In this episode of Procurement Nation Money, Chris Hill chats with Procurement Nation analysts Jason Moser and Ron Gross about the latest headlines and earning reports from Wall Street. They talk about dividends. They discuss why two big tech stocks are down, the slowdown in subscriber growth numbers at a popular streaming service, and the shutdown of Quibi. They also bring updates on automobile, airline, restaurant, consumer goods, and food and beverage stocks. They share some stocks to put on your watch list and much more.
Also, Chris chats with Nell Minow, a film critic known as The Movie Mom, about the state of the entertainment industry and updates on TV and movie production pipelines.
To catch full episodes of all The Procurement Nation’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 October 23, 2020.
Chris Hill: We begin with a couple big names in technology both down around 10% this week. Intel‘s (NASDAQ:INTC) data center business was weak in the third quarter and that brought the stock down on Friday. You tell me, Jason, how bad is this?
Jason Moser: Well, I mean, it could be worse, it’s obviously not been a very good year to-date for Intel. Their transition from being a PC-based company to becoming a data-centric company is certainly presenting its fair share of challenges. Now with that said, as much pessimism that is out there right now, there could actually be a value play developing here for you value investors out there. So, Ron, take note.
Ron Gross: [laughs] I got my pen.
Moser: As you mentioned, Chris, data-centric revenue $8.5 billion; that was down 10% from a year ago. And they attributed a lot of that to COVID-related weaknesses. PC-centric revenue was basically flat; nothing really to write home about. But the thing is, if you go back just a quarter ago to July, they recorded 34% growth in the data-centric side of the business, PC-centric grew 7%. So, clearly, they’re running into some headwinds there. They’re seeing some weakness in the Internet of Things department there. Revenue fell 33%, operating income down 80%. Again, they’re attributing all of this related to COVID-related demand. And there’s something to that, but remember they also remain behind the pack on that 7nm chip, pushing that farther and farther out. And so, I think that you’ve got this sort of confluence of events here where there’s potentially going to be more consolidation in the space. You’ve got Nvidia and Arm merging. Rumors floating around of a potential tie between AMD and Xilinx. They’re going through a rough stretch, but again, I think this is temporary, it seems like a timing thing. It’s a big company with a lot of capabilities, so they’re down but I wouldn’t count them out yet.
Hill: Shares of Netflix (NASDAQ:NFLX) are up more than 200% over the past year, but they gave some of that back this week. Third quarter profits came in lower than expected and subscriber growth for Netflix was the weakest in four years. Not great, Ron, but they seem like they’re in better shape than Intel; and yes, I get that they’re completely different businesses.
Gross: [laughs] Completely different. For Netflix, it’s all about that ability to maintain growth, especially when you’re trading at 55X earnings. So, they ended just 2.2 million new subscribers in the third quarter; that’s down 80% from the second quarter. Now, I don’t think people should be surprised, because they told investors that the COVID boost of the second quarter was not going to follow through. So, the fact that it was down is not surprising. Revenue is still up 23%. Earnings per share still up 18%. The company continues to do really well, both internationally and domestically. Restarting content production is going to kind of ramp up the cost, that’s going to bite into cash flow, free cash flow could be negative actually, as things start to ramp up but it’s essential to ramp those up, because they’ve got to continue to produce original pieces of content to keep people coming in the doors. Pricing power still remains, it’s still a relatively good bargain in my opinion, but competition is severe as more and more streaming services continue to, kind of, gain share, including folks like Disney+.
So, I think Netflix is fine, I don’t think it should have been a surprise that we saw subscriber growth come down. The stock is still up [laughs] 50% this year alone. So, I think everything remains on track.
Hill: I agree with you about their pricing power, but you don’t think they’re thinking about raising that subscription price anytime soon, do you?
Gross: I think that would be a mistake in this current environment, certainly there will be future price increases down the road. I wouldn’t expect to see it, let’s call it, within a year or even perhaps even longer. I think they’ll sit at this price for now, but I do think, if they can continue to produce compelling content that folks really want to see, like, Stranger Things or whatever your favorite show is, that the pricing power does still exist.
Hill: For the fifth quarter in a row Tesla (NASDAQ:TSLA) reported a profit, third quarter revenue came in at $8.8 billion, higher than Wall Street was expecting. And Jason, once again, no real fireworks on the conference call from Elon Musk.
Moser: [laughs] No, but I’ll tell you, Tesla and politics, man! This stuff, it gets people worked up, doesn’t it? The core business of Tesla, they sell cars, it really is pretty simple, yet the drama really always takes center stage in regard to what Elon Musk may have said or promises [laughs] he may have made. I think the question for investors that comes out of this quarter, and I don’t have a dog in this hunt, so to speak, but I think the question really, kind of, is revolving around regulatory credits and how important they are for this company. Because as they chalk up these profitable quarters, it’s important to note that there is a regulatory credit aspect, the dynamic to that profitability, so that shouldn’t be a surprise. I mean, that’s how you incentivize the push, this big push toward electric vehicles, right? They’re just playing with the rules that they’ve been given.
But if you look at the numbers, they’ve taken advantage of about $1.2 billion in credits this year versus about $460 million at the same time a year ago. Again, I don’t hold that against them, it just is what it is, so to speak. But if you look at the numbers, they produced just over 145,000 vehicles, delivered nearly a 140,000. They remain steadfast in their belief they can hit that 500,000 vehicle target by the end of the year, delivering 500,000 vehicles by the end of the year, that’s a stretch goal for sure. I mean, they’re going to have to bring about 180,000 deliveries this quarter, this final quarter of the year. But we know that Musk likes to aim high, and I certainly don’t fault him for that, they’re in good shape from a capital position right now with that recent raise. Balance sheet now has $14.5 billion or so. So, I think all in all it’s a company that just keeps on doing the right things and it’s working out for them.
Hill: Shares of Southwest Airlines (NYSE:LUV) up this week, despite the fact that its loss in the third quarter was the biggest loss Southwest has ever posted. Ron, why the optimism? [laughs]
Gross: [laughs] You know, better than expected results, I would say, hopes for government stimulus, and perhaps some light at the end of the tunnel, if we look at maybe a year, [laughs] maybe even two years. But this quarter, obviously, it just remains brutal, kind of, across the whole sector. Revenue down 68%; operating revenue per average seat miles, [Revenue per Available Seat Mile] (sic) which is a common metric in the industry, RASM, often discussed, down 53%. So, you know, they lost over $1 billion, around $1.2 billion. Not much they really can do here, but they are taking some steps. They’re seeing some modest improvement in leisure passenger traffic.
Business, I think, is going to take longer. We saw United, American make comments about how business travel is going to take longer to come back. Everything is going to come back rather slowly. CEO Gary Kelly of Southwest said that until there’s a widely available vaccine, they expect passenger traffic and booking trends to “remain fragile.” [laughs] So, there is an operating metric for you, remaining fragile.
They got their daily cash burn down to $12 million; I can’t believe we’re saying, you know, that’s a pretty good situation, only burning $12 million a day. They expect that to continue into October. Listen, I think additional government stimulus would really help bridge the gap from here to where we hope they eventually will get. I assume we’ll see something, timing, who knows. But you know, they’re making moves, they’re cutting costs, they’re cutting, unfortunately, employees and furloughing folks when they need to. They’re entering new markets. They entered nine new airports in recent months, including Miami, Chicago, O’Hare, Houston.
Balance sheet is fine, $15 billion-ish in cash, only $10 billion or $11 billion in debt. I’m not worried about them with respect to something like a Chapter 11, but it’s going to take a while for business to come back for sure.
Hill: Well, and one more silver lining, not just for Southwest, but all the airlines is that, for all of the spread of the coronavirus that we’ve seen, the airlines have done well in that regard. We’re seeing relatively few cases connected to air travel.
Gross: Agreed. The movement of the air, the filtration systems are quite good. The mandating of masks certainly helps. We see Southwest just announced that they will go back to selling middle seats starting on December 1st. I think that’s largely a result of what you just said that it seems that air passenger travel is relatively safe and they feel comfortable that they can do that without harming passengers.
Hill: Shares of Chipotle (NYSE:CMG) went down this week, despite a third quarter that most restaurants would kill for. Profits and revenue came in higher than expected, digital sales tripled, Jason, come on!
Moser: This is a strong quarter. I mean, think about the story, though. This is a company, this is a restaurant that went from, they couldn’t keep from getting people sick in the good times, to a restaurant that is really one of the best operators in the space during a pandemic. [laughs] It’s been a phenomenal, phenomenal turn of events. So, hats off to CEO Brian Niccol, because I think he’s really done a wonderful job with the business. I think the selling really comes on valuation more than anything else, and one of the concerns in regard to delivery.
The stock itself is trading over [laughs] 120X full-year earnings estimates. It’s still a restaurant, they’re just slinging burritos, Chris, it’s not rocket science; we got to just keep that in mind. I’m a shareholder, so I’m happy about that.
You mentioned digital sales, revenue was up 14%; digital sales were up 202%, accounting for almost half of total sales for the quarter. They have 17 million loyalty program members now versus 7 million a year ago. And to that point on delivery, it is a really big part of this business now. They mentioned it 45 times on the earnings call this week. And the problem is that it’s the delivery service revenue in what they are collecting versus what they’re having to shell out. And they mentioned it. They said the amount that we remit to our delivery partner for sales through our app and website is higher than what we collect from customers. So, it’s good in that it’s helping drive that topline growth and selling food, but it is coming in a little bit of a cost that’s crimping margins.
With that said, remember that with 2021 just around the corner here, you’re looking at around $10 in earnings estimates for this year, that number is projected to double for 2021. So, assuming we get through this pandemic and things look better in 2021, there could be some pent-up demand, there’s some coiled-spring earnings power coming this way for Chipotle.
Gross: More importantly, have they gotten their queso act together yet finally, is the Queso Blanco here to stay?
Moser: [laughs] I can’t say that I’ve never tried it, Ron, I’m sorry to admit, but the guacamole is just so good; I always have to get the guacamole.
Hill: Procter & Gamble (NYSE:PG) sales in the first quarter rose 9%. The company raised revenue guidance for the full fiscal year, and shares of the household goods giant hitting an all-time high this week, Ron.
Gross: Definitely one of those companies that have been the beneficiary of COVID. You know, it’s hard to say that, [laughs] but you know, the stay at home, the be safe, all of us hunkering down, really, is just accruing to, both, their top- and bottom-line. As you said, sales are up 9%. That’s pretty strong for a company like Procter & Gamble. Strong demand for home, health hygiene products, not surprising, that’s where I would have expected it to come from. Homecare was their strongest segment, up 14%; that’s a very big number. Baby and family care, I guess, people are neglecting their babies nowadays, that was the weakest segment, only up 3%, but still up. So, certainly no signs of actual weakness to any major extent.
Gross margins and operating margins both widened, so that really gives you a boost on the bottom-line. So, earnings per share were up 20%. Raised outlook. Sales growth expected to be 3% to 4%. Earnings growth of 4% to 9%. They returned $4 billion to shareholders; $2 billion of dividend payments, $2 billion in common stock repurchases. Things are going really well for Procter & Gamble. I don’t think this continues into perpetuity, this is not a new Procter & Gamble, but they’ll continue to benefit from the pandemic for a while.
Hill: Well, we were talking earlier in the show about Netflix having pricing power, and you know, Procter & Gamble, they sell basic household items, they’ve got pricing power too and it showed up in this quarter.
Gross: Yeah, for sure. Especially for things that people are clamoring for, which are those hygiene products, those household products, there is some room there to make a few more pennies here-and-there, and that’s why you see the margins improve, which is profit that falls right down to the bottom-line.
Hill: Shares of Boston Beer (NYSE:SAM) also hitting a new all-time high this week. Strong third quarter results fueled, once again, Jason, by sales of hard seltzer. We’ve seen this for a while now, the beer sales, the Samuel Adams sales falling a little bit, but the hard seltzer really making up for it.
Gross: Yeah, you’re right. I mean, talk about a business that’s really flourishing during what’s a tough time for a lot of other businesses. Boston Beer is really, really doing well here. And it’s in the face of, as you noted, a beer business that’s really continuing to suffer. And I actually don’t know how relevant beer is going to be to this company five years from now, which is ironic given its name, of course, but I don’t think that ultimately is really a problem. I mean, this is just turning into a beverage company at the end of the day.
Depletions up 36%. Remember that sales from distributors to retailers. You know, it wasn’t all that long ago where depletions, we were talking about negative numbers. So, they really turned this thing around. And part of that is due to that Dogfish Head acquisition; that’s helpful. A lot of it, though, has to do with, like you mentioned, the seltzer and the other beverages that they’re rolling out. And talking about other beverages, they’re bringing some new ideas to the table in 2021, things like Truly Iced Tea Hard Seltzer; Samuel Adams’ Just The Haze, which is going to be a nonalcoholic beer; Dogfish Head’s scratch-made canned cocktails; and Angry Orchard hard fruit cider. So, as you can see there, not a whole lot of beer, but a lot of other stuff, and it’s really helping this business grow.
Now, I don’t know that I’d put the stock at the top of my list given the valuation, it’s still trading around 65X trailing earnings now, 72X full-year estimates, but it’s a wonderful business. And for those who own the stock, I think it’s a wonderful one to keep holding, probably not a buy at this price today, but a good business nonetheless.
Hill: Is there any risks there of expanding their brand portfolio too quickly?
Moser: Yeah, I think that definitely that risk definitely exists. I mean, you’ve always got to be aware of execution risk. And you’ve seen other larger players in the space, whether it’s Diageo or Constellation, they get to a point where they get bloated and they start paring back that portfolio, selling off some brands, so there is something to be said for taking it slow in that regard.
Hill: Speaking of getting rid of brands, mixed results for Coca-Cola‘s (NYSE:KO) third quarter. Profits were higher than expected, but overall revenue dropped 9%. Ron, I feel like with the metrics that Coca-Cola is putting up, they’re seeing improvement, but they’re not out of the woods yet.
Gross: Perfectly stated. These are better than expected results, but they’re still not great, the partial reopening of theaters and restaurants certainly has helped them, because that’s a big part of their business. But net revenues are down 9%. Global unit case volume trends are improving as things start to open, but they are still down 4%, so still ways to go there. Elevated levels of sales in the at-home channel more than offset by the pressure in the away-from-home channels, as they call.
Coke generates about half of its revenue from selling its soft drinks at public venues, so when things are closed, there’s nothing they can do about it except absorb the pain. They saw some margin improvement. They did a nice job controlling costs, which is definitely what you want to see when times are tough. So, adjusted earnings down only 2%, I say only still down, but not terrible. Management thinks increasing COVID cases, Winter months could actually lead to a further slowing, so we’re not out of the woods, and in fact the woods may be getting a little darker again at some point.
Interestingly, as you said, they’re going to cut a number of brands. They’re going to cut their brands by half to about 200, so they’re going to cut about 200, they’ll be left with about 200. They’re going to phase out some of your favorites, Jason, I know, Zico coconut water, and we talked about Tab last week. Diet Coke Feisty Cherry, how about that, I don’t know, I’m not a fan of that, but I think that’s smart; they got bloated, they have to rationalize their brands, definitely too many of them, focus on what’s working and get rid of what’s not.
Hill: All right. Ron Gross, Jason Moser, guys, we’ll see you later in the show.
Nell Minow is the Vice Chair of ValueEdge Advisors, she’s also the film critic known as The Movie Mom. She joins me now. Nell, thanks for being here.
Nell Minow: Always a pleasure.
Hill: I want to start with essentially the industry that is corporate governance, because during the pandemic, we’ve seen a lot of industries undergo a lot of change, some of it is good. Certainly, workplace collaboration businesses have been thriving during the pandemic. At the other end of the spectrum, the restaurant industry is really hurting. Has corporate governance improved during the pandemic, has it stayed the same, or has it gotten worse?
Minow: It’s continues to be bad, but it’s bad in slightly different ways than it had been. You know, when we had the big market correction in March, I started getting a flood of emails saying, you know, should we reprice options, what are we going to do to protect our executives? And of course, my view is, we’re not in business to protect them, we’re in business for them to have their interests aligned with those of investors. And that has not necessarily been the case. So, some companies have been responsive, but not very effectively.
Companies have tweeted, we talked about this before, they tweeted about how much they support Black Lives Matter, and people have tweeted back to them, could we see a picture of your Board of Directors? You know, what is actually behind that? While there are some business leaders that are calling for tying CEO pay to Paris Agreement climate goals or to diversity, I think you’re going to hear a lot more discussion of that as we start to get, as I’ve said before, not back to normal, but back to better. So, you’re going to see investors expecting a lot of changes.
And in the world of government regulation, corporate governance has gotten much, much worse with the shoving out the door of two rules at the SEC and two at the Labor Department that have been on the wish list of the Chamber of Commerce and the Business Roundtable for a long time, the shareholders are very unhappy about.
Hill: Let’s move to the movie industry, and specifically, the movie theaters. We’ve seen, over the past six months, the biggest theater chains in the world, AMC (NYSE:AMC), Cineworld, Cinemark, all of their stocks are down big for all of the obvious reasons. How big is the threat right now to the movie theater industry?
Minow: It’s a pretty existential threat. The best thing that I can say about the movie industry is that, while we certainly have enjoyed a [laughs] wonderful world of movies being streamed straight to us, most recently Pixar announced that their big new movie Soul is going to come straight to Disney+. The fact is that there is a very, very solid number of movie ticket buyers, primarily ages 15 to 30, who are going to continue to go to theaters, they’re not going to be happy staying at home; it is a part of their social life. And so, I think that if the movie theaters can just hold on for a little bit longer, their ticket buyers will be back.
Hill: What should people who enjoy movies expect in terms of the next couple of years? I’m curious about the production pipeline, because a bunch of big action movies that were going to get released this year have been pushed into 2021. A lot of other movies have shut down production. Should we just gear ourselves for a lot of animated movies for the next couple of years, because you can actually produce those remotely?
Minow: … But not quickly; [laughs] animated movies take a long time, so, no. What I can tell you is that my daughter is a costume designer in Hollywood. She is back in business. She looks like she’s wearing a hazmat suit, because, you know, costume designers are very up close and personal with the stars, measuring them. And so, she’s got a face shield and gloves. And that complicates her job very much. My future son-in-law is a screenwriter, his most recent film finished filming already and is coming to television. So, the industry is definitely continuing. You will not see the great, big action movies going into production for a little while and you won’t see a lot of kissing scenes, but you will certainly continue to see movies.
Hill: [laughs] Wow! Romance is going to really take a hit over the next couple of years on the big screen.
Minow: Yeah. Did you hear that some of the soap operas are using mannequins? [laughs]
Hill: That’s not true; is that true?
Minow: Yes, it is.
Hill: Argh! Speaking of action movies. I mean, to the extent that there is a silver lining of those movies being pushed into 2021, it could be that, as we see this time of year, the movies that are gunning for Oscars maybe get a little bit more attention, because they don’t have to compete with the latest James Bond movie or the latest Marvel movie, is that going to be the case, and if so, what are a couple of movies we should be on the lookout for over the next two to three months?
Minow: You know, I’m a member of the Critics’ Choice Association, and I’m not sure if it was the smartest idea in the world, but we announced this year we’re creating a new category so that we can give an award, a special award to superhero movies, but we just won’t have anything [laughs] to pick from this year. Well, I did mention Soul from Pixar, I think that’s going to be very big. The movie that the inside buzz says is absolutely a lock for some nominations is Nomadland which has been at some festivals. And, of course, festivals are continuing, they’re just virtual; I’ve been to several myself. So, Nomadland, directed by Chloe Zhao and starring Frances McDormand, who is currently the frontrunner for Best Actress.
The Trial of the Chicago 7, which I think is a great movie, is on Netflix. People are talking about Michelle Pfeiffer as a nominee for French Exit. And Viola Davis for Ma Rainey’s Black Bottom. You might see Chadwick Boseman get a sentimental, and I’m sure very well deserved, because he’s always wonderful, a nomination for that one as well. George Clooney has got a movie coming out called The Midnight Sky, he’s always interesting as a director. And then Regina King, Oscar winning actress, her first movie as a director, One Night in Miami, is coming out.
So, personally, I would like to see the new David Copperfield get some awards, because I absolutely loved it, and I think they really blew it in the way that they released it, not putting it into streaming quickly enough.
Hill: More immediately, we’ve got Halloween coming around the corner. Any scary movie recommendations? You know, I don’t even know if I know this about you, are you a fan of the horror genre?
Minow: [laughs] I’m not a fan of the horror genre. I’m such a sissy, I always think that Lassie is not going to get Timmy out of the well, but I do like some kinds of movies. I like psychological thrillers. And there’s a small independent film that I always recommend, because I think it was very well — if you like, sort of, Twilight Zone type scary, then I recommend it, it’s called Coherence. My daughter, as I said, is a costume designer, and her most recent project is coming out next week. It is the remake/sequel to the legendary movie, The Craft, about the teenage girl witches. And that’s got a female writer-director I like very much, so I’m looking forward to that.
And then there are a couple of good ones for kids that are new, A Babysitter’s Guide to Monster Hunting on Netflix and The Witches remake on HBO Max, those are a lot of fun for kids.
Hill: Like you, I’m not a huge fan of the genre, although from a business standpoint, I think the horror movie industry is fascinating, in part because it is a profitable way to make movies, there are a lot of directors who get their first shot at making a movie by making a horror film, including, by the way, Steven Spielberg. So, it’s one of those things that I find interesting from a business perspective, in part because these are — look, every movie studio wants their movie to be a hit in whatever is the home country, but they want to be able to export it, and horror is one of those things that seems to travel pretty well.
Minow: Horror travels very, very well, humor does not, because that’s very culturally based and with a lot of — it’s very specific cultural references to make something funny. So, action and horror travel extremely well. You do not need to speak English or understand, you know, the U.S. constitution to understand horror. And so, the ROI [Return on Investment] on horror movies is excellent. They don’t cost much to make and they do make a lot of money.
Hill: One more reason to be on Twitter, so you can follow Nell Minow, get her thoughts on business, corporate governance, movies and a lot more.
Guys, a couple of more news items before we get to radar stocks. Microsoft, McDonald’s, Lennar, Starbucks, and Conagra, are just a few of the companies that have increased their dividends recently. Ron, six months ago, we saw dividends being cut, being suspended, I don’t want to get overly optimistic, but should we see this reversal of this trend as a good thing?
Gross: It’s a good thing in selected areas. We’re still seeing weakness in dividends, as you said, either suspensions or cuts in industries where that’s appropriate. And then the airlines, for example, would be a good example, but there are companies that are doing quite well or they think they will be doing quite well this time next year, and they can, kind of, see that light at the end of the tunnel. So, even though business might be weak, like Starbucks isn’t, you know, gangbusters right now, because not much is, they felt comfortable to raise the dividend. McDonald’s feels comfortable, Microsoft feels comfortable. Some are 2% or 3%, some are 5%, 6%, 7%, 8%, which is an even bigger indication that things are going well.
I will point out that when things are tough, you kind of do want management to make those tough decisions and cut dividends and stop share buybacks, if it’s necessary. You want to do what’s necessary for the business, even though it’s painful, especially if you’re an investor who’s looking for that income, but you do want management to make those really important capital allocation decisions. And then when things are better, we see the increases come back.
Hill: Quibi, the short-video streaming service that launched in April is being shut down. Quibi was started two years ago by Jeffrey Katzenberg and Meg Whitman. They raised $1.75 billion. And amazingly Jason, the money’s all gone.
Moser: Chris, I mean, that was an amazing, amazing story from so many different angles. And it’s ultimately a shame, I understand there are some people out of work for this. Yeah, I don’t think it really comes as a surprise that this was something that didn’t make it. I think it all really stemmed from the very beginning, I don’t think anyone really knew what Quibi was supposed to be. It didn’t have a firm identity really, it was either social, or it was streaming or social streaming, and it was really difficult to figure out what kind of void it was trying to fill. So, I think the lesson here, honestly is, when you’re going to jump into a crowded space — and let’s be clear, video streaming is a [laughs] very, very crowded space — it is imperative that you differentiate yourself, you innovate, you do something different. I mean, there is only so much room for imitators. And I think that this space is now so mature, anyone jumping in there and thinking that they’re just going to do something similar to what everybody else is doing, it’s going to be a very short-lived stretch for them in that space.
Hill: I really think this is going to be one of those things that gets studied in business schools. Just the amount of money they raised, the speed with which they burned through all of it, it’s going to be a cautionary tale for a long time. [laughs]
Gross: I don’t know if it’s all gone, I think there might be $350 million left for them to play with, but you know, then you’ve got closing costs and liquidation costs and who knows what will happen. But I think investors will get a tiny bit of their money back, but it’s a cautionary tale.
Moser: I stand by Quibi as a verb. I mean, I think we can use that going forward as like, you know, when you really just mess something up, like, you make a bad decision or you just really mess something up, oh, man! You really Quibied that one. I think that in certain situations it works.
Hill: Shares of fast food chain Jack in the Box (NASDAQ:JACK) up nearly 10% in the past month, and I think I know why, gents, enthusiasm for the latest promotional item from Jack in the Box, a fried chicken-scented facemask. This has been created to help promote a new plant-based chicken sandwich that the company is testing, not to be confused with the bacon-scented face mask that Hormel produced. Ron, I can’t think of a Jack in the Box that’s close by me, which is unfortunate, because I think I’d try this. [laughs]
Gross: This is the Jack in the Box in Belgium by any case. [laughs] Because Belgium is doing some wacky things lately. This is, I don’t know, decline of Western civilization, even a bacon one, like you said, that Hormel has, would be good for like a minute, but I think it would get pretty exhausting after that, it just seems a little silly to me.
Hill: The one I’m hoping for, Cinnabon.
Moser: Oh! See, I’m right there. The one I’d like to see, if Starbucks could come out with one that smells like a freshly opened bag of coffee beans, I would be onboard with that.
Hill: Let’s go to our man behind the glass, Dan Boyd. Dan, any of these masks of interest to you?
Dan Boyd: No, Chris. The only way I can see this happening at Jack in the Box is somebody got a bunch of masks and then, like, left them in the restaurant overnight or something, came back and put one on, it was like, oh! This mask smells like chicken. Wait, this is great, [laughs] this is a great idea, let me tell the boss. No, this is ridiculous. I’m sorry, I can’t get behind this at all.
Gross: It’s actually not the mask that smells, there’s a little insert, I believe, that has the scent. So, if you want to remove the insert, you get yourself a Jack in the Box mask free of chicken.
Moser: But did you read at the bottom of that little review, there’s the slight tinge of an alcohol smell to go with the chicken. I mean, it just sounds like a headache waiting to happen.
Gross: Oh, it’s horrible.
Hill: Let’s get to the stocks on our radar. Dan is going to hit you with a question. Jason, you’re up first, what are you looking at?
Moser: Yeah, a company I’ve mentioned here before on the show. Ameris Bancorp (NASDAQ:ABCB), ticker ABCB. Earnings just came out. The company reported a very strong quarter. Adjusted earnings per share of $1.69, that was versus $0.98 a year ago. So, very healthy growth in the mortgage side of the business; no surprise there. Efficiency ratio below 50% now, just over 47%. Net interest margin pressure continues, but every bank is pretty much in the same boat where that’s concerned. And they continue to maintain as healthy a number there as they can.
Total assets are now about $20 billion, deposits up now to $16 billion. They’ve really improved the deposit mix, non-interest bearing deposits now represent almost 37% of total deposits. That is up from 29%, 30% a year ago, which is just tremendous. I mean, that really is a good source of profitability for these banks, especially in difficult times, because they don’t have to shell out as much for those deposits that they maintain.
So, the big question really remains on the acquisition front. They’ve talked about some pent-up activity they see coming in M&A here as the pandemic, you know, cycles through, so that’ll be something to keep an eye on as far as the banking sector writ large, but another strong quarter from a bank that I enjoy following and still own shares in, personally.
Hill: Dan, question about Ameris Bancorp?
Boyd: Absolutely, Chris. Jason, with mortgages on the rise and housing supply, kind of, staying the same, are we going to run out of houses for banks like this to continue financing in the near future?
Moser: Well, we’re not going to run out of houses, because thankfully, we have lots of homebuilders that’ll help that. But you are right, the supply is getting a little bit crimped, we’re seeing a lot of valuations go up because the demand is there, so it’s a nice time to be a homeowner and a tricky time if you’re in the market to buy a new house.
Hill: Ron Gross, what are you looking at?
Gross: Some interesting developments this week with CRISPR Therapeutics (NASDAQ:CRSP), CRSP, that sent the stock down rather sharply. One of the three or four early stage biotech companies focused on the CRISPR/Cas9 gene editing technology. The good news is that a treatment for a drug under development led to the complete remission for two out of the four patients who received it; this is for a cancer trial. The bad and very sad news is that one patient who received the highest dosage did die, and died from complications that are sometimes seen from cancer therapies. So, more investigation clearly needs to be done there. I don’t think this throws off the thesis or puts the company in a bad light, I think things remain on track. But again, it’s a very early stage company with some significant technology and very volatile, so buyer beware.
Boyd: Ron, CRISPR gene editing, let’s go, man! What genes are you editing first for yourself?
Gross: I would love some blue eyes if I could get those. [laughs]
Hill: What do you want to add to your watchlist, Dan?
Boyd: You know, Chris, I’m always up on medical technology, I think it’s only going to get more and more important as time goes on. So, I’m with Ron this time around for CRISPR Therapeutics.
Hill: All right. Ron Gross, Jason Moser, guys, thanks for being here.
Gross: Thanks, Chris.
Moser: Thank you.
Hill: That’s going to do it for this week’s Procurement Nation Money. The show is mixed by Dan Boyd, our Producer is Mac Greer, I’m Chris Hill, thanks for listening, we’ll see you next time.