In this episode of Market Foolery, host Chris Hill and Motley Fool Asset Management contributor Bill Barker riff about some market news. Adobe's (NASDAQ: ADBE) stock saw a nice pop after a decent report, although the market seems to have wised up to the company's too-conservative guidance estimates. Winnebago (NYSE: WGO) seems to be turning its bad luck around, and the stock is responding. Mattel (NASDAQ: MAT) turned down another buyout offer from MGA Entertainment. MGA Entertainment now insists that it didn't really like Mattel anyway. But what does the future hold for the struggling toy maker? Plus, the guys talk about the latest from Disney (NYSE: DIS), a correction regarding yesterday's show, the current state of the RV market, and more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
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This video was recorded on June 19, 2019.
Chris Hill: It's Wednesday, June 19th. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio today from MFAM Funds, Bill Barker. Thanks for being here!
Bill Barker: Thanks for having me!
Hill: We're going to talk RVs. We're going to talk toys because we've got some legitimate drama in the toy industry. We're going to start with Adobe. I feel like almost any business that's in the cloud business is doing well. That's not to knock Adobe and their management. Adobe's second-quarter revenue was up 25%. Their guidance was a little weaker than I think some analysts were looking for. But that's not stopping the stock. It's up another 4% today.
Barker: Yeah, it's continuing to do a great job compounding year over year. It's on a pretty good five-year run, I would say. The segments, digital media was up 22%; digital experience 34%; publishing 12%. All three of the major parts of the company growing better or significantly better than double-digit range.
Hill: Do you know historically if Adobe is an acquisitive company? Obviously, you've got behemoths out there like Microsoft and Amazon, just to name two, who are in the cloud business. My joke at the top aside, there are definitely some smaller players. I don't know if part of what has fueled Adobe for the past few years is being strategic with smaller acquisitions and bringing them into the fold.
Barker: Yeah, it's in large part through acquisitions in 2018, which, for those who can't do math, was last year. You look confused. [laughs]
Hill: Of the two of us in the room, you're better at math than I am, so that's fair.
Barker: Last year, one year difference. Magento and Marketo, I don't know that I'm even pronouncing Marketo [correctly], were acquired. They've been well integrated into the platform and are contributing to that 25% annual growth. A little harder to grow when you're at the size that Adobe is at something approaching 25% without making some good acquisitions. Even given how much business is moving to the cloud, that kind of growth needs some acquisitions in most cases.
Hill: Do you think that's why the guidance was maybe a little weaker than people were expecting? Just because there's only so much you want to telegraph what you're going to be doing when it comes to acquisitions?
Barker: Well, they have a history of being pretty conservative with their guidance. As you can tell from the market's reaction today, basically, people are blowing that off.
Hill: [laughs] Nobody believes them.
Barker: Yeah, like, that's nice. They've given some conservative guidance. We know that, given their history -- and this is the kind of thing that you only achieve over time -- is the belief by the market that, "Oh, these guys are going to do better than they're saying."
Hill: Let's move on to Winnebago. Third-quarter report seemed to be a little bit of a mixed bag, although the profit margins appear to be improving for Winnebago. Typically when we talk about the RV industry, more often than not, you and I are talking about Thor Industries, not Winnebago. But Winnebago seems to be doing a pretty nice job of late.
Barker: Yeah, Winnebago, which is the name that people know best for RVs and is best known for the motor homes portion of the business. The totals side of the business is larger for the industry than the motor homes. Motor home is the large-vehicle, buslike structure, where the housing unit is all part of the motor vehicle and then the towable is where you hitch something onto the back of your vehicle. Winnebago made a good acquisition a couple of years ago, Grand Design, which is a fast-growing towable. Winnebago really didn't have much going on prior to that in the towable space. As that part of the industry has been growing, Winnebago is now an active participant in that growth and actually capturing market share in large part from Thor. You've got Thor, which is the largest RV maker. Just made a major acquisition in Europe, which closed last quarter. Then you've got Forest River, which is owned by Berkshire Hathaway. Those two are far larger than Winnebago, which has now grown to about 10% of the market. And then there are a few scattered players that are not especially meaningful beyond that.
Winnebago also has done what a lot of players in the industry are doing, which is diversifying into the marine segment. They acquired Chris-Craft, which is probably known to many as a designer of beautiful wooden boats that are timeless and elegant. A good thing to do is to have some diversification, because the RV industry ran into a lot of trouble last year when dealers overstocked early in 2018, and a year later, they're still working down the overstocking. Winnebago's numbers on their face are not great, but they are pointing to some brighter days ahead, as everybody in the RV space has been doing for a while.
Hill: The acquisition that Thor made that you mentioned in Europe, is that a diversification play? Or is there some RV maker in Europe? In large part because of where I live, when I think of RVs, I just think of RVs here in America. I don't necessarily think of Europe as necessarily a big market, but I'm happy to be proven wrong on that.
Barker: Well, they're more in the smaller vehicles, and you see in the U.S. There are, in many parts of Europe, smaller roads, and not quite the car culture that we have. But they are a big camping culture. They're more camper-sized things. Yeah, there's a decent part of the market that you can capture there. It is a diversification thing for Thor. It's a good time to diversify, given the issues with the inventory for RVs here.
Getting back to Winnebago, they're pointing to, again, good growth in the towables from Grand Design. Motor homes sales were off about 30%-some year over year. A couple of years ago, that would have been disastrous for Winnebago, when they had not yet acquired a towable and a marine unit.
Hill: For as well known as the Winnebago brand is, this is not a big company. It's like $1.25 billion in market cap. But it's nice to see that they're both diversifying their revenue stream and because of that starting to improve their financial picture.
Barker: Yeah, they are, unlike Thor, trading reasonably close to their 52-week high. Not right at the 52-week high, but they're not a long ways off. Thor's still basically cut in half from where it was about 18 months ago.
Hill: One correction from yesterday's show. Shout out and thank you to Mark in Illinois, who was the first listener to alert me to the fact that the story that Bill Mann and I discussed yesterday regarding the Bombay Sapphire gin essentially having double the amount of alcohol in the bottles, that story was from 2017. The lesson there is, I need to fact check the information that Bill Mann sends me.
Barker: The fact checker has been sacked, I assume. The show fact checker?
Hill: I mean, that's me, essentially. So, again, lesson learned. When Bill's like, "Hey, this would be fun to talk about!" actually look at the date on the story. Carbon date the story.
Barker: You're throwing him under the bus on this one.
Hill: No, I'm just telling folks what happened.
Barker: That's what it sounded like.
Hill: [laughs] No, no, I'm just telling folks what happened. He sent me the story. I didn't look as closely as I should have. Now, that said, it still doesn't take away from the fact that that's one of the more fantastic stories that we've had on the show in the last couple of years.
Barker: I'd say it's an invitation for listeners to say, "Hey, Chris, I've got some old news for you to cover." And you're like, "Yeah, we do that here now apparently when Bill Mann's on the show. Just send it to him!"
Hill: [laughs] Yeah, just hop in the Wayback Machine.
Anyway, on to the toy industry. Shares of Mattel are down this morning on the news that MGA Entertainment, which is a private company -- MGA has toys that are really aimed at much younger kids, their best known brand is probably the Bratz dolls -- MGA Entertainment has tried in the past to acquire Mattel. This is their second attempt, and they've basically given up. The news is, MGA is basically moving on from this second attempt to acquire Mattel. As they have been wont to do on many occasions over the last few years, shares of Mattel are down.
Barker: Yeah. MGA pointed out, at least in an article where there's some quotes published by thestreet.com, that Mattel's got $4 billion in debt and there's a major legal liability related to the Fisher-Price Rock 'n Play Sleeper, and that there's just too much mess to clean up there. Which sounds kind of like a jilted pursuer. "Ah, didn't want her anyway! She's got all these problems!" After being rejected twice. I think that now, MGA is noting all the reasons why they wouldn't have wanted Mattel anyway.
Hill: That's entirely possible. We don't know MGA's financials because they're a private company. I just look at Mattel over the last few years, and that is a stock chart that is just steadily down and to the right. I mean, it is a quarter of the size it was five years ago. I get that this didn't work out. But I don't know how much longer Mattel can keep going like this.
Barker: Yeah. I guess I'm in the camp of those that assume that sooner or later, Hasbro will acquire Mattel, just because it's got some great brands. After all the mistakes that it's made, still, it's got a number of enduring brands. If you can just put it in the hands of some good management, which Hasbro certainly has, it might revive this company. But in the meantime, I think Mattel is continuing to give the Heisman to suitors and, as you say, down and to the right is the pattern.
Hill: I think, if we know for certain that in the next two years, Company X buys Mattel, Hasbro is probably the safe bet. It actually wouldn't surprise me if it was a company like Walmart. When you look at the way Walmart has incorporated the acquisitions it's made, in terms of different brands, as you say, Mattel has some brand equity there. In the hands of the right management, and certainly with Walmart, they've got as good a distribution network as you're going to see, I would put them on the shortlist as well.
Barker: To give some numbers around Mattel and where it's gone as a stock, it's about the same price it was in 1992. Again, for those out there having trouble with math, 27 years ago. Just to help you out.
Hill: I appreciate it! I always appreciate help with math.
Barker: They've got problems! They've got a future, given all these brands -- it was much higher in 1999 when Toy Story came out, the original one, which featured a lot of great work by a lot of Mattel's characters.
Hill: [laughs] Fantastic. Yes. Toy Story 4 opening this weekend. I can't say I'm going to be going the opening weekend, also because my kids are older. But it wouldn't surprise me if they were like, "Yeah, let's go see this!" Maybe not opening weekend. Right now, Toy Story 4, for any Disney shareholders who got slightly nervous at the train wreck of an opening that Dark Phoenix had, fear not, because here comes Toy Story 4, which is projected to do at least somewhere in the neighborhood of $200 million at the box office opening weekend. They're certainly doing a lot of promotional work around it. But as you were saying earlier this morning, the voice talent that they've got, this is now a franchise that ... Pixar strikes me as one of those companies that, if they went to anyone and just said, "Hey, would you come do three lines in a studio?" Anyone's going to say yes to this. The voice talent that they've got for this one, it's not just the usual suspects with Tom Hanks and company. Jordan Peele, Keegan-Michael Key, Christina Hendricks. You were telling me, I was unaware of the fact, talk about the Wayback Machine, they've got Carl Reiner and Carol Burnett and Betty White.
Barker: And Mel Brooks. They are locking up the Mount Rushmore of great comedians, which would include for many Mel Brooks and Carl Reiner and Carol Burnett. Betty White has had a hell of a second, third, and fourth act for her career in the last 10 years, although great for decades before that as well. I think that expands the audience quite a bit, even if they are all just showing up for a couple of lines. Boy, the talk shows will eat up any appearance, to promote this, that Betty White or Mel Brooks might show up for.
Hill: I'm asking you this like I'm expecting you to have the answer. I don't expect you to have the answer --
Barker: This is a first! I didn't know this was ever going to happen for me on this show.
Hill: I'll ask anyway. Do you know what they did in terms of replacing Don Rickles? Mr. Warmth.
Barker: I do! I do know what they've done. They're using archive audio.
Hill: Oh, fantastic! I mean, Don Rickles, that's a really tough voice to replace.
Barker: It's very tough to replace. I take this from the Wikipedia page, which has got this great chart of all the different people that have done the voices for everybody over all the years. There are all these additional, non-theatre-released parts of Toy Story, shorts and pieces that were maybe a holiday special or something, so you can see who did the voices for those, because it wasn't the big stars. It's remarkable, the depth here. It'll be nice to get a last little bit from Don Rickles.
Hill: You know what? Now I'm seriously considering going the opening weekend, in part because I'm looking forward to Key and Peele as the plushy toys. And then, Keanu Reeves, to go back to Canada, hopefully to make up in some small way from yesterday's mistake with the Canada story being two years old, Keanu Reeves voices a character named Duke Kaboom who is Canada's greatest stunt man. That alone has me thinking about plunking down whatever a movie costs these days. I think it's $58 for a single ticket.
Barker: Yeah, but you can expense that because it's research for the show.
Hill: A little thing we like to call research.
Barker: Yeah, you've got a budget for that.
Hill: I knew I had you in here for a reason! You can read more from Bill Barker and his colleagues, go to mfamfunds.com. Thanks for being here!
Barker: Thanks for having me!
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery! The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such. Bill Barker owns shares of Walt Disney. Chris Hill owns shares of Amazon and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), Hasbro, Microsoft, and Walt Disney. The Motley Fool is short shares of Hasbro. The Motley Fool recommends Adobe Systems. The Motley Fool has a disclosure policy.