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Lucid to deliver SUVs in October, Sherwin-Williams cuts guidance on supply chain fears

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Yahoo Finance's Brian Sozzi, Julie Hyman, and Brian Cheung break down the morning's top stock movers, including Lucid & Sherwin-Williams

Video Transcript

BRIAN SOZZI: Just continuing our chat from the chip makers, one company that is going to use a lot of chips in its production, that is Lucid. That is the top Trending Ticker right now on our platform on news, Brian, that they're going to start finally making close to $170,000 cars and going to start delivering these cars to you, Brian Cheung, later next month.

BRIAN CHEUNG: I cannot afford a $169,000 car, let's just make that clear. But for what it's worth, the bigger story for Lucid isn't necessarily that, the particular vehicle. This is supposed to be a kind of special edition. It's a sedan that's going to be in a limited quantity, I believe, I think even less than 100 units they'll be making.

But the Air sedan is really the big focus for them from a consumer standpoint. It's supposed to be a $77,000 car. That's before you have that $7,500 federal tax credit. And apparently, they've got 13,000 reservations so far.

I think the big question here is going to be whether or not they can distinguish themselves from-- I don't want to call them secondary EVs but the EVs that are trying to certainly gun for market share not just from Tesla but from the other major OEMs getting into the EV game as well. So think about Faraday Future, Fisker, Lordstown Motors, some of these companies, certainly, that have had issues trying to scale up because it's so difficult from a capital standpoint alone to build up an EV company.

So Lucid certainly seems like it, especially the fact that it already has orders, kind of already halfway there. But again, we'll see if they can ultimately deliver on that, which as many will recall, was a big kind of metric for Tesla in its early stages as well.

JULIE HYMAN: Yeah, and a metric for some of those other companies you mentioned that have not been able to actually start production, right? So the starting of production, even though it seems like sort of a given if you're going to be a car maker, at some point you have to make cars. But as we've seen with the other electric vehicle makers, that's not necessarily a given.

And as you know, Brian, because we've talked to him, Peter Rawlinson of Lucid probably has one of the better pedigrees, if you will, among these startups that we've seen out there as a Tesla veteran. So it's going to be interesting to see how many of these cars they actually end up selling. But with those 13,000 preorders, that's a decent start for such an expensive car.

BRIAN SOZZI: Come on, Brian. You can't afford one of these?

BRIAN CHEUNG: No, I can't. I can't.

JULIE HYMAN: Well, can you.

BRIAN CHEUNG: I have a Corolla right now.

BRIAN SOZZI: OK, all right, fair enough. We're also watching, outside of the really expensive electric vehicle space, Sherwin-Williams. And we were talking a little bit about this in our Slack channel last night, guys, when Sherwin-Williams again came out with another earnings warning. This is the second warning from this company, major paint maker, this month. They already warned on September 8.

Overall, this is a bad, bad look for Sherwin-Williams. You came out on September 8, really cut your guidance. And you're back again before October even hits, cutting your guidance?

Let's look at some of the numbers here though. They are now looking for full year earnings per share on an adjusted basis of about 7.21 to 7.41 and a share. Now, they reiterated, reaffirmed their outlook on September 8 for earnings, of 8.01 to 8.31. So in the course of a couple of weeks, they're telling you. Really again, just a bad look by this company in terms of guidance. Why even put it out there that they're forecasting is completely useless?

In large part, here's another company warning about supply chain challenges. They just can't get the goods they need to satisfy the demand. I know, Julie, this is a point you've been making. But also, they're also having challenges with inflation in the inputs they need to make these products.

JULIE HYMAN: Yeah. And to your point, yes, the point that I frequently make that they are still seeing demand. And that is something that they talked about. Specifically here for the third quarter, the high end of what they're looking for is $2.10 a share in profit, 2.51 is what analysts had been looking for.

Listen, Brian, maybe this says something about the company. But maybe it also just says something about the environment here, that things are moving so rapidly and deteriorating so rapidly in terms of the supply chain for this company and increasing input costs, that it was forced to make this move and thought that it was the right thing to do. And if that's the case, yeah, I mean, that's perhaps an alarming sign.

I know we've been watching PPG, which is a competitor of Sherwin-Williams, another paint maker that also ended up warning. And so we've got to watch those shares as well.

It's interesting that Sherwin-Williams is not down more this morning on this second warning.

BRIAN SOZZI: I'll just say it quickly. It's the whole supply chain. Now, if you're trading these names and this is your space, you like paint makers, whatever it is, you like consumer cyclicals, I hear you. Sherman-Williams comes out and warns, you should be immediately concerned. What is Home Depot's third quarter looking like? What is Lowe's quarters looking like?

If Sherwin-Williams is having problems in its supply chain, maybe Mohawk Industries, one of the largest carpet and tile makers around, perhaps they're also having the same challenges. And they may also come out and have a disappointing third quarter. So just some connecting the dots here.

BRIAN CHEUNG: Yeah. And I think just to be fair though, we have to point out that Sherwin-Williams cited the impact of the hurricane, Hurricane Ida, on its supply chain. And we know that resins, even before Hurricane Ida, have been a major issue for all different types of industries. From the jump really, raw materials have been really difficult, especially in that space.

Now, again, whether or not that's cover for them, given all the other issues that they've had with their forecasting, Brian, is up for the investors and the analysts to speculate. But I think another point that we have to acknowledge here is, just from a financial standpoint, alongside their earnings, they did announce an acquisition, an M&A transaction, which they're offering more color on this morning.

Specialty Polymers, it's apparently a leading manufacturer and developer of water-based polymer. I am not a water-based polymer expert. I'm more of an interest rates guy. But the idea here is that obviously they're spending some capital to make this M&A transaction. You see a stock that's down 2% for an acquiring company. It's not particularly unusual to see that on Wall Street.

So again, whether or not they're pricing in their performance with their guidance is maybe a little bit separate from what we're seeing as a financial consequence of their M&A transaction announced this morning.

BRIAN SOZZI: Brian, who do we blame for all these supply chain challenges? We just blame the Fed, right? They're tapering too early, right?

BRIAN CHEUNG: Yeah. Yeah, they're definitely the ones holding all the resin, Brian.

BRIAN SOZZI: Yeah, yeah. All right, as I expected.