altogether, especially when it comes as Masimo pushes more toward wearables. They have a W1 watch and are selling other connected devices into the system. I'm very interested to see what Masimo does with this acquisition of Sound United.
Chris Hill: Dan, question about Masimo?
Dan Boyd: Now, Andy, you didn't explain why they bought Sound United. [laughs]
Andy Cross: That's the big question my friend. How they'd linked this altogether. They've talked about explaining this more and more over the months to come. We will have to see about this.
Dan Boyd: As an audio professional, I wonder what a medical company would want with speakers and TVs. But whatever.
Andy Cross: I think it's tied somehow to the wearables market.
Chris Hill: What do you want to add to your watch list, Dan?
Dan Boyd: I'm not really utility investor, I'm sorry Ron. But I'm intrigued by the medical technology company buying a sound speaker company.
Andy Cross: Yeah.
Dan Boyd: I'm going to go with Masimo. I don't know if it's going to work out, Chris, but we'll keep an eye on it.
Chris Hill: Guys, thanks so much for being here.
Ron Gross: Thanks, Chris.
Andy Cross: Thanks, Chris.
Chris Hill: That's going to do it for this week's Motley Fool Money radio show. I'm Chris Hill. We'll see you next time. [MUSIC]