Are Crocs Investors Getting It Right?
In this podcast, Motley Fool host Ricky Mulvey and analyst Bill Barker discuss:
Boeing's door plug accident, and what it means for the business.
Crocs' updated sales guidance, and low valuation.
Why investors seem to always celebrate layoff announcements.
Plus, Motley Fool personal finance expert Robert Brokamp and host Alison Southwick share some advice for a healthier new year.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on January 09, 2024.
Ricky Mulvey: The guidance is not so cautious anymore, at least for one clog maker, you're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Bill Barker. Bill, happy New year.
Bill Barker: Thank you. Happy New Year to you.
Ricky Mulvey: Hope it's going well. Tough weekend for Boeing. A Boeing 737 Max 9 planes door plug fell off during an Alaska Airlines flight on Friday. Thankfully, nobody died but the FAA has grounded the Max 9 and told carriers to inspect the planes. According to the Washington Post, United Airlines has said that preliminary inspections of the grounded planes turned up loose bolts and other issues with the part of the aircraft that failed. Bill, this is not one of those companies, Boeing specifically, that you'd like to see at the top of Bloomberg.
Bill Barker: No, it was a tough weekend, but it could have been a lot tougher.
Ricky Mulvey: Yeah.
Bill Barker: Since the tragedy was averted and I think that it has translated as you point out into inspections of other models and some of which are showing loose bolts so it's the best you could possibly hope for to have a problem identified without loss of life, additional problems that might have occurred averted by the temporary grounding of all these planes. I think that the process of determining exactly who is to blame Boeing or Spirit, or possibly somebody else, that's all going to translate into a few planes being on the ground, but that's not too big a deal in the grand scheme of things.
Ricky Mulvey: In short, it's basically a miracle that nobody died. I mean, this happened at 16,000 feet, not 30,000 feet. Everybody, for the most part in the zone where it was really dangerous wearing a seat belt and then you even have stories where there's, what is it, an I phone fell out of the plane from 16,000 feet, but allegedly works right now. But to your point about the blame game, essentially you have Boeing that put the plane together. You have Spirit Aerosystems which made the fuselage the main body of the plan and you also have Alaska Airlines, which was the carrier. Let's focus on Boeing for a second. The stock fell 11% on Monday and this plane doesn't really make up a lot of Boeing's backlog order. It's about 2% so what do you think the market is saying about this story with regards to Boeing?
Bill Barker: Well, this was the Max 9. This is the Max 9, the Max 8 had its problems being grounded for the better part of a year and a half or so. This is the future of Boeing's production and there have been a lot of, I don't know what, down to throw, I was about to say hiccups. That seems a little bit tame for things in the eight history have resulted in much bigger tragedy. I think that they're always going to be mechanical failures and production mistakes that in this line of business, translate into much, much bigger problems than just about any other manufacturing problems could. It's a reminder, more than anything, that Boeing will continually face issues like this and hopefully they're no bigger than this, but it puts a real cap on product schedules and the likelihood of getting the next order rather than Airbus getting it.
Ricky Mulvey: For better or worse, there's basically two plane manufacturers that one can order planes from. And jumping to give a take was equity researchers at Williams, Blair, they said, "While the Alaska Airlines do plug accident was terrifying, we do not believe that it will have a major financial impact unless another incident occurs after the aircraft returns to service" let's say you about that take.
Bill Barker: Well, I certainly would agree that if something occurs after this is back in service, that is going to be a major problem for Boeing and others including the FAA and possibly Spirit, depending exactly on what this theoretical next problem might be. If there isn't, then it's hey, some planes on the ground for days, weeks, months perhaps. There are plenty of other planes and it'll be an interruption and service and there'll be some charges for everything. But nothing major. Nothing major as long as there's no loss of life, but that could occur so the inspection of these things, of these planes is going to be given the fact that this is not a one plane issue, I think significant before they're back in the air.
Ricky Mulvey: Next earnings call for Boeing is January 31st. Analysts are going to be asking some questions. Let's say you were on the call or you got to slip a note to one of those analysts. What do you think they should be asking the executive team right now?
Bill Barker: Well, I guess a broader picture of what Issues caused this, was this a function of everybody, a couple of years ago being at home, not coming into the manufacturing facilities or the offices and then rushing back, trying to catch up. Was this a function delayed from the interruption and work and then the difficulty in getting workers back, if so, what does that translate for other parts of the production process? You know you want to know what safety issues might be related to whatever the cause of this was and how far the company is willing to go to prevent those from manifesting themselves.
Ricky Mulvey: Last year was the year of cautious guidance for a lot of companies and now you're starting to see at least one consumer goods company get a little bit more optimistic. Crocs, which bills itself as the world leader in casual footwear for all, love that, Crocs came out basically ahead of earnings and said that it expects its 2023 revenues to grow over 11%. Here's where the story gets interesting that this was basically in line with their guidance of 10-11%. But the Crocs investors bought up a lot more stock and now it's up in the double digits on that announcement. What are the investors so happy about here?
Bill Barker: I think it's a sigh of relief perhaps that there wasn't lowered guidance. The guidance for next year at 4% is top line growth is not all that optimistic, not all that enthusiastic, at least given that they've just put in the bank an 11% growth year. I guess also some indications that the Hey Dude acquisition is not torpedoing the company as much as was immediately feared when it was first announced. I think continues to be a little bit, not even a little bit of a significant weight on the growth that Crocs can enjoy at the moment.
Ricky Mulvey: Crocs is a little bit cooler on this year, expecting sales growth of about 4% Stock has been a pretty solid market beater throughout the past few years. Does it need a lot of revenue growth to continue to perform well or is it in that mature cash cow status, would you say?
Bill Barker: Well, so the Hey Dude acquisition was meant to diversify away from a concentration on this very iconic but fad branding and style that they have, which has led to explosive sales, followed by the explosive sales going away. That's where they used some of that inflated stock price and some cash, which I believe was funded with debt to buy, Hey Dude. The market hated it, thought that Crocs was paying too much. I don't have the breakdown on how much stock was used, but the stock was certainly at a price where Crocs was, I think, intelligent to use the stock to make some of the acquisition. But at this point, they've got good earnings. They're not trading at a high multiple at all. You can deliver quality returns to investors if your stock is as low as it is on a multiple basis if you continue to actually show up with earnings.
Ricky Mulvey: Crocs is right now, it's reducing its share counts, buying back debt. To your point, it trades at less than 10 times forward earnings and less than 10 times positive free cash flow. It seems like a really cheap stock. What I'm missing?
Bill Barker: I don't know that you're missing anything. The market did react positively to this news and drove the stock up very nicely yesterday. But it gives them some alternatives to grow shareholder returns through methods other than going out and making perhaps, acquisitions that don't make economic sense. Buying back the stock when it's trading at nine,10 times earnings. If they continue to produce consistent earnings, slowly growing top line sales, investors will be rewarded ply by that.
Ricky Mulvey: Maybe sandals or more close toed shoes in the future for Crocs. Before we get out of here, I thought we got a good mailbag question from James in Vermont. There's a lot of layoff announcements lately pertaining to this, and he asks us, why do stocks always pop on layoff announcements? Doesn't this generally mean that the company is in a weaker spot than it was a few years ago?
Bill Barker: Well, so the pop is going to occur, yes. Something has gone wrong in between the hiring of those people and the announcement of the layoffs. Now, the stock may already have declined a lot in between that hiring and the announcement, so when the stock pops it's a recognition that the company is making, that it has to make some changes to produce shareholder returns. Really laying off employees so that you can improve your earnings is making a choice in favor of shareholders over employees. You one assumes the employees would like to continue to work there and it's not their fault that they were hired in too large a number. But at certain points, companies have to or you get to the point where they're going to put shareholder rewards above having employees that, as I say through no fault of their own wound up with a company that no longer can fully utilize them. It's a re ordering of where the company's priorities are. It's a hard decision to make for management. I don't think management in general out there is acting coldly, but they're doing things that they have to do, and it's a signal to the market that shareholder returns are taking more precedence today than they were yesterday.
Ricky Mulvey: Bill Barker, thank you for your time and your insight. Appreciate it.
Bill Barker: Thank you.
Ricky Mulvey: Before our next segment, first a quick add. Growth stocks steal the spotlight in the financial media. But something way more boring is behind a whole lot of wealth creation dividends, the regular payments that companies send to shareholders. Dividends can make companies a little more disciplined on capital allocation and provide investors long term streams of income. Some of the motley fool analysts behind stock advisor, that's our flagship investing service put together a list of three dividend stocks to buy this year. We're sending this report to motley fuel money listeners for free just as a thank you for checking out the show with no purchase necessary. Just go to full.com/2024dividends and we will email it directly to your inbox. We'll also include a link in the show notes. Up next, Robert Brokamp and Allison Southwick have some advice for a healthier new year.
Alison Southwick: We're less than two weeks into 2024, so we suspect that many of you still have visions of resolutions dancing in your head, and chances are those resolutions have to do with health or wealth. According to a survey from Statista among the top New Year's resolutions this year are, save more money, exercise more, eat healthier, lose weight, and reduce spending on living expenses. But we could cite a survey from last year or the year before, or a decade before, and it would have been pretty much the same. Because every year, the most popular New Year's resolutions are related to being more responsible stewards of our money or our body. Which is why once a year we remind our listeners that they're actually not separate goals, because the evidence is clear, wealthier people are healthier, and the other way around.
Robert Brokamp: Indeed, many studies have established this, but we're going to cite just a few. In 2007, a systematic review of 29 studies found that higher levels of wealth were consistently associated with decreased mortality. The findings also generally, albeit not invariably, supported an association between increased wealth and better self rated health, better functional status, and fewer chronic diseases. A 2015 study from the Urban Institute concluded that, "The greater one's income, the lower one's likelihood of disease and premature death." Middle class Americans are healthier than those living in or near poverty, but they are less healthy than the upper class. Even wealthy Americans are less healthy than those Americans with higher incomes. Finally, a 2010 study by Dr. Bill Costias at Cleveland State University found that engaging in frequent exercise is associated with a 5%-10% wage increase.
Alison Southwick: Wealthier people are healthier, but, which causes which. Are people healthier because they have more money, or does getting in better shape lead to more money? The answer is both. Let's start with discussing the ways that better health can result in higher wealth.
Robert Brokamp: There are many. Starting with, health problems can get expensive. The more money people spend on copays, medical services, medicine, the less money they have to save and invest. Medical debt is one of the biggest causes of personal bankruptcy. Healthier people have fewer health-related job interruptions and have longer careers. One of the most common reasons that workers retire earlier than planned is poor health. Premature retirement results in fewer years to accumulate savings and benefits like social security. Then there's job performance. The evidence is very clear that a good diet and regular exercise improve cognitive functioning, give you more energy, make you more productive, and result in an overall better mood, and it probably makes you a better employee. Finally, eating better could result in lower food bills. This one's a little bit more debatable since we know that in many cases, the cheapest food is not always the healthiest. But I'm basing this one on my own personal fitness journey, so to speak, I was pretty athletic in high school and college but then came adulthood and parenthood and I became literally too big for my breeches. I was going to have to replace my wardrobe because I gained so much weight. A bit more than a decade ago, I lost around 40 pounds by moving more and eating less. I was shocked at how much money I saved by doing things like not buying out lunch every day when I went to work. But instead just eating an apple and a handful of nuts and something healthier, not buying random snacks when I was out and about shopping and cutting down on my portions.
Alison Southwick: How does having more money lead to having a healthier body?
Robert Brokamp: Well, first off, wealthier people are more likely to have jobs with higher quality health insurance, paid sick leave, pay for provided wellness programs, things like that. They're also more able to pay for health interventions and they're less likely to put off health services due to financial concerns. Obviously, they could also afford things like gym memberships and personal trainers, and trips to Whole Foods. Higher paying occupations actually tend to rely more on brain than brawn, and thus result in less wear and tear on your body. Finally, money problems cause stress, and stress can reduce productivity at work, as well as health problems. The Urban Institute study I mentioned earlier, found that the lower someone's income, the more likely they are to report feelings of sadness, hopelessness, and worthlessness. A 2021 Harvard study found that "Negative wealth mobility," meaning a drop in wealth, "is associated with an increased risk of cardiovascular events, things like heart attacks, while positive wealth changes are associated with a decreased risk." I'm just going to throw in a quote from one of the authors of that study who said, "Wealth and health are so closely integrated that we can no longer consider them apart."
Alison Southwick: If you focus on your health, you may also increase your wealth and the other way around. How should you do it? We all know how to increase our wealth, spend less, invest more. It's a near mathematical certainty that doing so will increase your net worth over the long term. We also know what's generally considered a healthy lifestyle. But the effects are not immediately noticeable and the results are less predictable. After all, even the wealthiest among us are afflicted by cancer, heart disease, depression, and the aging process. But there's considerable debate about how much of our health is within our control, with evidence suggesting anywhere between 30% and 70% of maladies being the result of lifestyle decisions. But regardless of the exact percentages, there's no debate that you can increase the chances of future good health and as a result, higher wealth, by exercising more, eating better, and avoiding harmful habits and activities. Womb, I know, I'm sorry, you have to exercise more and eat better. That's really the takeaway here. Personally, I am resolving to do this by doing more strength training and exercising every day. Am I going to pull it off? I don't know. But I do know that I need more strength training because apparently, that's one of the most important things that I can do for my aging bones and my aging body. Bro, what are you doing?
Robert Brokamp: Well, you're not going to talk about pickleball.
Alison Southwick: No. I'm also doing lots of that. I just figured everyone was tired of hearing about it.
Robert Brokamp: Well, so the first thing anyone should do, including myself, is to see a doctor, get some lab work done, and get some professional advice about how you can improve your health. That's something I'm going to do. But if you're like most Americans, you're probably going to be encouraged to modify your diet if you have any issues. I'm no health expert, so I'll just say that one thing that's worked for me is intermittent fasting, which has both physical and mental benefits at least for me. A book I found helpful is The Intermittent Fasting Revolution by Dr. Mark Mattson. As for exercise, here's some thoughts based on my own research and experience. If you haven't exercised in a while, just start by walking every day. Something I try to do. If you think that won't do much for you, just do an online search for studies on the benefits of a daily walk. You'll be surprised how much it does for your health and well-being. Tie your exercise is something you enjoy doing. For me, I have a rule that I can't listen to my favorite podcasts unless I'm exercising. Then another is to try to exercise with others. Pickleball, of course, is one option. I was able to lose that 40 pounds a decade or so ago because at Motley Fool headquarters there were groups of employees who did push-ups every day together, who did cross fit together a couple of days a week. Even a group that met every week to do a version of Zumba and Alison was a part of that. I just loved doing that. Form a group of friends, sign up for a class, maybe join a walking, running, or cycling group and then finally sign up for an event that you have to train for, like maybe a 5K or 10K walk a run, a group hike or bike ride. Having an event with a deadline that you have to train for creates a bit more structure and urgency. For me, I've registered for a week-long bike ride across Iowa in July known as RAGBRAI. It's going to be my first time doing it, so we'll see how it goes.
Alison Southwick: Before we go, Bro, you seem to be a little bit of an expert about health. I know you wouldn't say you have your PhD, but you've tried a lot of things and you try to take care of yourself. Let's see what you know about a few diet fads that have existed through the years. The first one. In 2021, Tom Brady, then 43, attributed his great health and success to not eating. What type of food was it? Vegetables from the nightshade family? Anything rolling under a heat lamp at 7/11? Pasta in any shape other than bow tie or stinky cheeses?
Robert Brokamp: Tom Brady, former quarterback of the NSC South champions, Tampa Bay Buccaneers. I think he gave up nightshades.
Alison Southwick: He did. He gave up plants from the nightshade family. That includes tomatoes, bell peppers, and eggplant. He made him a lot happy.
Robert Brokamp: Yes.
Alison Southwick: Next question. Originally appearing in the New York Times best-selling book, Sex and the Single Girl, The Unmarried Woman's Guide to Men, by Helen Gurley Brown in 1962. It was resurrected as the so-called Vogue Diet when the magazine published it again in the '70s. It outlined exactly what to eat for breakfast, lunch, and dinner. What did you get for breakfast? Was it a half slice of toast and a cup of room-temperature tea? An egg, a cup of black coffee, and a glass of wine? A teaspoon of lemon juice or nothing? You get nothing for breakfast.
Robert Brokamp: Well, nothing for breakfast has been something I've been following, so I would love to say that. But instead, I'm going to go with, what was it, coffee, wine, and what was the other one?
Alison Southwick: You're right. An egg, a cup of black coffee, and a glass of white wine.
Robert Brokamp: Wow.
Alison Southwick: No, it gets even better. For lunch, you get two eggs and two glasses of wine, and a cup of coffee. For dinner, you get a five-ounce steak and the rest of the bottle of wine, and a cup of coffee. By the end of the day, you will have consumed three eggs, four cups of coffee, a steak, and a whole bottle of wine.
Robert Brokamp: If I drank, I'd probably love that because everything else on that diet is perfectly fine for me.
Alison Southwick: I still don't think you'd feel good on that diet. Last question, a mono diet is where you eat only one type of food or food group. Penn Jillette, the magician made headlines when he lost 100 pounds by eating only what for two weeks? Ice cream, potatoes, apples or bananas?
Robert Brokamp: I'm going to go counterintuitive. I'm going to say potatoes because normally you have to give up starch. But I'm going to say, no, this worked for him.
Alison Southwick: You are three for three Bro. It was in fact potatoes. He ate five a day at the start of his weight loss journey in order to interrupt his relationship with food. However, the other three, ice cream, apples, and bananas, you can also find as possible mono diets on the internet. There's a great story of a guy whose mom said she was going to do the ice cream mono diet, and she was very surprised when it didn't work.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
Alison Southwick has no position in any of the stocks mentioned. Bill Barker has positions in Alaska Air Group. Ricky Mulvey has no position in any of the stocks mentioned. Robert Brokamp, CFP(R) has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group and Crocs. The Motley Fool has a disclosure policy.
Are Crocs Investors Getting It Right? was originally published by The Motley Fool
