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- [00:02]
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Ann Barry
One US Homebuilder ties slowdown to war in Iran an excuse or a broader market reality? We break it down. Diageo cashes in a $1.8 billion check by bowling out of cricket. But why did the king of Guinness and Smirnoff own an Indian cricket team in the first place? We run through the drinks giants Windfall and AI Shaking up the workforce, of course. And now all the way to the C suite. The From Adobe to Coca Cola, we look at how market stalwarts are making room for a new kind of leader at the top. The Thursday, March 26 it's Brew Markets Daily and I'm Ann Barry. More market details to come. But first, there's a generational shift in corporate America. And it's not just the much vaunted story of Gen Z workers with values different from their millennial and Gen X and boomer bosses. Because top of mind now are we on the cusp of a wave of CEO changes replacing those without AI knowledge or not enough of it with those who are fully embracing it. Well, in tech, we've seen a version of this already start to play out. Let's take Adobe, the software OG, replacing its CEO after his 18 year tenure as the board searches for someone who I Predict will be AI savvier. Adobe stock down nearly 50% as the company has failed to persuade investors that it has a plan to fight off competition from all sides. While whether that's Canva or Figma, all ahead of the curve relative to Adobe in AI enablement or from the LLM giants themselves like Google's Gemini and OpenAI. Or the next CEO just has to be AI ready for that share price to have a chance to bounce back. But it hits a little differently when CEOs are now openly talking about stepping down to make way for a new AI ready generation in companies that aren't tech and in fact feel pretty far from it. Take Coca Cola today. CEO James Quincy told CNBC Squawkbox that his decision to step down from his role this coming Tuesday stemmed from his belief that, quote in a pre AI pre genai mode, we made a lot of progress, but now there's a huge new shift coming along requiring someone with, quote, the energy to pursue a completely new transformation of the enterprise. That view echoes what outgoing Walmart CEO Doug McMillan told CNBC in December, how, having announced that he was stepping down, he said, quote, about a year ago I really started feeling like this next run you could see what agentic commerce was going to look like the vision for AI shopping. And I started thinking about everything that needs to happen over the next few years. And it really caused me to think that now was the right time to step down with what's happening with AI. I could start this next big set of transformations, but I couldn't finish well. Walmart Stock up nearly 10% year to date McMillan's successor took over that CEO seat on February 1st. Coca Cola that's Ticket Ko up also year to date by over 7%. This isn't going to stop. We're going to see more of this. So the CEO shake ups AI related or not, we're going to keep on watching. Coming up, Recreational vehicles reach peak popularity around the same time as sourdough starters. That was during COVID But years later, we look at one company betting that the K shaped economy could drive its next wave of growth. And another hit to social media, this time across the Atlantic. And to snap are we entering the sector's Big Tobacco style age of reckoning? But first, a word from our presenting sponsor, Vaneck. Vaneck believes the drivers behind gold's 2025 breakout appear durable into 2026.
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John Coteau
Gold's strength has been underpinned by forces that look structural rather than cyclical, reinforcing confidence that the current environment is not a short lived spike.
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Ann Barry
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John Coteau
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Ann Barry
Let's get a snapshot of the housing market now and that's through the lens of the earnings results this week of two different companies. KB Home, which is one of the top 10 US home builders by volume, and then another one which is A little bit cheeky. And that's Winnebago, the manufacturer of Motorhomes, which some folks treat as mobile housing. Well, both companies CEOs cited geopolitical uncertainty in their earnings calls. So we're going to take a look and ask is that association stretch or is it real? We're going to get into that in just a moment. But John, start by giving us some context for KB Home.
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John Coteau
Sure. KB Home Ticker KBH on the New York Stock Exchange market cap of $3.3 billion. They manufacture homes across nine states, primarily in the Sun Belt and West coast regions. Over there in Californ. On Tuesday, it reported revenue of about $1.1 billion, down 23% year over year, but generally in line with estimates. Earnings per share came in at 52 cents, roughly down 65% year over year, but also in line with estimates. And these were interesting to me, these specific housing unit numbers. Homes delivered in the quarter decreased 14% year over year and the average selling price dropped 10% from about half a million to 452,000. So of course, that's going to take a big hit on revenue. And the company lowered guidance with the CFO saying, quote, the reduced guidance reflects the current uncertainty of the new home market, which we believe has been impacted by affordability concerns and recent geopolitical tensions.
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Ann Barry
Well, just to sort of pause there because, you know, some folks may look at this and say, well, why is there that correlation? And so I think this gets to two things. Number one, let's talk about affordability concerns. There is a real fear in the markets at the moment that as oil prices stay above where they've been in recent years as a result of shortages coming from the Middle east conflict, then that would potentially ultimately translate into higher inflation here in the United States, reversing a sort of downward trajectory that we've been seeing. The second piece of this, too is we can't avoid it. We're living through it. We've seen the markets down since the conflict in the Middle east began, or at least if not down in total on certain days, certainly the volatility has picked up. And so people, when they look at their brokerage accounts, perhaps aren't feeling as wealthy and their appetite to go and make a big ticket purchase like a home not as strong as it used to be prior to this point. Well, the other piece of this, of course, John, is mortgage interest rates. And that's been a real mixed bag because while there's been a little bit of easing emphasis, little right. There were three Year lows in February. But we're not talking about massive swings here. According to Freddie Mac, that rate rose back up above 6% this week. And just to sort of try and draw the line here, folks would say that's because the resolution to the war remains elusive. The question there as well, why, why does that harm interest rates? And that's because if you think there's going to be inflation risk, right, it means you expect that there will be rates higher for longer and at the back end. And you've actually got mortgage rates are usually more closely tied to longer term interest rates than just the headline near term Fed rate cuts that dominate the headline. So longer term perspective really critical here. The other thing is the Mortgage Bankers association said that overall home loan applications fell over 10% this week compared with the previous one. So these week to week swings, you can't sort of project a trend from them. But we're sort of seeing enough sustained data here.
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John Coteau
Yes, exactly. And the CEO of KB Homes spoke to that. I thought this was one interesting nugget from the earnings is that the company is pivoting to a new strategy. They're going to build to order model homes. So that means instead of starting building a home and selling it on spec, they're going to wait until they have a signed contract and make their preference selections. And to put numbers around this, in October they did about 44% of net orders of these built to order homes. And they expect that that's going to go to 70% later this month. And the CEO said the pivot reduces the need for speculative inventory, lowers our exposure to price swings and supports more disciplined capital deployment.
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Ann Barry
Interesting clever shift there actually when it comes to cash conservation. Well, nevertheless, despite that pivot shares in the company down about 2% since earnings and down 12% year over year. Well, we're going to pivot to a really fun one which is the American brand Winnebago. So let's get some quick numbers around earnings on this. I love this great ticker, by the way. Wgo, wg.
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John Coteau
The fact that they get go in there, that's what you want to do.
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Ann Barry
You want to get up and go.
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John Coteau
Yes, it's true ticker WGO. On the New York Stock Exchange market cap of 900 million for the company's Q2, it reported net revenue of $657 million, which was up 6% year over year. Adjusted earnings per share of $0.27 beat by $0.03 and was up about 42% year over year. Still, shares are down 2% today and down 20% since the start of the year.
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Ann Barry
So recreational vehicles, RVs, largely discretionary items. I don't think people wake up and say this is the number one thing I absolutely have to spend my, my money on. But you know, again, when we think about this, it really did see a boon. We saw that during COVID and that was part of the shift, particularly for millennials. Do you remember this? Wanting to be more outdoorsy and wellness vacations and out in nature. But this is a discretionary spend exposed to booms and bust when it comes to both sentiment and also actual disposable incomes. Well, share, the share price is down over 50% since that Covid peak. And I remember all these friends I never imagined would want to take RV vacations. What is that? What's the brand where you can rent ones? Is it kind of you go across America? What's it called?
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John Coteau
You know, might be called Airstream is another one.
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Ann Barry
Yeah, Airstream is another one. I got to remember the name. But you can actually rent one to go across America. Anyway, all my friends who I'd never imagined would be into vacationing with RVs, but you know, amazed by, they loved it.
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John Coteau
And I remember at the time, everyone thinking that they were the first person to have the idea, you know what we should do, we should get a used RV or something. And then you look it up and they weren't even available. But I would say that this company epitomizes the K shaped economy that we've been talking about. Across their lines, they've got smaller towed travel trailers that those start at about $20,000. So that's like an entry level if you want to do that. And then you can buy a luxury mobile mansion that clocks in at nearly half a million dollars. We were just talking about K. Yeah, their, their average home price is down in the 400,000. You can, you can get a Winnebago for $500,000. It's all souped out. And in looking the investor relations presentation, Winnebago is really leaning into this dichotomy. We could go over the sector.
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Ann Barry
Yeah, we should. I finally remember the name is Cruise America.
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John Coteau
Oh yeah.
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Ann Barry
And it's got these sort of amazing paintings, these murals on the side of the landscapes of America. Well, just to look at the different areas of Winnebago, specifically, towable RVs bring in about 45%, so just under half of total re. And in that segment, total sales were down about 9% year over year. So to try to address that, Winnebago is going in the other direction. It's adding more items at lower price points. So it's for the part of the K shaped economy that's sort of downward trending. But then motorhome RVs, which is also about 45 of the business, saw its net revenue go up nearly 30 year over year. And what's working there is this grand design luxury sub brand and actually going in the other direction, which is jacking up prices and sort of being comfortable with selling fewer units but ultimately getting total revenue as a higher proportion of the top of that sort of K shape.
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John Coteau
So they're taking advantage of the top and the bottom.
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Ann Barry
That's exactly right.
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John Coteau
And so you just described about 90% of the business.
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Ann Barry
Yes.
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John Coteau
There's a little part tucked in there which is their marine segment, which is their boats. And they look good in the investor presentation and I'm looking forward to getting out this spring and summer. I don't have one of these. But they were saying in the investor presentation that Winnebago now controls 9% of of the US aluminum pontoon segment.
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Ann Barry
Oh, interesting.
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John Coteau
We're talking about being out on a lake.
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Ann Barry
Oh, that's what we've got. I think there's a team outing to a lake on a, on an aluminum pontoon in our future once the weather gets a bit more predictable. Well, Winnebago maintained its fiscal guidance for fiscal year 2026 and it mentioned in a way whether on the call the CEO said as we move beyond the winter selling season into the seasonally stronger spring and summer months, new products and cost management actions implemented this year are expected to support our performance anticip in the second half. That. That being said, the Middle east did come up in the Winnebago call as well. The CEO said that they are mindful of the evolving situation. It's too early to assess any direct impact on our businesses, but they are monitoring developments to see what the possible impact could be on consumer demand. And again, I would read that this is my words, not his, as not only the actual discretionary income levels if inflation comes up, but also sentiment and people's feelings of feeling wealthy or feeling as though they've got the discretionary wealth and income available to buy something like
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John Coteau
this, which applies to both Winnebago and KB Home. But there is one other element here if you think about the direct correlation is gas prices.
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Ann Barry
Yeah.
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John Coteau
Where if you're going to have a motor vehicle and take it out on the road and maybe long trips, it's going to cost more to fill up your tank.
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Ann Barry
Absolutely.
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John Coteau
That's going to be something that they're going to be watching as well. Just a quick look at competition for a sense of the industry. This is a smaller company but Thor Industries, which is the owner of Airstream, which is why I had that in my head tho market cap of $4.2 billion. So it's a bigger company but similar share price down 20% year to date, just like Winnebago and over 40% since its Covid peak. So just seeing how the industry is trending.
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Ann Barry
Well let's take a break and when we come back we'll take a spin through the headlines that are moving the markets today. John, are you a multi hyphenate?
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John Coteau
Yes, I'm a podcast producer and an award winning chef.
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Ann Barry
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John Coteau
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Ann Barry
Head to public.com brewmarkets to get started. That's public.com brewmarkets paid for by Public Investing.
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John Coteau
Full Disclosure in Podcast Description this episode
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Alexa Sponsor Voice
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Ann Barry
There it is, the closing bell 4pm on the east coast and the markets wrapping up for the day. We don't have a ticker tape, so instead we'll throw it over to our our human ticker. As always, our producer John S&P 500
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John Coteau
finished down 1 1/3 of a percent today. The Nasdaq was down nearly 2 and 410 of a percent and the Dow finished down 1%. Some other market headlines Share and Snapchat fell over 11% today after the European Commission launched an investigation into whether the social media platform failed to protect children who use the app. Regulators are looking at everything from Snapchat's age verification process to whether it adequately prevents miners from being contacted by harmful users. One senior official called its verification process potentially one of the quote weakest on the market and the stakes here are high. If Snap is found to have violated EU digital rules, it could face fines of up to a huge 6% of its annual global revenue.
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Ann Barry
So just some context there. Snap's 2025 total revenue was $5.9 billion. So if we think of that potential 6.6percent revenue fine level, we're talking about over $350 million at risk here. This comes as legal pressure on social media continues to build in the United States. And just to recap, yesterday Los Angeles jury found Meta and YouTube liable in a major social media addiction case. And earlier this week jurors in New Mexico said that Meta knowingly put children at risk and misled users about app safety. So the big question on some investors minds right at the moment is this going to snowball? And are we watching the start of social media's equivalent of the Big Tobacco moment?
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John Coteau
And over to Big Beauty Shares in Olaplex ticker Olpx on the Nasdaq surged more than 50% today, hitting a new 52 week high. And the reason why the company is about to end its five year run
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Ann Barry
on the Nasdaq, the German consumer giant, that's Henkel, said it's buying Olaplex for $1.5 billion. That's in a deal that's been unanimously approved by Olaplex's board. And it's an interesting story, this one because the buyout brings an end to a volatile run on the public markets. When Olaplex went public, I remember this in 2021, the IPO was met with such fanfare, huge pop when it went out there. And that's because the EBITDA margins, which is a measure of profitability at the time were around a whopping 70%. Bear in mind this is a consumer package, good product. Since then though, the hair care stock has slid amid weakening demand and most importantly, regulatory scrutiny and reputational issues. In 2023, Olaplex was hit with a lawsuit alleging that its products caused hair loss and damage. Claims that the company did deny and the case was later dismissed. But that reputational hit the uncertainty of consumers after that case lingered long afterwards. At one point earlier this year, the stock was trading around one and a half dollars, roughly a 95% drop from its all time highs in 2022. And just to put that in context, by the end of last year that magical EBITDA margin number again about 70% at IPO was down to 20%. Well now Olaplex gets a reset away from the public spotlight.
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John Coteau
And finally, you may have tuned into our conversation recently about Guinness owner Diageo On St Patrick's Day, the beverage giant hit us with a googly today. I'm reading that off a prompter. That's because we found out two things. The company owns a cricket team and it's selling it to a Blackstone backed consortium for a whopping $1.77 billion. Diageo acquired the Indian team Royal Challengers over a decade ago as part of its majority stake in Indian drinks business United Spirit Markets. The deal still faces customary closing conditions and regulatory approvals.
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Ann Barry
Shares of the $40 billion market cap Diageo very slightly down today and I wondered, is that investors expressing a bit of surprise that a cricket team is ever lurking inside the company? Well, just a fun fact. Whether it was an intentional decision or just blind luck, the Indian Premier League. So that's the cricket has absolutely exploded into a global sports powerhouse. With an estimated 18 and a half billion dollar valuation and 1.2 billion billion viewers by the end of last year. It's now the world's second richest league per match after the NFL. That's our final thought for today. That's it for today's Brew Markets Daily
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John Coteau
and Brew Markets Daily is hosted by Ambery and produced by John Coteau, Tarka Delatief Avenue, Leroya and Emily Milian. Brittany De Taco is our audio engineer and the President of Morning Brew Inc. Is Devin Emery.
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Ann Barry
Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow. Tomorrow, same time, same place with a fantastic interview I'm so excited about.
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John Coteau
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