In this podcast, Motley Fool host Ricky Mulvey and senior analyst Bill Barker discuss:
- The departure of Tesla’s CFO.
- Eli Lilly hitting an all-time high, and the drugmaker’s optimistic results.
- How Burger King is driving sales growth with limited-time offers.
- Zoom calls its employees back to the office.
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.
This video was recorded on August 08, 2023.
Ricky Mulvey: Usually you say goodbye before you leave, but sometimes you forget. You're listening to Motley Fool Money. I'm Ricky Mulvey joining us now is Bill Barker. Bill, good to see you.
Bill Barker: Thanks for having me.
Ricky Mulvey: Big news today. Tesla's Chief Financial Officer, Zach Kirkhorn. Well, he stepped down from his role last Friday. Kirkhorn is replaced by Vaibhav Taneja. Usually, you find out a CFO is leaving before they stepped down Bill, even if they are staying on throughout the end of the year. This is a little unusual.
Bill Barker: It's a little unusual and but not so unusual that the market seems to find it terribly disconcerting. You'd want CFOs to stick around and arrange an orderly transition and all that, so the sudden newness of the announcement raises some questions, but they're behind the scenes. There don't seem to be big questions that are concerning the market players yet.
Ricky Mulvey: Or big questions that we may not know about from the outside. I mean, for newer listeners, the way a CFO's steps down from a company can be a big deal. Why is this something that investors pay so much attention to?
Bill Barker: Well, in other situations when a CFO steps down abruptly with little detail about why. Then you're going to have questions about whether there were any financial irregularities that either the CFO was responsible for and is being pushed out or is aware of and no longer wants to stick around and see addressed, so that's one of the things that would lead to an abrupt announcement and a drop of a stock where their questions, obvious questions that just don't seem to be answered and in this case a former CFO now is sticking around toward the end of the year so that that removes some of the red flags about something improper going on. I think if one were to speculate and plenty of people are out there willing to speculate it. It's just one of the leading speculations might be made enough money. I'd had enough headaches. I think I can do something else with my time.
Ricky Mulvey: An incredible job helped build Tesla's valuation to upwards of one trillion dollars and there's a lot of speculation, but I don't know, I still don't know why the stock is seemingly unaffected by this because you either have a superstar player leaving for an unknown reason or There's something not so great going on at the company.
Bill Barker: I think as I say, if the speculation is landing upon the, you know what? Do you want to spend your entire life with Elon Musk? Regardless of how much money you're making or are some of those headaches, ones that you can decide to walk away from it at a certain point. I think that's a narrative that people can believe a, that he's already made enough money that he can choose whatever he wants to do with his life, not just Elon, but Zach Kirkhorn as well and also hanging around with Elon Musk, maybe something that you want to keep to a finite period of your life. Once you've got all the money you want to make from that, and you can just do whatever you want. Maybe subtracting those job responsibilities from your daily experience is worth lots, and I think that the stock is down a little bit. Probably, you've got some speculation beforehand that Kirkhorn would've made a good CEO and was possibly first-in-line to do that as CFOs often are, and that in a world where Elon Musk has six or 10 or 12 companies that he's head of or whatever it is today, it probably be more in the future than it is today. He may be willing to let somebody just to run the business while he takes a lesser role or a greater role at all the other things that are on Musk's attention, so that part is gone. Kirkhorn is not going to be the next CEO, but you've got a situation. You're also where the sudden nest is not such that you're bringing in an interim CFO, you've got a CFO announced, and so it looks like there was more thought ahead of time than zero.
Ricky Mulvey: Famously demanding employer hoping catch us a little bit of rest. Let's move on to some earnings coverage. Eli Lilly hit an all-time high on its second quarter results this morning with positive news from its weight-loss drug sales, positive research results, and it's Alzheimer's treatment. Here are some highlights the weight-loss drug Manjaro posted almost one billion dollar in sales for the quarter, Lilly reported no sales from its COVID-19 antibody treatments. In earnings per share jumped 86% from the year prior. Some of that did come in part from the sale of its emergency diabetes treatment for about $580 million. Bill What stands out to you from that?
Bill Barker: Well, given the reaction of the stock, what we're seeing is that obesity is going to be around and is a bigger situation than COVID. You can take zero on your COVID therapies and replace it comfortably with a billion firm from obesity therapies, and in the case of Manjaro and that only really begins to scratch the surface of the market opportunity for Lilly and the other pharmaceuticals that are pursuing obesity therapies, and the sky is the limit is what investors are feeling today on where obesity therapies can scale to.
Ricky Mulvey: One of the big issues is will insurers pay for these treatments? There has been debate back-and-forth, well, mostly from the insurance side, not necessarily from the drug makers or the patients about if insurers have a responsibility to pay for this and there might be some increased pressure is Novo Nordisk, which has a rival weight-loss drug. Govi, found that their medication helps reduce the incidence of heart attacks, strokes, and cardiovascular deaths by 20%, obese and overweight people, so you have to hope that there is some increased pressure, but I also imagine that insurers will fight back on paying for these treatments.
Bill Barker: I think insurers would just as soon save money and let people pay out of their own pockets for these which they're willing to do and which there's probably more societal tolerance of just allowing companies to charge what they can charge in the market for the obesity therapies, there isn't the same moral, ethical dilemma that you might see for something like Alzheimer is where at least the society is willing to put some or all of the responsibility for addressing obesity on the individual, which wouldn't be the case with something like Alzheimer's. Nevertheless, there's billions and billions and billions of dollars. Whether it goes through insurance company is only for a select portion of the many obesity drugs that are out there. You've seen stories out there about the Hollywood stars getting their hands on medications that are not primarily related to obesity and you can go over a portion of that, so you're not going to get a lot of societal pressure on insurance companies to cover that use case. But where there is a 20% reduction in cardiovascular disease, that is going to be something that I think is an easier pitch in terms of pressuring the insurance companies.
Ricky Mulvey: So some of the other treatments, there's some mixed evidence that these GLP-1 drugs can affect addictive behaviors. We'll see how those play out, but anything in the toolkits good. Eli Lilly, if the weight-loss drugs weren't good enough for you. They also highlighted some evidence for the trailblazer ALZ 2 drug, it's Alzheimer's drug, which in a Phase III trials showed that it significantly slowed cognitive and functional decline in people with early symptomatic Alzheimer's disease expect regulatory action by the end of 2023. This is just one reason Bill are two primary reasons. I should say that Eli Lilly, the drugmaker founded in 1876, is now trading at a price-to-earnings multiple higher than Tesla.
Bill Barker: That is quite a data point, and it's mitigated somewhat by the fact that the sales for as soon as next year and their earnings are scaling so fast at Lilly that trailing earnings per share multiple might be in the '80s, but the forward multiple is closer to 40 because earnings per share next year right now, and that was the data from before. Today's extremely good report from Lilly indicated that there would be upwards of $12 a share on now a $500 share of stock, so that earnings-per-share expectation for 2024, it's likely to bump up and get more into 13, maybe better than that dollar per share, so the forward multiple is a little bit more palatable at 40 times earnings still, still awfully optimistic. But right now, Lilly is in the middle of creating optimistic beliefs. Or it's meeting from quarter to quarter.
Ricky Mulvey: Showing positive results for a Phase III Alzheimer's drug is going to give a lot of people reasons to be optimistic and I hope they can continue. Let's move to Restaurant Brands International, the owner of Tim Hortons, Burger King, Popeye's chicken and Firehouse Subs RBI reported strong sales growth. They seem to have no trouble pulling people in, especially if there's limited time offers. Tim Hortons is offering a barbecue, crispy chicken flavorable in sparkling quenches. Burger King had the Spider-Verse Whopper with Swiss cheese and a lovely red bun and Burger King is also in the middle of this $400 million turnaround plan, maybe with those limited time offers taking market share for the first time in three years. When you think about these trends in this business, is this the candidate company for a balanced position in a portfolio one-year, not expecting a ton of growth from, but has some long-lasting tailwinds.
Bill Barker: Well, certainly people have to eat every day, so that's a good thing to have in your business is supplying something that isn't a daily intake. In the US across the brands inflation was a good chunk of where the same-store sales growth came from traffic for the US operations, I think was actually flat to a little bit negative across Popeye's, Burger King, and Firehouse for the quarter over last year. But as you mentioned, it was the international sales, particularly Tim Hortons, which is doing the best job. Growing its menu, supplying more choices for people to dine there in the afternoon or evening. Not just coming in for their coffee and a donut, but coming back for lunch options and for cold bruise, things that Starbucks has been dining out on for a long time. Tim Hortons for a major operation that it is, it still has room to catch up with what the trends have been for a while.
Ricky Mulvey: They'll start to question how hard you really have to try with the limited time offers. In the case of Burger King, they brought people in with a vanilla Sunday that just has red and black Pop Rocks candy on top of it. I guess dying a button read in honor of the Spider-Man movie is also enough to get people in the door.
Bill Barker: I mean, you have to wonder where the marketing teams arrived at, whether somebody got the tie-in with the Spider-Verse movie and then hand it off and said, do something with this. Can you make some of our food red and, or blue or black in the case of the newer Spider-Man's costume? I think it's a hodgepodge of ideas rather than a smooth blend. It's not natural. You don't naturally think of Spider-Man and hamburgers going together. But Americans and fast food dining Americans are creative enough and willing enough to expand the associations of these things to allow Burger King to get away with it, I guess.
Ricky Mulvey: Yeah, I mean, why stop at Red Dot? You have a you have a whole color universe of options to expand into. One other trend really affecting this business is that nobody wants to eat inside the restaurant. According to data from market research firm Certona, and a story in the Wall Street Journal, diners are eating just 14% of fast food orders in a restaurant. In 2015, it was 22%. Yet Restaurant Brands International is encouraging Burger King owners to spend thousands and thousands of dollars to renovate these locations with operators picking up most of the tab on those renovation bills.
Bill Barker: I can certainly understand trying to do something to make dining in more attractive. Because that's really not the part of the experience that I think many people think is a positive. Maybe that's as simple as just increasing internet connectivity at some of these locations. Trying to get people to sit down for a while and think of Burger King as a place to hang out for some period of time. I'm sure that it's been a while since they've upgraded some of the facilities based on very little study of the issue by myself. I can imagine that it would not take long to go through tens and hundreds of billions of dollars simply upgrading things which haven't been touched in a decade.
Ricky Mulvey: For one it's worth of all the fast food review videos that I've watched in preparation for this segment. No one was consuming on-site and quite a few people are eating burgers and shakes in their cars, which I understand doing that if you're on the move, but if you're in a parked car, I don't see the reason to get all of that, excess food bits inside the driver's seat.
Bill Barker: That's one of the downsides. The upside is that you don't have to be in the restaurant. Obviously, people are voting if not with their feet, with their gas pedals on that choice. It just creates a more business for the mini vacuum producers, I guess.
Ricky Mulvey: Let's hit the story. Zoom has told employees that if they live within 50 miles of an office, those employees need to show up two days a week. A little bit of irony here, Bill, because this is the company that really helped with that remote work situation. What do you think Zoom learned?
Bill Barker: I think Zoom, if it has probably learned, one, that they hired too many people. This is an additional way to get people to leave, perhaps is if they are unwilling to come into the office. This will be a bit of an employee reduction, and that there is plenty of work that is better done in-person and supplemented by Zoom. There isn't any work that I can think of which is best done on Zoom. Better accomplished there than in-person. There's plenty of work which can be done, I think, to varying degrees almost as well, and there's some work that can't be done nearly as well. And two days a week, it seems to me to be a pretty small ask. If they can get the rest of the world to sign on to two days a week as a minimum, everybody is still going to have to use Zoom or a competing product for the other 60% of the week. I don't think it really hurts for them to advertise. They're understanding that their business and their employee morale perhaps is improved by a hybrid work culture rather than a solely Zoom culture.
Ricky Mulvey: I think more folks are learning about the trade-offs where early in the pandemic there's these economics papers about how no productivity has been lost. It's in part because people are working longer hours. Then the flip side of that, which there's more research being done now, is that it's because employees weren't spending time mentoring younger employees. It became increasingly difficult for younger folks on the job how to do it and learn about the culture in their organizations. I think there's a few factors at play here.
Bill Barker: Yeah, I think Zoom is making the right move here. As I say, they're not really turning their backs on the utility of their technology because the implication is if they are successful in this, two days a week there'll be an office culture and the benefits of working together in person. The rest of the time they're still relying on Zoom. I think that they are one of the many companies that is leaning more toward that mix. As time goes by I don't see an avalanche of it happening, but certainly it's the trend.
Ricky Mulvey: We'll see how it goes, Bill Barker. Appreciate your time and your insights.
Bill Barker: Thanks, Mulvey.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, so don't buy or sell anything based solely on what you hear. Thanks for listening. I'm Ricky Mulvey, we'll back tomorrow.
