Andy Cross (3:16)

Yeah. One thing about Jason, about their five win now principles which is kind of their like right now we are focused on Elliot Hill again coming back in. He's a long term veteran, joined about eight months or so ago trying to kind of get the branding back for Nike, build back the Nike goodwill. Focus on things like culture, product marketing, the ground game being where as you were saying where customers are on the ground focusing in key sports. Right. Sizing those important brands that have kind of those legacy brands or I really like is they're restructuring the team and the kind of the whole focus back around sport chase and they're focused back on cross functional teams focused on specific sports. I think that is a really important focus for this Nike turnaround. And while we're not seeing it in the earnings or the performance right now, I think the that what I consider enthusiasm and I, I think the stock is actually pretty attractive here even after that jump. I think the enthusiasm is warranted because of the way that Elliot Hill is going about refocusing the Nike brand and importantly the Nike culture.

Jason Hall (4:19)

Yeah, I think that's right. Focusing on the brand. I'll start there. I've talked to a ton of people across sports that say that a lot of Nike success right now is selling things that they were selling 30 years ago. Obviously there's. It's not exactly the truth but it feels that way. They've certainly lost their innovative edge against on running other brands that have taken share and having that hyper focus back on the products for that individual performance for that particular sport I think is something that Nike has not done as well with. And if they can show that and say look we can still innovate, we can come out with products that are going to be better. Not just the fit but the performance. That's where Nike can reestablish itself as a leader.

Andy Cross (4:59)

You know it's interesting they're going to do a little bit of surgical pricing. They mentioned tied to that Amazon a little bit later this fall. They do have a big tariff impact of about a billion dollars because of all the sourcing. They do overse, although they're trying to change that. They're going to move a little bit away from China. They think as a percentage of sales that will drop going forward. But they do still have those impacts and it's going to show up in the gross margin over the next quarter or two. But the expectations, Jason, is that it's going to improve throughout the year.

Jason Hall (5:24)

Yeah, that's right, Andy. Everybody in apparel and footwear is dealing with the impact of tariffs, the potential impact. That story is going to continue to be part of the kind of the background for some time to come. So just I'm taking all of that with a grain of salt that I think the supply chain is probably going to look more like it did five years ago than change going forward. But the company does have to take some financial steps to make sure it's prepared for whatever happens there.

Andy Cross (5:47)

Casey, how about the stock here? About $71,106 billion dollar market cap. You get a little dividend 2.2%, you know, bottom, hopefully bottomy on the earnings side that you look going forward going to be meaningfully higher. Do you find the stock attractive?

Jason Hall (6:01)

I do. I did a video for the Motley Fool's website a couple of weeks ago and I said that there were signs that the turnaround was working, we'd get more information once earnings came out and they just did. And again, probably things are going to maybe take a little longer than we expected. But I think even with the stock up from where it was a couple weeks ago, I think there are definitely signs that it's worth maybe starting a position, following things out in. It's not super cheap right now, but I think if the trend continues under Elliot's leadership, then this is going to work out to be a good price.

Andy Cross (6:29)

Yeah, certainly not on current earnings, but hopefully on the future earnings. So I agree agreement there. I think Nike looks attractive here. After the break, Home Depot go shopping. You're listening to Motley Fool Money, specially building products distributor. GMS is up about 11% today after announcing that Home Depot had won the bidding battle to acquire the company for 5.5 billion. Jason, GMS has been on the auction block really probably for the past month or so since qxo, another building product supplier and technology company put out an offer for about $95 per share. Home Depot's paying $110 per share. Did Home Depot win the acquisition battle here but lose the capital allocation war.

Jason Hall (7:08)

I think that's really the question that I have. So Home Depot about a year ago got into the distribution business that I think dropped $18 billion to a buy a distributor. And part of the long term strategy was hey look, this is an area we can consolidate and these are builders and customers that are not coming into Home Depot no matter how well we work with them. It's big, big distribution. And so the plan had been to do that. So now at the same time you mentioned qxo. So that's Brad Jacobs. Brad Jacobs is the M and A master. This is somebody that has built a career on multi bagger businesses that he's made a lot of people a lot of money finding industries that are ripe for consolidation, that are low tech, that a layer of technology can make a tremendous amount better. QXO fired the opening salvo as you said with an unsolicited offer to, to buy GMS and then Home Depot we hear is getting involved. So the question that I'm going to continue to ponder is did Home Depot win it or did Brad Jacobs and team just walk away because it got too pricey for them. If you look at the numbers 10 or 11 times I believe 10 or 11 times EBITDA, not crazy expensive but certainly more expensive than the discipline price you would see a Jacobs run business want to pay.

Andy Cross (8:22)

Yeah, a dollar or sorry about one times sales as you mentioned, 10 to 11 times EBITDA. EBITDA has been down a little bit for the past year or so but because of the housing market. We know, but you know GMS which by the way stands for Gypsum management and supply runs 320 distribution centers selling things including things like wallboard and ceilings, steel framings. It runs about 100 tool sales, rental and service centers. So together you're going to put together 1200 locations, 8000 trucks making tens of thousand deliveries to job sites every day. What I like Jason as you mentioned is these kinds acquisitions for distribution scale matters and this is a very fragmented business. So I see this acquisition by Home Depot, I mean you know this is a five and a half billion dollar acquisition by Home Depot. Home Depot is a massive company. So Home depot has about 45 billion of debt on the balance sheet. It's not going to add a ton more debt to the, to the balance. They have one and a half billion dollars of cash almost. So I think manage from a management perspective it's, it's, it's, it's fairly attractive to Home Depot and I can see why GMS would Choose Home Depot vs. QXO, even with Brad Jacobs intelligence. But it does see when I look at the ability for Home Depot get a little bit more from every distribution node, I think it's attractive. And that multiple, as you mentioned, you know, for Home Depot I think is not all that high. I think they're getting a good deal here.

Jason Hall (9:55)

I think it probably works out so long as, so long as this remains a part of the strategy for Home Depot consolidating this fragmented dish distribution industry that's very different from its, its retail business right now. I will also make a prediction that Brad Jacobs at QXO made a big splash when they acquired Beacon Roofing is the first an $11 billion deal. So getting in the roofing business, one of the big roofing suppliers. My predictions that we're going to see Home Depot in its distributor segment and Brad Jacobs at QXO going head to head on more acquisitions over the next five to 10 years and probably both do well in consolidating because there's so much room to consolidate this market.

Andy Cross (10:37)

Well, that's the thing. It's so fragmented. So I think they can both be winners here. Brad Jacobs, seriously, if you look at his acquisition or look at his history of running companies with XPO and others have done very well over, over the years. And like you said, he's a, he's a real, he has us down to a science. The Beacon Roof and acquisition, that SR acquisition by Home Depot as you mentioned for a little bit more than $18 billion really got them back into the distribution game. And so they're cobble up that together. Both of these companies are trying to serve the contractor market, which is, as we mentioned, very fragmented, trying to increase the value of that network. And so for Home Depot, I think it's, it's, it's a good acquisition, I think at a reasonable price. And I think Brad Jacobs like, listen, there's going to be other opportunities. I'll let this one go. Home Depot, you can take this and I'll focus my attention elsewhere. I do have a question, Jason, which is as you think about either Home Depot stock or QXO stock, obviously GMS is going to be part, if it all goes through part of Home Depot. Is there any one that stands out as more attractive to you?

Jason Hall (11:41)

So there's, there's my answer and then there's the answer that people listening need to think about individually. So for me, I think QXO is really attractive because I'm a big believer in Brad Jacobs and his, the track record and the process when it comes to being disciplined and finding these industries to consolidate starting from a really small size.

Andy Cross (12:02)

Right.

Jason Hall (12:02)

This can be a massive compounder. Now again that's what I'm looking for. I think investors that are looking for maybe the higher floor of a, of an industry dominant leader like a Home Depot that has a pretty solid dividend base, dividend growth and can continue to do well for investors over time. But you want something that's a little more stable, a little less, a little less volatile then I think Home Depot is a pretty compelling investment right here. What about you? What do you think?

Andy Cross (12:26)

Yeah, well QXO at $14 billion. I think the upside's a lot higher. I own Home Depot. It's a large position in my portfolio. The stock hasn't done all that well over the past year or so. I think this is a nice bolt on acquisition for them. Doesn't add a ton more goodwill to the balance sheet. Maybe two and a half billion or so on top of their 20 billion they have. So I think it's reasonable. I think it's a, it's a, it's a decent price. I think they'll be able to get more out of it and continue to grow the GMS side of the business tied to SR srs. It's just that Home Depot like you said is probably kind of high single digit kind of per year grow or not one that's going to light anything on fire going forward. Home Depot that is.

Jason Hall (13:02)

Well their leverage is there is going to be buying back shares. That's how you boost per share return there too.

Andy Cross (13:06)

So 100%. Coming up next on Motley Full Money, will F1 the movie drive Apple stock higher? You're listening to Motley Fool Money. Brad Pitt's new movie F1 made by Apple Original films hit the theaters this weekend to positive reviews and decent amount of money. Jason. But here's my question. Why is a $3 trillion company like Apple focused so much on making like F1 even with Brad Pitt?

Jason Hall (13:30)

Because they can, they found the money in the couch cushions and it's like a fun vanity project.

Andy Cross (13:34)

Yeah. They, they don't want to buy back more stock. They got plenty of places to invest that capital.

Jason Hall (13:39)

Yeah. So in all seriousness, you know we're both being a little bit glib here and it's Apple TV plus and, and, and their studios business has actually created some exceptionally high quality content and it, it's still a bit of an also rank compared to the big players in the space like the Netflixes of the world. But to me, I think it's a reminder that Apple is focusing on quality more necessarily than quantity as part of its strategy. With, with streaming and media content writ.

Andy Cross (14:09)

Large, does that mean the other ones are focused more on the, the quantity side, less on the quality side, you think?

Jason Hall (14:16)

I think a little bit both. I think all of them, there's, there's a tension between the two, right. And it's where are you leveraging more towards? And if you're a Netflix, for example, this is your entire. Have to put out lots of content that's going to attract lots of people and it's got to be very, very good quality. If you're an Apple, where does this fit in your entire ecosystem of things? And what you're looking to do maybe is a little bit different than say, what Amazon is looking to do with Amazon Prime TV or Amazon Prime Video. I should say where Apple does seem, if you look at the content that they've produced, it certainly doesn't have the volume that you see at some of these other large players. But what it does provide is an additional layer of stickiness to the platform.

Andy Cross (15:05)

Do you think that they will up the, the quantity game to be more competitive? I mean, I think about this with Apple, right? So, you know, stories and reports are surfacing, 200 to 200, 200 million to 300 million more on the entire cost to make this film. And Apple finance a chunk of change of that. As they. Are you saying they have the exclusive right, exclusive rights once it hits Apple tv, they'll be there. They splash marketing budgets all over the place. They had it in Apple stores, they had it featured in Apple Music, Apple Maps app. They, they had a big marketing push towards it obviously to, to show that they can be competitive in this place, in this space. I'm thinking like this. Apple generates about $400 billion or so in revenue. They generate, gosh, $100 billion in almost 20. About a quarter or so of their business is tied to services. And so when I think about Apple building out that ecosystem, Jason, and the glue that they're putting together, as you mentioned, things like streaming to be competitive against likes with not just Netflix, but also the likes of Amazon and the likes of YouTube. For a company that kind of has, you know, middling, growing, that continued growth in the services side of the business is important. And I think that's one reason why they are now recognizing that because they generate such great returns on their investment. This is a place they can splash some capital.

Jason Hall (16:31)

Netflix here, they want your eyes. They need you they need as much of as many people's time as they can get because this is their entire business. Amazon wants your wallet and the bottom line is that nobody's gonna cancel or subscribe to Amazon prime just for prime video. It's a bolt on thing that keeps you in the ecosystem and drives you there. Now if you're Apple, think about some of the things they've done with content. Like one example is that they own the rights to the Charlie Brown content. Think about Ted Lasso shows like this. I think where Amazon wants your want your wallet and Netflix wants your eyes, Apple wants your heart. They want you drawn to these things that you remember from your childhood. Brad Pitt headline products are very, very compelling. TED Lasso this cultural, it's become like a cultural touchstone. I think if they focus more on those, almost like the HBO model of the 2000s of developing just a few really high quality contents that are strong enough to keep you attached, that's where this fits in with Apple and where Apple can win with this. Whether this part of the business is necessarily profitable on its own basis, I think eventually they want to see that. But if it creates value for the entire ecosystem, I think that's the most important thing for Apple here.

Andy Cross (17:52)

Is Apple attractive from a stock perspective? You know, it's, again I mentioned before, it's, it's the growth has really kind of slowed. The stock has not been a super performer here and now it sells at, you know, kind of like in that 27 to 28 times earnings perspective is, is, is with a lot of share buybacks as you mentioned, in exceptionally profitable ways to invest but still playing catch up on the AI side. Is Apple attractive to you right now?

Jason Hall (18:19)

Not at all. I love the business, I love the products. I'm a deep user of Apple products and one of those people that signed up for Apple TV plus for Ted Lasso and just hasn't canceled it because there's so many other good unexpected products programs that they have there. But the bigger concerns for me about a company like Apple's, it's so fully valued, it's not growing AI. I don't know that it's necessarily a concern right now, but at some point they're trailing in that race for AI powered products could potentially sneak up and hurt the company. They lack a real catalyst for the next leg of growth. Nothing is lined up to drive growth that would make 27, 28 times earnings or higher compelling to me. So I think there's more risk of underperformance. I don't think investors are going to lose a ton of money here. There's a bigger risk of underperformance if you're making this a substantial portion of your portfolio.

Andy Cross (19:14)

Yeah, I agree. I think it's probably more in the money making category than kind of adding to here. I'm, I'm an, I'm an owner of it, and I'm just kind of sitting on my shares, but not one that jumps to the top of my, my buy list right now. Jason I do want to see a little bit more innovation from them yet to come. I mean, I like the movies, but I do want to see innovation into the product cycle. And that's a wrap for us today here on Motley Fool Money. Jason hall, thanks for being here.

Jason Hall (19:37)

Absolutely. This was fun. We'll do it again sometime soon here.

Andy Cross (19:40)

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