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A Cereal Deal Worth $3B & Delta's Profit Forecast Means Travel is Back
00:31:36
Surreal cereal deal & Delta flying high
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- [00:00]
A
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B
Good morning, Brew Daily Show. I'm Neal Freyman.
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A
And I'm Toby Howell.
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Today, Nutella and Rice Krispies get together in a food deal made in chocolatey heaven.
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A
Then there is a matcha shortage brewing, which is bad news for everyone who pretends to like the taste of it. It's Friday, July 11th. Let's ride.
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B
Tennis hasn't been this hot since challengers out, and let's face it, it will never be that hot again. Still, not only is Wimbledon nearing its epic conclusion, but billionaire investor Bill Ackman got in on the action, competing in an ATP Challenger Tour event in Newport, Rhode Island Wednesday afternoon. His stint as a professional tennis player lasted all of 67 minutes, losing a doubles match in straight sets, and was lambasted by pretty much everyone online. Andy Roddick described it as, quote, the biggest joke I've watched in professional tennis. Ackman had only nice things to tennis players after the match, writing, whatever respect we already have for these incredible athletes, it is not enough. They deserve more of our applause and our appreciation.
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A
I mean, Neil, it was a rough watching these highlights, a lot of serve and volume kind of ending up in the net. You never want a billionaire stepping into a pro sporting event and taking the spot of someone who worked their whole life to get there. But if I had a couple extra billions to add to my net worth, I am not proud to say I'd probably do the exact same thing and step into the arena if I could figure out my second serve with One thing Ackman's putrid serve in volley game shouldn't distract you from is the fact that American tennis is crushing it right now. American Amanda Anisimova just took down the number one in the world, Ariana Sabalenka, to become the first American to reach the finals at Wimbledon. Sense, Serena. And this morning, Taylor Fritz seeks to become the first American man to reach the Wimbledon finals since Andy Roddick 16 years ago. So wash Ackman's backhand from your mind and go watch some actually good tennis at Wimbledon and and now a quick.
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B
Word from our sponsor, Mortgage Matchup. Hey Toby, would you say you're an expert when it comes to mortgages?
- [02:37]
A
Neil, I barely know the meaning of the word.
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B
Please say psych.
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A
No, can't do friend.
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B
Well, in that case, you should definitely check out Mortgage Matchup. Powered by United Wholesale Mortgage, they connect you with licensed professionals who can shop on your behalf and give you access to more home loan options like conventional 1% down purchase, VA loans, jumbo, and more.
- [02:56]
A
Unlike retail lenders and big banks, independent mortgage brokers specialize in mortgages. So so they are experts in their field and have access to a wide array of loan product options that help them find ideal programs for every borrower.
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B
Plus, they've helped borrowers save thousands of dollars.
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A
So check out MortgageMatchUp.com to speak to a real home loan expert. That's MortgageMatchUp.com Meanwhile, I'm going to pull up a dictionary. Quick disclaimer. United Wholesale Mortgage LLC. Equal housing lender and MLS number 3038 licensed in all 50 states and the District of Columbia. I hate to break it to any parents listening to this podcast, but your toddler was right and you can eat chocolate for breakfast. At least that is the future that Italian chocolate maker Ferrero International is imagining after shelling out $3.1 billion to buy the breakfast cereal maker Kellogg's Nutella on Froot Loops does sound delightful, but the sugary tie up is not coming from a position of strength. The food industry is grappling with a series of fundamental changes as consumers are opting for healthier options or just less snacks altogether thanks to the rise of GLP1 weight loss drugs. The two brands are also under pressure from the Maha movement under top US health official RFK Jr. Whose crusade against artificial dyes might make your Fruit Loops a little duller going forward. The shifting landscape has led a number of brands to consolidate this year, including Pepsi snapping up both the prebiotic soda brand Poppy as well as the Mexican themed snack brand Ciete Foods. Ferrero, who generated nearly $20 billion in revenue last year, saw Kellogg's as a struggling but still valuable business as it looks to expand further into North America. Meanwhile, Kellogg's shareholders are just happy to hear someone still wants to eat cornflakes, driving the stock up more than 50% after the deal was announced. Before paring some of those gains later, Neal Snacking times. They are a change.
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B
And if this means more chocolate in cereal though, I'm steel absolutely Support it. Nothing like having those chocolatey bits make your milk into chocolate milk and then you slurp it up afterwards. There's nothing better than that. Kellogg is a company in decline here. I mean, cereal is fading from people's cupboards. The volume of breakfast cereal consumed in North America is down around 17% since 2019. Still, what Ferrero is looking at is that 70% of US households still have cereal in their cupboards. They're hoping that they can toss in some Italian innovation that they've shown that they can do with their North American brands like Nutella to revive some of this lost cereal luster for Kellogg.
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A
And Kellogg's is getting squeezed onto both sides because consumers with more disposable income are opting for these healthier snack foods. We've seen that become a trend. But then on the other side as well, cash strapped consumers are opting to save money by not buying these name brand cereals and instead buying those store brand cereals, saving a little money in the process. That being said, I do think Ferrero sees Kellogg's as a good wedge into the North American market. They have been expanding geographically and by category by looking at North America specifically, they bought Wells Enterprises, who makes Blue Bunny and other ice cream brands back a few years ago. That has been pretty successful as well. So maybe they are eyeing this business as well as maybe one that's not surging but allows them to diversify away from chocolate a little bit.
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B
It's also a very interesting tie up of two very old brands. So Kellogg, you can trace back to this guy, founder Will Keith Kellogg, who invented corn flakes in 1894 as a way to provide patients at the Battle Creek Sanitarium in Michigan with something digest too much flavor for their morning breakfast. And then Ferrero was founded in 1946, a long time ago by the Italian confectioner Pietro Ferrero. So you've got these two old brands or two old companies coming together. One has been much more successful of late than the other. We'll see what happens as we head towards these uncertain moments of 2025 in the food industry.
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A
I am not a Cornflakes guy. Sorry to Mr. Kellogg's, but give me some of the Frosted Flakes. The Corn Flakes are just. They're not doing it for me.
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B
Well, Cornflakes is not of what are known as the core six brands for W.K. kellogg. Those are Frosted Flakes, Special K, Raisin Bran, Froot Loops, Frosted Mini Wheats and rice Krispies. Those six account for approximately 70% of sales. And you're nodding your head because those.
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That's 70% of my breakfast cereal consumption right there.
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B
All right. Could the next guest shark on Shark Tank be the United States government? Uncle Sam dusted off the ol.
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All.
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Allbirds. Uncle Sam dusted off the old Allbirds to make a major investment into a private company yesterday, with the Pentagon plowing $400 million into rare earth miner MP Materials to become its largest shareholder. MP Materials owns the only operational rare earth mine in the United States and as such, has become a strategic asset for a country that's trying to wean itself off of Chinese raw materials. Rare earths are used to make magnets necessary for the manufacture of high tech products like cars, wind turbines, and especially relevant for the government jet fighters and missile Systems. A single F35 contains more than 900 pounds of this stuff. But currently, the US gets virtually all of its rare earth magnets from abroad, primarily China, which accounts for about 70% of imports. That is a problem considering China is the US's top geopolitical adversary and has used its leverage over rare earths in the simmering trade war. This spring, Beijing curbed exports of rare earths after Trump slapped high tariffs on China, sparking panic from automakers and defense companies that their factories would have to shut down. Despite a fragile truce, the US isn't waiting around for China to pull that move again and has decided to use taxpayer funds on an unusual public private partnership with MP Materials to boost rare earth's production here on American soil. And material investors were singing Lee Greenwood from the rooftops, sending the stock soaring over 50%.
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A
Yeah, this is an interesting deal for sure. And one thing their CEO of MP Materials tried to do is say, like, listen, this is not a nationalization. He said that to cnbc. We remain a thriving public company. We control our destiny. We are shareholder driven. But when you look at who is the biggest shareholder now, it is the Pentagon. It's nearly twice the amount they own, nearly twice the amount of shares held by the CEO himself, and also twice the amount held by BlackRock, the second biggest shareholder. So it's a very unique deal that the CEO is trying to portray as something that is just a good investment. It just happens to be the U.S. government. And they did get a good deal from it. The Pentagon has agreed to buy 100% of the magnets made at this new facility. So they have someone who is supporting the legwork to set up this processing facility. And then they also have a willing buyer in the Pentagon. So their future Looks very secure and safe right now because they are so aligned with the US Government's goal of ramping up this rare earth material production.
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B
Right, let's go into the details of what this deal will actually do. Well, MP Materials wants to build a second magnet manufacturing facility in the United States. And that is what this financing, this cash from the proceeds of the deal will go toward. As you mentioned, the Pentagon's buying all of the magnets made at the new facility for 10 years in the future. That new facility is expected to come online in 2028. And crucially, the Pentagon is also guaranteeing a minimum price floor of $110 per kilogram for 10 years. And that is a big deal because it guarantees that whatever Materials makes will be bought at a certain price because China could stop curbing exports, flood the market with rare earths and, and drive down the price overall. And the fact that NP Materials is getting that $110 per per kg guarantee from the United States government is what a lot of rare earth companies in the United States weren't seeing before. And that's why they weren't investing in, in the manufacturing and production of these particular magnets that the United States needs. So this is the kind of industrial policy that I think a lot of economists love to see from the Trump administration, also from the Biden administration. Instead of tariffs, you know, actually using the United States financial muscle to secure a large share in these companies, to pride them with the financial backing needed for something that is a very urgent national security issue. It's Friday, and you know what that means. Stock of the week, Dog of the week. The segment where Toby and I pick one stock that threw another stock into the lake on a golf course. I won the pre show, who already memorized more of Justin Bieber's surprise new album contest. So I get to go first. And my winner is Delta airlines, which jumped 12% after reported guidance that exists. And that's not even a joke. Yesterday morning, Delta reinstated a forecast for the year, which is a huge deal because three months ago, Delta initiated the stampede of companies withdrawing their guidance due to tariff uncertainty after Liberation Day. Ignoring the fact that the new earnings guidance is about 15% lower than forecast at the start of the year. Investors saw the move as a sign that slumping air travel and consumer confidence at large had stabilized. CEO Ed Bastian certainly sounded cautiously confident on the interview circuit post earnings, he said, people are starting to understand with clarity where things are headed, and that allows them to start making plans whether to travel or Invest in a business. On balance, it's going to be a good summer again. Not as great a summer as we're hoping, but it will still be good. Delta projecting confidence put the entire airline sector on its wings, lifting shares and rivals American and United by at least 12% each. It's a much needed boost during a disappointing year in which the S and P airline index had dropped nearly 16% through Wednesday compared to the S&P 507% gain. Toby, this is basically Delta saying it's okay to unbuckle your seatbelt sign and walk about the cabin.
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A
Yeah, I got to get up and stretch my legs a little bit. CEO Ed Bastian called the current environment incredibly stable, which was one of the head scratching quotes from this call because a lot of analysts said, huh, incredibly stable. Against the current economic backdrop of a constantly shifting tariff rates that feels anything but stable. So maybe it was more just projecting that confidence versus actual confidence in the backdrop of the economy right now. But maybe in Delta's position where you're making all this cash from rich people and not main cabin travelers, everything does seem a little bit more stable. Because if you look at their high margin areas of their business, which are their premium tickets, their loyalty travelers, their credit card program that accounted for nearly 60% of Delta's total sales for the period, premium revenue actually grew 5% annually compared to a 5% drop for main cabin revenue. So those factors maybe has Delta feeling a little bit more stable than you might expect given the backdrop.
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B
Yeah, perhaps he meant incredibly stable compared to three months ago when Delta really set the standard for the entire corporate world. It was, it always is the first to report earnings, which it is here we have earnings season coming up and it pulled its guidance and nearly every company subsequently also did the same thing, saying this, this environment is way too uncertain for us to have any sort of outlook for 2025. So maybe as it was symbolic back then as to all the uncertainty, it will set the tone for earnings season coming up for broader consumer facing companies, especially in the hospitality, travel and leisure space saying okay, people are sort of become numb to like investors to all the uncertainty and tariff backdrop that we're having. They're starting to spend a little bit more. Higher income consumers that Delta relies upon are still doing okay, which is why you saw other shares in airlines go up that do rely on those international routes. Those first class tickets like United and American Airlines that focus more on the domestic market didn't do so hot. If you look at Spirit stock, it stayed pretty much flat because it does not have any of those sort of premium options. And if you look at a company like Southwest Airlines, it wants to move from the Spirit model more towards the Delta, American, United model with its more premium options, with its checked bags, fees for checked bags. So it wants to go into the other camp where they're all seeing their stock rise and not the other camp where their stock is staying flat.
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A
Never look at Spirit stock. Just as a rule of thumb, we're going to take a quick break and come back with our dog of the week. Modern companies want more than set it and forget it support from their managed service providers. They're looking for partners to help drive transformation and boost resilience as they grow.
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Managed services are entering a new era as a quick refresher. The practice of managed services is when an organization hires an outside entity to manage an entire business function the people, processes, technologies and outcomes.
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A
KPMG research found that nearly three in four buyers were want managed services to support them as business models evolves and new tech enters the market.
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And the research also shows that in general, companies are now looking to get more from their managed services providers. They want help in strategic areas transformation, innovation, growth. This is a huge change from previous years, where cutting costs has long been the top priority.
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That means managed services are changing from outsourced help to strategic partners with a single seat at the table. Learn how providers are stepping up@kpmg.com US manage services new era that's kpmg.com US manage services New Era this episode is brought to you by Square.
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B
New York is a food lover's dream. And that goes for your morning brew as well. Anytime I'm craving a coffee with a side of chill vibes, I head to Hungry Ghost Coffee.
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A
There's a place for every mood and every craving. I swing by Van Leeuwen Ice Cream every time I'm in the neighborhood for a sweet treat and incredible service, all while supporting a small business.
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Those fave local spots need support as they grow. That's where Square comes in. What started as a little white card reader now powers the action behind the scenes. Whether you're expanding to new locations, treating loyal customers like us, or need to cover cash flow gaps, Square meets you there.
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A
Go to square.com/go/morning brew daily to learn more. That's sq u a r e.com/geo/morning Brew Daily. My dog of the week is Matcha, who is suffering from its own success. The Japanese produced tea leaf has seen its popularity explode in recent years. Take a walk down the west side highway in New York City these days and you'll see matcha lattes outnumbering coffees while a scroll on TikTok will inevitably surface A video from Matcha Talk where fans share their matcha to milk ratios and which bamboo whisk they are using. But as the west hops on the matcha bandwagon, Japan has been suffering under extreme weather conditions, damaging its tea production and spiking prices. The Kyoto region, which accounts for a quarter of Japan's production, was wracked by massive heat waves last summer, leading to lower yields come springtime. Even though Japan produced nearly three times as many tons of tea, tension the dried leaves that are ground in Amacha last year compared to a decade ago, it hasn't been enough to keep up with demand. The high prices and low availability has led to some tensions on a matcha talk to with those who fail to carefully use every last bit of powder, like opening a tin over a bowl to catch stray particles of the green gold, are scorned for wasting money. It is almost a full blown match apocalypse out there for everyone's new favorite beverage.
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And imagine if it tasted good. Just imagine how much of a shortage there would be. I want to talk about one particular company that's really riding the macho wave, which is Blank Street. And Blank street is this coffee VC backed coffee chain that you might have seen pop up in New York City. It's everywhere. Also, they have locations across the UK and in Boston and in dc. They're absolutely raking it in from what are called Matcha Teens. And you might have heard of Sephora Teens. Well, this is Matcha Teens, Blank Street Teens, and they have driven this company to a $500 million valuation. Ostensibly, Blank street is a coff company, but they're now doing 50% of their revenue with Matcha. And they concoct all of these weird Matcha drinks that I can't even name because they sound so bad, but they say that Matcha is great for mixology. All right, I'll name some strawberry shortcake, Matcha cookies and creams Matcha. They have about 25 grams of sugar and people absolutely love it. So Blank street has been one of the huge success stories because they've leaned into Matcha and this, you know, huge craze among Gen Z and millennials for this particular drink.
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A
Someone get Neal a Matcha latte here because it's not as bad as you're making it sound. It takes a. It's a little bit of an acquired taste, but you know it's good for you. It's a little less caffeinated than coffee, but it's more caffeinated than green tea. So it hits that middle spot right there. And it's just a nice ceremony to prepare it. Some people do lean into the ceremonial aspect of it as well, especially in Japan. So I do think it's funny too that match attack is slowly turned on each other as it's gotten more expensive because it used to be this wonderful place where everyone was sharing recipes left and right, but now people are policing how many grams of Matcha and how many tins of Matcha are acceptable to have. And whenever an influencer comes back with a big haul, people in their comments are going like, you just wiped out all the Matcha supply. Leave some for the rest of us. So it's been interesting. As the price has rised, so have tensions.
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I'm not anti Matcha. I love the traditional aspect of it. That is very cool to me, I think it's this Frankenstein blank street version. Okay, railing up against a little bit.
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A
Two of the hardest things to do in business are spaceflight and designing pharmaceutical drugs. So of course the Peter Thiel backed startup Varda Space is trying to take on both challenges at once. Varda just raised $187 million to expand on its vision of developing pharma drugs and what it calls the ultimate high ground of space. Why make drugs in space? Other than making for an amazing Breaking Bad spinoff series, Space is a surprisingly good spot for delicate experiments. Protein crystallization is one of the more difficult and complex processes involved in drug discovery. But the microgravity offered in space makes things like temperature and fluid control much easier. A 2022 study found that 90% of protein crystals formed in space had superior properties to those made on Earth. Drug makers have been sending experiments to space for decades now, actually. But Vardo is the first company to raise money to build a drug production biolab up there, as well as the vehicles needed to ferry pharma products back to Earth. Now, after three successful launches in the past three years, Varda feels confident it can crank out valuable IP to license to drug manufacturers and plans to use the money it raised to scale up production. Neil sounds very sci fi, but Varda thinks it's got a down to earth.
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Business model and there's a lot of money to be made. This whole industry took off in 2019 when Merck showed that it could have, it could make an improved formulation of this blockbuster cancer drug, Keytruda, that has sales of more than $20 billion annually. So Merck says if we can get a better formulation of this particular drug that makes $20 billion a year by going to space, that perked up the ears of pretty much everyone in the pharma industry, as well as anyone in the space industry said, wow, this is a very lucrative market. If we can make it work, if we can overcome the insane sounding logistical and financial hurdles you need to raise something like $187 million just to have a biolab in space. That's a lot of money. But they think the payoff down the down the line could be worth it.
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It sounds crazy to think about how logistically intensive this is, but NASA has been doing experiments when it comes to drug discovery on the International Space Station for decades now. But the space station is set to retire by 2030. So they are looking for more private companies to step in and fill the void here, which is where Varda is kind of licking its chops. Varda's business model is actually three prolonged. Its spacecraft, when it comes back down to Earth, reenters at a speed of Mach 25, which is a great testing ground for temperature control, materials, navigation equipment, other sensors that could be flown on hypersonic missiles. So they're also getting money from the US Government and the US Military to test out certain things on their reentry space vehicles. So it is interesting to see that they have this drug discovery business, but they also have this kind of re entry test vehicle business as well that gives them a little extra cash.
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And it doesn't stop at pharma. I mean, there's a budding space manufacturing sector that could apply to anything from semiconductors to fiber optic cables. They are trying to create factories in space. Pharma is just perhaps the first frontier. The final note I want to make about Varda, as you mentioned, it is Peter Thielback. While his VC firm Founders Fund has backed a number of aerospace and defense companies and they are all named after Lord of the Rings characters and themes and this company is no different. You may know about Anduril and Palantir. Well, Varda is the star queen of Middle Earth. Let's bring to the finish with some final headlines. President Trump was in the mood for tariffs yet again last night, announcing the U.S. will raise the tariff rate on Canada from 25% to 35% come Aug. 1. The higher levels, which will exempt goods complying with the North American Free Trade Agreement, come as Trump complained that Canada wasn't doing enough to stop fentanyl coming into the US and had retaliated for previous US Tariffs. The surprise tariff hike could accelerate deal negotiations between the two countries because Canada's economy is getting battered. Trade with the US Accounts for about one fifth of Canada's output and unemployment has climbed to a nine year high outside of the pandemic due to the hit from US Tariffs.
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A
It could accelerate negotiations with other countries, but also some of those current negotiations aren't as set in stone as you might think because Vietnam just announced that their leadership was caught off guard by Trump's announcement that they had struck a trade deal at a 20% tariff rate. Vietnam officials are saying, wait, I didn't even know that we agreed to something like that. And if you look at their state run media, they haven't been publishing that a deal has been reached. So things are still in flux. I mean, you know, how many times have we said this before? But negotiations are still going on. Canada has kind of come to realize that, hey, we're not going to get a zero tariff rate, so we're going to have to figure out where we can live and where our economy can kind of endure when it comes to tariff supply to non, you know, goods that are not covered by the USMCA trade deal. So it kind of feels like we're repeating ourselves here because we are. But it looks like those negotiations are going to happen because you're right, Canada's economic, economic output is kind of struggling right now when it comes to the current tariff burden. The newest Superman movie comes out today. But while the man of Steel can fly around the world in an instant, his toughest task may be saving the DC film franchise. Despite being able to go bar for bar with the Marvel Cinematic Universe when it comes to recognizable heroes like Wonder Woman and Batman, Warner Bros. Owned DC has never been able to piece together a coherent universe like its counterpart over at Disney. This latest movie offers a chance for D.C. to hit the reset button once more with this Superman reboot. Directed by formal Marvel standout James Gunn. Off to a strong start in pre sales, Warner execs want the movie to gross about $500 million globally. A big movie for sure, but Nowhere near the Marvel 3 comma club. Neil Superman is the OG comic book figure, but his invincible boy Scout vibe was always playing second fiddle to the grittier Batman when it comes to attracting modern viewers. One reason to finally be bullish on a DC Superman film. This one prominently features his super dog crypto.
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B
I absolutely would be on board with that. I mean, there's been no standalone Superman movie in more than a decade and there hasn't been a particularly good Superman movie since 1978 starring Christopher Reeb. There's a lot riding on this particular movie. It's also come under fire from right leaning conservative influencers for being woke. Who knows whether that will help or hurt sales at all. We'll be back here on Monday seeing how it did, but it is a huge part of the reset process for D.C. as it tries to claw back some of this big disadvantage it has versus Marvel. Finally, if you find yourself at Heathrow Airport this summer, don't be surprised to hear airport sounds coming out of the loudspeakers. London's biggest airport said it will be playing an ambient music loop that incorporates classic airport sounds like passports being stamped, elevator dings, baggage sirens and jet engines in order to, quote, build suspense and set the mood for where you're headed on your summer holiday. The track even contains Easter eggs from famous movies filmed at Heathrow, incorporating tapping feet from Bend It Like Beckham and a security scanner from Love. Actually, to create the track, Heathrow allowed Grammy nominated Jordan Raquet, quote, unprecedented access to the airport so he could capture all the best audio air travel has to offer, ultimately incorporating 50 sounds from the airfield baggage handling system and the terminals. Toby Dare I say it is music for Heathrow, the song of the summer.
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A
I mean, we read this headline and you just immediately giggled to yourself because what do you mean airport music is going to be piped in via airport loudspeakers? But then we listen to it and I'm not kidding, I played it 10 times in a row on a loop this morning as we were preparing for the show and last night. It is so soothing. It's got this ASMR vibe to it. The tapping of the feet, the dinging of the elevators, it just makes you calm, which I think is a very smart thing to do in an airport. I mean, things don't have to make sense, especially when it comes to airport. I read this book Alchemy a few years ago. I've mentioned it on this show before and in there there is this anecdote about how this one airport was getting all these complaints about their baggage wait times and instead instead of making the baggage arrive faster, all they did is reroute people to walk further so they are walking rather than waiting. That is an example of how you can do things in airports that don't necessarily make sense on the surface but do lead to better outcomes. So maybe if this ambient music leads to less cases of aggressive passengers, it could just be this genius idea that you don't know what the effects may be. So.
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B
Or it's a marketing stunt.
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Or it's a marketing stunt. You may laugh at it, but please go listen. Listen to it because it truly is a fire track.
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B
That is all the time we have. Thanks so much for starting your morning with us. Have a wonderful Friday and an even better weekend. If you have any thoughts on today's episode, send an email with questions, comments or feedback to Morning Brew daily at Morning Broadcom. Let's roll the credits. Emily Milian is our executive producer. Raymond Lu is our producer. Our associate producers are Olivia Graham and Olivia Lake. Hair and makeup is hoarding all the matcha. Devin Emery is our primary president and our show is a production of Morning Brew.
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A
Great show today, Neil. I wish you all well.