In this episode of MarketFoolery, Chris Hill talks with Bill Mann about the day's market news. Casey's General Stores (NASDAQ: CASY) hits new highs on earnings, and yes, the quarter really was that good. Wells Fargo, on the other hand, struggles to find a new CEO. Turns out that top banking executives aren't chomping at the bit to sit in Tim Sloan's empty hot seat.
Foxconn (NASDAQOTH: FXCOF) announced it's not too worried about potentially moving Apple (NASDAQ: AAPL) production out of China. Bill makes the case that consumers probably won't feel a pinch, given that Apple's product margins are just a tad high. Tune in to find out 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 11, 2019.
Chris Hill: It's Tuesday, June 11. Welcome to MarketFoolery. I'm Chris Hill. Joining me in studio, tanned, rested, and ready, it's Bill Mann. Thanks for being here!
Bill Mann: How are you, Chris?
Hill: I'm not quite as rested. I'm not as tanned.
Mann: Thanks for bringing the Maine weather with you. It is fantastic outside.
Hill: It is gorgeous outside.
Mann: And here we are, in a windowless room.
Hill: I know. Let's make this quick. We're going to dip into the Fool mailbag. One company is having trouble finding a CEO. Depending on what your resume looks like, we may have a job opening for the dozens of listeners. Let's start with some earnings from Casey's General Stores. And by earnings, I mean blowout earnings.
Mann: Starting with the thunder, are you, Chris?
Hill: It really is. Casey's General, the stock is up 11%. It's hitting an all-time high. How good was this quarter?
Mann: It was a really good quarter. I mean, $0.68 versus $0.51 a year ago for the quarter; $5.50 for the year versus $3.81 a year ago. The stock, as you said, up 10%. All of this came in the environment in which -- I think the thing that people were surprised about is, one of the things that Casey's does, one of their big revenue items, is gasoline sales. And it's been a cruddy environment for selling gas. Pricing hasn't been there, spreads haven't been there. So for them to come in with a quarter like this, that means that their front of store has just performed magnificently.
Hill: That was the thing I was thinking about when I was taking a quick look at the results. This is not an apples-to-apples comparison, but I thought of Costco. Every time Costco reports earnings, the gasoline is part of that equation. But it really does seem like Casey's General has, through no fault of their own, inadvertently put pressure on Costco and anyone else who is in that business, to basically say, "Hey, look, you don't have to be victim to the whims of gas prices if you are really getting it done in the front of the store."
Mann: Have you been to a Casey's?
Hill: I've never been to a Casey's.
Mann: You know what they're about, right? Folks here on the East Coast are probably familiar with Wawa or Sheetz. Casey's is kind of like that, but in the Midwest. So yeah, maybe they've put Costco under a little bit of pressure. But they're really, really putting pressure on fast-food restaurants, companies like McDonald's, that have dominated the travel food market for such a long period of time. Wawa might be at the top of my list for companies that I would like to invest in that don't exist -- err, that you can't [invest in]. Not that it doesn't exist. Wawa is a real thing.
But Casey's is a pretty good alternative. There's Circle K. There's 7-11, even. But Casey's may be the one that is most similar to a Wawa or a Sheetz.
Hill: When you look at the stock hitting an all-time high, is it pricey? Casey's General is one of those stocks that, in good times and bad, has never really struck me as being pricey.
Mann: It's a little pricey, but compared to what else is out there in the market, I mean, Beyond Meat trading at a price to sales of 34 times -- I think we're fine with Casey's. Casey's food margins, the margins of their store are spectacular. This is a really, really well-run company. And it's really taking share from a lot of the quick-serve restaurants, particularly, again, as we get out into the travel season, over the summer, I see good things for this company. They're going to start to run up against some real competition, particularly as they push to the East. But 1,900 stores, they know what they're doing.
Hill: Let's move on to the latest in the U.S.-China trade war, and the latest hook from the Wall Street Journal involves Foxconn, which has come out and said Foxconn is prepared to move Apple production out of China.
Mann: Yeah. And not only are they prepared to, they feel like they could do it rather quickly without any disruption. One of the really interesting things about this article was, they noted that the company has been public since 1991. The actual name of the company is Hon Hai Precision. This is the first investor conference calling meeting that they've ever had. The first one.
Hill: Why now?
Mann: One of the reasons that they did this was that the president and founder of Foxconn, a guy named Terry Gou, is running for president of Taiwan. So he has to step down. So they're talking about some of the issues having to do with leadership transition and such things. But they took the opportunity to say, "By the way, we didn't open up in Wisconsin for nothing. We don't have massive facilities in Vietnam, Mexico, Brazil, even Japan, for nothing. We're ready. And we've been thinking about this for years as the advantage for manufacturing in China has declined."
The thing that's fascinating to me, and this talks about how pragmatic the Chinese and the Taiwanese are with each other, it seems to be entirely uncontroversial that the potential next president of Taiwan is one of the largest employers in China. I mean, that's not even something that they're even really talking about. It's just interesting to see the ways in which global trade and global manufacturing are shifting based upon the potential for a long, protracted trade war.
Hill: Does that automatically mean that the price of the next iteration of the iPhone is going to be higher as a result?
Mann: [laughs] As opposed to what?
Hill: That's a fair response. But if you're someone who loves Apple's products and you see this headline, I think it's reasonable to ask the question, "Wait a minute!" Apple has always had pricing power. Are they going to have even more now? If Foxconn is moving production out of China, my assumption is, it's going to cost more to build the iPhone in Wisconsin than China.
Mann: I actually don't think so. The iPhone and the iPad, particularly the iPhone, have had such huge margins that the manufacturing component ... I mean, it's like if you have to spend a little bit more to manufacturer a pharmaceutical. It doesn't really have anything to do with the price that they're able to charge. I mean, they've really found a way to price it at the point at which -- that customers would still consume. So I don't really think that this is an issue for them. I mean, it could impact margin just a little bit, but that margin is already being impacted by virtue of the fact that these things are being manufactured in China under a new tariff regime.
Hill: If you're looking for a new job, you might want to check out the job offerings at Wells Fargo, which continue to include the CEO position --
Mann: Monster.com may have this listed! [laughs]
Hill: Wall Street Journal reporting that Wells Fargo -- shocker! -- is having trouble getting some of the top executives in the banking industry interested in the CEO job at Wells Fargo.
Mann: It's hard not to have just a little bit of schadenfreude about this as poorly as Wells Fargo has behaved over the last several years.
Hill: Oh, yeah, no, we're definitely going to have a little bit of schadenfreude. You know who else is? Jamie Dimon. I like that Jamie Dimon last month took a shot at them --
Hill: I'm quoting here. He was at an investor conference and said, "It's not responsible for a company, this is just my own view, to have a CEO leave with no plan in place. I don't personally understand that." He's referring, of course, to --
Mann: Not just a company, but a systemically important bank.
Hill: Absolutely. No, absolutely. Put aside the issues that they had with the fake credit card accounts and all of the cultural issues -- although all of those things led to where they are right now, having trouble filling this spot -- he's got a point.
Mann: He does have a point.
Hill: He's taking a shot, but he's got a point. If you're the board of directors, and Tim Sloan suddenly walks out the door, you have to be ready.
Mann: It's baffling to me that they didn't have an emergency break-glass plan in place. Not saying Tim Sloan was going to leave, but they had no idea what they were going to do. What they've ended up having to do is, they tried to get the CEO of PNC, a guy named Richard Demchak. They went after Gordon Smith from JP Morgan. They've even gone after a guy named Richard Davis, who was the former CEO of US Bancorp, who is now the CEO of the Make A Wish Foundation. All of these people have said, "No, we're really not interested." For one thing, they had to have each watched when the Senate Banking Committee just absolutely torched Tim Sloan and said, "That's just not worth it." I mean, this job really, really must be toxic, and there's very little to see in Wells Fargo's future. Because of caps that the Federal Reserve has put on the bank, any type of turnaround in the bank is years into the future.
Hill: Well, and if you're Gordon Smith at JP Morgan, if Jamie Dimon ever decides it's time to ride off into the sunset, Gordon Smith is on the shortlist of internal candidates to replace him. Why would you leave that?!
Mann: He is and he has -- I think the number was $50 million in deferred compensation coming to him just remaining where he is. Which, good for him. [laughs] Must be nice! So getting him would be quite expensive. This has to be a good hire for Wells Fargo. I can take why they are perhaps going slow, but the fact that they didn't have a plan in place is perhaps unconscionable and also perhaps demonstrative of why no one wants the job.
Hill: Is it a given that it's going to be someone from the banking industry? Obviously, industry expertise is important. But they still have cultural problems at Wells Fargo.
Mann: That's a fantastic question. I think the answer is yes, simply because, yeah, they have the cultural issues to solve. Maybe that is higher. But the bigger issue that they have is that the regulators and the Federal Reserve are down their throats. I don't know that a non-banking person would necessarily have the tools in place to be able to navigate those issues.
Hill: Our email address is email@example.com. Got an email from Andrew, who writes, "It was great to see and meet many of you at Fool Fest last Friday. Thank you for all that you do. Your research, insight, and humor makes investing enjoyable and time efficient." Thank you for that, Andrew. He goes on to write, "You've certainly made me smarter, happier and richer, as well as annoying my wife when I walk around the house with headsets on listening to your podcast."
Mann: The downside!
Hill: We appreciate the nice comments there. Don't unnecessarily annoy the missus.
Hill: That's a self-inflicted wound.
Mann: And admit it in an email! I mean, what did you think we were going to do with it?
Hill: Yeah. Also, we don't want any residual blowback from Andrew's wife. We don't want her being like, "Hey."
Mann: "You are making me certainly less happy." No, that's no good.
Hill: Yesterday on MarketFoolery, Mac and Jason and Emily talked a little bit about Fool Fest. It was our biggest event we've ever had. One or two things that stand out for you in terms of highlights?
Mann: Well, I had a wonderful conversation with the CEO of Upwork, a man named Stephane Kasriel. Just listening to him describe the issues around the gig economy, around contractors, how nearly 35% of all Americans are temporarily employed in some ways, a lot of whom were by choice. I'll be honest, I think about business a lot. I think about the economy and the way things are progressing a lot. But he brought up some really interesting concepts in terms of the power of the worker now, and the fact that, perhaps the relationship between employer and employee is breaking down. And maybe, actually, in some ways, it should.
Hill: I didn't catch all of your interview with Stephane -- I caught the second half of it. It was really great. It was very enjoyable. I think I say this every year about Fool Fest, but it's always so great to meet people and talk to people and get a sense of where they are in their investing life. Some people are just starting out. Some people are younger. Some people are older, and they're starting to think about their kids, their grandkids, ways to pass on the love of investing for generations. It was great.
Mann: I do love both of those constituencies. And at some point, it becomes so fun for us. I look forward to, every time, for example, seeing the Morgans, a family from North Carolina who come to each and every event. They're just lovely people, and you get a chance to really interact. And they say, "These are the things that are meaningful to us and we'd like for you to do more of." And occasionally people say, "Maybe do a little bit less of this, or a little bit different." I can't even begin to describe how valuable those interactions are for us. I do love when folks bring their kids, their college age young adult family members and guests, just seeing them begin to understand, because they have the biggest advantage of all. They have all of their earnings potential in front of them, and they have so much time. It's a wonderful event, and I enjoy it each and every year.
Hill: Yeah, it was great. Thank you to everyone, and all the listeners who came up.
Mann: Both of them.
Hill: Both of them. No, there were a bunch. A bunch of people will come up and they're like, "Here's how I listen. Here's when I listen." And then there are people who come up to me and say, "Do you work here?" [laughs] "What time is lunch?"
Mann: "Where's the coffee?" Which is a good question for you.
Hill: "Can you introduce me to Andy Cross?" I'm like, "Sure, yeah, I can do that." Bill Mann, thanks for being here!
Mann: Thank you, Chris!
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 MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.
Bill Mann owns shares of Costco Wholesale. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Casey's General Stores. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Costco Wholesale and Upwork. The Motley Fool has a disclosure policy.