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The general public isn’t the investing public
Make no mistake: Popeyes chicken sandwich is a runaway hit.
In the fourth quarter, same-store sales at Popeyes rose 34.4% and system-wide sales at Popeyes stores grew 42.3%.
As Jose Cil, CEO of Restaurant Brands (QSR) — Popeyes parent company — said on Monday, Popeyes chicken sandwich “has proven to be a game changer for the brand in every way.”
In a note to clients last week, analysts at Bank of America Global Research explored the 2019 phenomenon that became known as the chicken sandwich wars. Looking at trends on social media, BofA found that, “brand penetrations of ‘chicken sandwich’ Instagram posts and Tweets show that Popeyes has been able to take a meaningful share of conversations.”
This work led to BofA suggesting that fourth quarter comp sales growth at Popeyes would likely come in around 20%. Actual results, of course, were more than 50% better than this estimate.
Popeyes viral chicken sandwich is a marketing dream. And the results have backed up the hype.
But one viral sandwich still hasn’t been enough to get investors excited about the stock. And this episode serves as a great illustration of how the general public and the investing public look differently at brands, sales, and what makes a good investment.
The sustained buzz and hype surrounding the Popeyes chicken sandwich has very obviously led to strong sales. Following a Peter Lynch-style “invest in what you know” maxim might lead to you taking a position in the stock.
But during the fourth quarter, shares of Restaurant Brands fell over 9% during a quarter when the S&P 500 rose some 12%. For the full-year 2019, shares of Restaurant Brands rose about 19% against a gain of nearly 30% for the S&P 500.
And the story for Restaurant Brands is fairly simple: the success at Popeyes isn’t enough to paper over the struggles at its Tim Hortons brand.
Same-store sales at Tim Hortons fell 4.3% during the fourth quarter.
This Aug. 21, 2019, photo, shows Popeye's new chicken sandwich, the spicy version, in New Rochelle, N.Y. (AP Photo/Julia Rubin)
As Cil said: “At Tim Hortons, our performance did not reflect the incredible power of our brand and it is clear that we have a large opportunity to refocus on our founding values and what has made us famous with our guests over the years, which will be the basis for our plan in 2020.”
In the fourth quarter of 2018, system-wide sales at Tim Hortons totaled $1.73 billion against Popeyes sales of $934 million. In the fourth quarter of 2019, Tim Hortons sales fell to $1.68 billion with Popeyes totaling $1.33 billion during the same quarter. And so just a year after Tim Hortons had nearly double the quarterly sales of Popeyes, the brand saw quarterly revenues top those at its smaller family brand by just 30%.
These struggles are also more acute for the stock because Tim Hortons is a much larger part of the Restaurant Brands profit picture.
In the fourth quarter, adjusted EBITDA at Tim Hortons totaled $297 million, accounting for just under 48% of the company’s quarterly adjusted EBITDA. The fourth quarter of 2018, Tim Hortons recorded adjusted EBITDA of $297 million with that income accounting for more than half of the entire company’s quarterly adjusted profit.
Popeyes, in contrast, saw adjusted EBITDA rise more than 50% from the prior year, but still accounts for less than 10% of the company’s quarterly total.
Chicken sandwich virality hasn’t fundamentally changed the profit outlook for Restaurant Brands. At least not quite yet.
And while some readers might roll their eyes at being alerted to the fact that profits matter to investors, sentiment around the stock of Popeyes parent company seems divorced from consumer enthusiasm for their chicken sandwich.
To the general public, the Popeyes chicken sandwich is one of the most interesting business stories of the year. To the investing public, the chicken sandwich is just part of a profit picture that is under pressure.
FILE - In this April 27, 2010 file photo, a woman using a cell phone walks past T-Mobile and Sprint stores in New York. Sprint and T-Mobile called off a potential merger, saying the companies couldn't come to an agreement that would benefit customers and shareholders. The two companies have been dancing around a possible merger for years, and were again in the news in recent weeks with talks of the two companies coming together after all. But in a joint statement Saturday, Nov. 4, 2017, Sprint and T-Mobile said they are calling off merger negotiations for the foreseeable future. (AP Photo/Mark Lennihan, File)
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Sprint’s Marcelo Claure, left, and T-Mobile’s John Legere, right, at a House Commerce subcommittee hearing in February 2019.Photo: Jose Luis Magana (AP)
The New York Times and Wall Street Journal both wrote that Marrero is expected to rule against the attorneys general of 13 states and D.C. who are suing to block the merger on antitrust grounds, citing sources who have been briefed on the decision. That suit is the final legal obstacle between T-Mobile and the smaller, ailing Sprint finally being able to consummate their planned union, as antitrust officials at the Federal Communications Commission and Department of Justice have already signed off. Both papers reported that the verdict is expected to drop on Tuesday morning.
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Allowing the merger to go through would drop the number of major carriers competing in the U.S. from four to three, for years at the very least. Under the terms of a deal with the DOJ, T-Mobile owner Deutsche Telekom would be forced to sell off wireless spectrum to Dish, while Sprint would have to do the same with Boost Mobile. This supposedly would create a replacement contender to fill the fourth spot, though the viability of Dish’s plans to create a competitive national 5G network have drawn extensive scrutiny. It will launch with around nine million customers, mostly from Boost Mobile, according to the Journal. Meanwhile, the merged titan, doing business as T-Mobile, will have over 100 million customers.
Companies routinely claim that mergers will allow them to offer more competitive pricing with vague assurances of increased efficiency. But research has shown the exact opposite is much more likely to happen: price increases from increased market power. These kind of outcomes can be plainly observed in industries from medical care to pay TV. (A ProPublica investigation found that many academic proponents of mega-mergers often receive huge sums of money from companies that stand to benefit from friendly testimony in anticompetition lawsuits.) Sprint and T-Mobile have both promised not to raise prices and to build a 5G network, and T-Mobile has launched low-cost plans in an effort to assuage critics. However, fewer mobile network operators in a country is associated with much higher prices and the two firms were already planning on building 5G networks.
State attorneys general involved in the lawsuit argued that the Sprint/T-Mobile merger will cost subscribers of both companies up to $4.5 billion annually. The FCC and DOJ both argued in favor of it in the suit, according to Ars Technica, saying a victory for the plaintiffs could block “substantial, long-term, and procompetitive benefits for American consumers.”
What isn’t clear at this point is whether the ruling is a total win for Sprint and T-Mobile or Marrero has implemented further conditions on the deal. Those could ultimately have some impact on the ultimate outcome for consumers.
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As the Times noted, Sprint executive chairman Marcelo Claure and T-Mobile CEO John Legere built DC connections while lobbying for the deal. Claure hosted a fundraiser for Republican senator and net neutrality opponent Marsha Blackburn’s successful 2018 campaign, while Legere spent a suspicious amount of time and money ($195,000) at a D.C. hotel owned by Donald Trump.
President Trump speaks during an event at the White House in Washington, D.C., on Thursday, Feb. 6, 2020.
Al Drago | Bloomberg | Getty Images
President Donald Trump's proposed budget would reportedly kill a loan program that assisted automakers such as Ford Motor and Tesla in producing more environmental-friendly vehicles, including Tesla's all-electric Model S.
The proposed cut, according to the 2021 budget proposal, is to the U.S. Energy Department's Advanced Technology Vehicles Manufacturing Loan Program, which has distributed more than $8 billion in loans to companies to produce such vehicles, according to the program's website.
Most recently, electric vehicle startup Lordstown Motors, which purchased GM's shuttered Lordstown Assembly plant in Ohio, was in discussion with government leaders about a loan from the Advanced Technology Vehicles Manufacturing Loan Program.
Lordstown Motors, in an emailed statement on Monday to CNBC, said it had not yet applied for the loan. It said the company continues to evaluate its options for financing: "We are continuing conversations with government leaders as we explore our options, but we see it as one of our many options to consider. We will factor this new information into our decision making process, but our business model stands on its own without it."
A spokesperson for the federal program, which awarded its first loan in 2009, did not immediately respond for comment. The budget refers to the program and others as "costly, wasteful, or duplicative programs."
Previous loans, according to the program's website, have included $465 million to Tesla for production of the Model S in 2010; $5.9 billion to Ford to upgrade 13 facilities in six states for a variety of vehicles in 2009; and $1.45 billon for Nissan Motor for a new advanced battery manufacturing plant and facility upgrades for a plant in Tennessee for to produce the all-electric Nissan Leaf in 2010.
As of September 2017, both Tesla and Nissan had fully repaid their loans, according to the website. Ford, according to a company spokeswoman, is scheduled to repay its loan in September 2022.
As of 2016, the Advanced Technology Vehicles Manufacturing Loan Program was authorized to loan more than $16 billion to continue "helping the auto industry grow local economies across the United States while increasing American economic competitiveness around the world," according to the website.
This isn't the first time Trump has wanted to cut funding for the auto industry. The White House last year proposed eliminating a tax credit worth up to $7,500 on the purchase of new electric vehicles, a move it said would save the U.S. government $2.5 billion over a decade. The credits were eventually saved.
Slack Technologies Inc. CEO Stewart Butterfield stands on the trading floor during the company's IPO at the New York Stock Exchange (NYSE) in New York, U.S. June 20, 2019.
Brendan McDermid | Reuters
Slack filed an 8-K Monday downplaying a news report that sent its stock surging more than 15%.
Shares of Slack fell as much as 8% after hours following Slack's filing.
The stock was halted shortly before the end of the trading day, and the filing was released after hours. Earlier in the day, Business Insider reported that Slack had "just scored its biggest customer deal ever," saying IBM had recently decided to deploy its technology to all of its 350,000 employees.
In the filing, Slack said "IBM has been Slack's largest customer for several years and has expanded its usage of Slack over that time." The company added it would not update its financial guidance for the fourth quarter or its fiscal year ended January 31, 2020.
Business Insider reported that an IBM executive said more than 300,000 of its employees already had access to Slack and the company was working to onboard the last 50,000. The report said the expansion means "IBM is now Slack's single largest customer." Slack's filing confirmed IBM has long been its largest customer.
U.S. stocks kicked off the week slightly higher, shaking off earlier declines as the coronavirus death toll overtook that of the 2002-2003 SARS outbreak.
Later this week, investors will receive a myriad of corporate earnings results, January retail sales data and semi-annual congressional testimony from Federal Reserve Chair Jerome Powell.
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4:43 p.m. ET: Slack says IBM has been its largest customer for years, addressing earlier media reports
Slack, in an SEC filing late Monday, said IBM has been slowly expanding its usage of Slack and has been Slack’s largest customer for several years.
The filing was in response to a Business Insider article earlier Monday saying that IBM had purchased Slack’s software for its employees to use worldwide. After the report, Slack shares were up as much as 21% intraday before paring some gains.
Slack also added that it is not updating its financial guidance for the fourth quarter or full year of the fiscal year ending January 31.
Shares of Slack resumed trading after market close at 4:43 p.m. ET.
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4:02 p.m. ET: Stocks close higher, S&P 500 and Nasdaq see closing highs
Here’s where the major indices were as of 4:02 p.m. ET:
S&P 500 (^GSPC): +0.73% or +24.42 points to 3,352.13
Slack (WORK) stock was halted at 3:49 p.m. ET, possibly ahead of an announcement, according to Bloomberg. The stock is up more than 15% so far on Monday.
Earlier Monday, reports suggested IBM (IBM) was going to have its more than 350,000 employees use Slack’s workplace communications technology, immediately unlocking a huge new user base and corporate customer for the newly public company.
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1:55 p.m. Earnings are topping expectations, but...
An electronic screen at the Nasdaq MarketSite shows the decline in the price of Apple shares, center, at the start of the trading day Wednesday, Oct. 8, 2008 in New York. Wall Street extended its huge decline Wednesday as an emergency interest rate cut failed to alleviate investors' fears that the paralysis in the credit markets will set off a global recession. (AP Photo/Mark Lennihan)
All things considered, it’s been a banner earnings season as nearly70% of S&P 500 companies beat estimates, Refinitiv data showed — well above the long-term average.
Still, Blackrock thinks the bar is being set too high, and all but guarantees a letdown:
“Analysts currently expect U.S. earnings to grow about 9% in 2020, a hair lower than the typical range for the start of the year. Yet we see that as an ambitious goal given potential for rising wages and other cost increases to further compress corporate margins. Our analysis of U.S. corporate profit margins over the stages of the business cycle since 1965 showed that profit margins have tended to contract in late-cycle periods. High earnings expectations, combined with these late-cycle dynamics and more attractive valuations in other regions, set a high bar for sustained U.S. outperformance.”
Add in the upcoming U.S. general election and coronavirus, and companies need to brace for “the potential for a highly volatile and noisy nine months ahead [featuring] a wide range of potential policy outcomes,” the investment giant said:
The bottom line: We stick to our view that global growth will edge higher in 2020 but expect the pickup to be delayed. U.S. equities could outperform on any further growth scares triggered by the coronavirus outbreak, given their quality bias and perceived resilience. But we remain neutral on U.S. equities, given elevated political uncertainties and the risk to margins. Overall, we stand by our moderate pro-risk stance, and expect an eventual growth pickup to support cyclical equity markets such as EM and Japan. Within U.S. equities we favor quality companies with above average return on equity, low leverage and strong cash flow.
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12:20 p.m. ET: Retail shipments see ‘sharper-than-usual’ drop
The National Retail Federation, which tracks retail shipment volumes at major U.S. ports, warned on Monday that the coronavirus epidemic is adding to the typical slowness associated with Lunar New Year. That means a usual slump is “sharper-than-usual,” the organization says:
“February is historically a slow month for imports because of Lunar New Year and the lull between retailers’ holiday season and summer, but this is an unusual situation,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said.
“Many Chinese factories have already stayed closed longer than usual, and we don’t know how soon they will reopen. U.S. retailers were already beginning to shift some sourcing to other countries because of the trade war, but if shutdowns continue, we could see an impact on supply chains.”
Accordingly, trying to forecast container volumes “has become even more challenging” and it’s far from clear when the manufacturing sector will normalize, the NRF said.
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11:20 a.m. ET: Investors unprepared for this ‘tectonic shift’
In this photograph taken on December 8, 2016, an automated robot works on an assembly line of Highly Electrical Appliances India Pvt. Ltd. at a company air-conditioner compressor plant at Matoda, some 20 kms. from Ahmedabad. / AFP / SAM PANTHAKY (Photo credit should read SAM PANTHAKY/AFP via Getty Images)
In a lengthy study published Monday, Bank of America put a new spin on a slowly unfolding story: Namely, that global supply chains are migrating to other countries like Southeast Asia, India and even North America.
According to a BofA study, “...much more surprising was that companies in about half of all global sectors in North America declared an intent to 'reshore'. This was particularly true for high-tech sectors and industries for which energy is a key input. If borne out, this could represent the first reversal in a multi-decade trend.”
In all, multinational companies worth $22 trillion in market cap are being impacted, and the bank warns that investors may not be ready. So what’s behind the shift? BofA noted there are several reasons, but among them are tariffs, narrowing tax advantages, and national security. And the kicker:
“In our view, these movements are ‘tectonic’: slow moving, persistent with major changes to the business environment for global companies.
“...We don't think investors are fully prepared for this tectonic shift. In our view, the US could be a significant beneficiary of this process, while Chinese firms are perhaps most at risk. Even more striking, our survey found almost universal intent to use automation.”
As such, the bank recommends adding exposure in automation, industrials and banks stocks in the regions set to become beneficiaries of the shift.
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11:00 a.m. ET: Stocks and the coronavirus outbreak
In the last couple of sessions, Wall Street has had a delayed reaction to coronavirus fears. Yet according to DataTrek, there are several reasons why stocks haven’t priced in more aggressive losses:
The illness is still largely contained to Mainland China, with 99% of the worldwide cases through today. Even if you do not trust the Chinese government numbers, the count outside the country is trustworthy.
China is addressing the outbreak aggressively, with mass quarantines and other measures enabled by its powerful authoritarian governance structure.
Markets know this means 1H global economic growth will slow, but they also assume a containment of the disease during this timeframe because of the steps outlined in the prior point.
The virus will make for a temporary truce in the US-China trade war that will extend for at least several more months. President Trump knows there is no point in pushing on the issue while the Chinese government is focused on this crisis.
...A 2H 2020 re-acceleration in global growth (post the presumed containment of the virus) will serve President Trump well going into the November US general election. Markets see him as better for the US economy than current Democratic front-runner Bernie Sanders.
Bond markets, in true on-brand form, see the economic effects of the coronavirus as modestly deflationary (more on this in a moment). Yields have therefore declined around the world, supporting equity valuations. And since central banks are fixated on deflation, the chance they will cut rates is rising.
All told, the firm points out that the stock market is more of a leading indicator, with investors pricing in where growth/earnings will end up in 6 months time. “Investors see the real possibility of a period of global economic catch-up” in the second half — and a Trump reelection bolstering next year and beyond.
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10:34 a.m. ET: Stocks push higher, shaking off coronavirus fears
After opening slightly to the downside, the S&P 500 and Dow pushed into positive territory about an hour into the regular trading session.
Here were the main moves in markets, as of 10:35 a.m. ET:
S&P 500 (^GSPC): +0.36% or +11.85 points to 3,339.55
10:32 a.m. ET: Tesla’s stock jumps again, extending incredible run
Tesla’s (TSLA) stock rose as much as much as 9.6% on Monday to $819.99 at the highs of the morning session, as shares of the electric car-maker continued to surge.
The stock received an apparent boost over the weekend after Chinese officials said Tesla’s Shanghai Gigafactory would resume production Monday, Feb. 10, with the government helping it work through the spread of the coronavirus, Reuters reported.
Tesla executives had said during their earnings call with investors late last month that the company would see a 1-1.5 week delay in ramping production at the Shanghai Gigafactory amid the coronavirus.
Shares of Tesla were up about 80% for the year to date through Friday’s close.
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10:27 a.m. ET: U.S. economic growth could take a hit in Q1 as coronavirus impact spreads
U.S. real gross domestic product growth could slow well below 1% in the first quarter as the impact of the coronavirus takes hold, according to a note from UBS economist Seth Carpenter Monday. These effects, however, will likely reverse in the second and third quarters this year, he added.
We see the net effect on the US as being small, but the quarterly swings are likely to be measurable. For the US, we see the effect coming through three channels: tourism, exports, and a temporary disruption to manufacturing because of delayed imports. For Q1, we have trimmed our real GDP estimate by 0.2 [percentage points] to a 0.4% [quarter on quarter] annual rate. We assume that the hit in the US from the coronavirus is mostly reversed over the course of Q2 and Q3. There are significant risks to this forecast. Our forecast change is conditional on China reopening production next week and based on the China team’s assessment that production disruptions will be small.
UBS’s prediction for U.S. Q1 GDP is below that of the Atlanta Fed. The regional bank’s closely watched GDPNow model estimates real GDP growth of 2.7% in the first quarter.
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10:20 a.m. ET: Chinese hackers charged with Equifax breach
Four Chinese military hackers have been charged in the 2017 breach of the Equifax credit reporting agency that affected nearly 150 million American citizens, Attorney General William Barr said Monday.
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9:35 a.m. ET: U.S. stocks open little changed amid coronavirus outbreak
The Dow and S&P 500 opened slightly in the red Monday morning as fears over the coronavirus continued to mount. However, each index pared losses from the pre-market session.
Here were the main moves in markets, as of 9:35 a.m. ET:
S&P 500 (^GSPC): -0.05% or -1.6 points to 3,326.11
7:47 a.m. ET: Stock futures mixed as coronavirus death toll rises
Contracts on the three major indices were mixed Monday morning, after falling for the first time in five sessions on Friday. Fears over the spread of the deadly coronavirus continued to be a focal point for global investors.
As of Sunday evening, the coronavirus had claimed the lives of 908 in mainland China, and total cases rose to 40,171, according to China’s National Health Commission. Ninety-seven people died from the disease on Sunday alone. More have now been killed by the coronavirus than during the SARS outbreak of 2002 to 2003, which killed 774 individuals.
Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, noted in a Twitter post Sunday that some coronavirus cases have begun to emerge even in individuals who did not travel to China.
There’ve been some concerning instances of onward #2019nCoV spread from people with no travel history to 🇨🇳. The detection of a small number of cases may indicate more widespread transmission in other countries; in short, we may only be seeing the tip of the iceberg.
In the UK, where there have so far been eight confirmed coronavirus cases, the country’s health secretary called the outbreak “a serious and imminent threat to public health.” Elsewhere, more than 3,000 people have been stuck on a cruise ship in Yokohama, Japan, in a two-week quarantine, with dozens on board having tested positive for the coronavirus. Separately, home-rental services Airbnb has halted bookings of all listings in Beijing through the end of February in effort to contain the coronavirus.
Here were the main moves during the pre-market session, as of 7:47 a.m. ET:
S&P futures (ES=F): 3,324.75, down 0.75 points or 0.02%
Dow futures (YM=F): 29,025.00, down 19 points or 0.07%
Nasdaq futures (NQ=F): 9,413.25, up points or 0.04%
Crude oil (CL=F): $50.18 per barrel, down $0.14 or 0.28%
Gold (GC=F): $1,575.10 per ounce, up $1.70 or 0.11%
A man wearing a protective face mask walks on an overpass in Lujiazui financial district in Shanghai on February 10, 2020. - The death toll from the novel coronavirus surged past 900 in mainland China on February 10, overtaking global fatalities in the 2002-03 SARS epidemic, even as the World Health Organization said the outbreak appeared to be stabilising. (Photo by NOEL CELIS / AFP) (Photo by NOEL CELIS/AFP via Getty Images)
Slack shares were up 14.5% to $26.32 Monday afternoon.
Photograph by Drew Angerer/Getty Images
Slack
shares were trading sharply higher Monday after a report said the company has secured its single-biggest contract ever—a deal to provide its collaborative-communications software to the 350,000 employees at
IBM.
The news was reported Monday morning by Business Insider. “Going wall to wall in IBM—it’s basically the maximum scale that there is, so we now know that Slack will work for literally the largest organizations in the world,” Slack CEO Stewart Butterfield told the publication.
Slack shares (ticker: WORK) have floundered since their direct listing in June 2019. The stock opened for trading at $38.50, and over time drifted lower, pressured in part by the perception of increased competition from its primary rival,
Microsoft Corp.’s
(MSFT) Microsoft Teams. But the stock has picked up steam in recent sessions—up about 32% this month—and was on track Monday for its single best day since going public.
Neither Slack nor IBM (IBM) immediately responded to requests for comment.
Slack was up 14.5% to $26.32 Monday afternoon and traded as high as $27.89, the highest price since September. The
Dow Jones Industrial Average
was up 0.2%.
