Tuesday Apr.02, 2019

Cookies on sale for $1.3B

"The real Keebler elf"
"The real Keebler elf"

Hey Snackers,

Happy belated 15th birthday, Gmail.

Solid manufacturing data from the US and China got the 2nd quarter going right — And the S&P 500 closed in on its highest point of 2019.

Acquired

Kellogg's sells off cookie biz to Nutella-owner for $1.3B

Going full paleo?... Kellogg is cleansing its home: For $1.3B, Italian sweets legend Ferrero beat out Twinkie icon Hostess Brands in a multi-month bidding battle for the Kellogg's dessert. The winnings include elf-powered Keebler, Famous Amos, fruit snacks, and even Girl Scout cookies (#SaveTheSamoas).

Cookies need love, too... And that's what Ferrero does — It turns around tired candy brands with marketing love. It recently bought some candy bars from Nestlé for $1B and already reintroduced a "Better Butterfinger" (with bigger peanuts 👌). Kellogg's hadn't been giving its older candy brands the attention they needed, and it shows:

  • $4.4B = The 2001 price Kellogg paid for Keebler.
  • $900M = The 2018 total sales for Keebler + all the other brands Kellogg's just sold.

Unhealthy isn't totally unhealthy... Kellogg's stock is down 11% in the last year as consumer tastes shift, and its sugar-fueled cereals lose out to chia pudding. But the calorie-infused brands that Kellogg has treated with marketing money are actually doing just fine.

  • Cheez-Its (sales up 5% since last year)
  • Pringles (up 7%)
  • Rice Krispies (up 15%)
Drill

The new most profitable company in the world: Saudi Arabia's Aramco (by far)

Long-term exclusive commitment... Saudi Arabia has historically been a one company Kingdom. That's Saudi Aramco, the state-owned oil giant. And as a privately-owned company, Aramco's financials enjoyed secret status. But now that it'll participate in public markets for the 1st time, we get a look at its (gigantic) numbers.

$15B to spare?... That's all Aramco's asking to borrow. To convince investors it's good for the money, it's showing off its profits. And they're extremely connected to whatever oil prices are doing:

  • In 2016, profits for Aramco were $13B. That's when the average price of oil hit a 13-year low of $38 per barrel.
  • By 2018, profits had surged to $111B thanks partly to oil prices returning to $58 — Aramco's profit was more than Apple, Alphabet, JPMorgan Chase, and Exxon Mobil's. Combined.
  • Despite the extreme profitability, Aramco didn't get a perfect credit rating ("A1" = good, but lower than less-profitable American oil companies). Blame the bigger political risk in the region.

This may shake the oil habit... Aramco's profits fund 70% of Saudi Arabia's national budget. That worries Crown Prince Mohammed bin Salman, as car giants and nations go electric. The $15B that Aramco's borrowing will give the Prince money to invest in economy-diversifying anything (he's got a thing for US tech and movie theaters).

Grapple

World Wrestling Entertainment drops after a TV show takedown

But is it fake?... For 23 full minutes, John Oliver's Last Week Tonight put World Wrestling Entertainment in a figure-four leg-lock. The Sunday night show claimed WWE wrestlers are independent contractors facing brutal work conditions. WWE shares fell 2.3% early Monday before rebounding back.

The ring of public opinion... That's where the stock's moves all played out. WWE was accused of blocking wrestler unions and offering them no benefits, just to save money. Then WWE aggressively denied everything from the HBO segment, claiming it could "refute every point in his one-sided presentation."

Feels like a docu-doozy re-run... High-profile exposés and documentaries that damage a brand can hurt share prices long-term. Here's who else has also suffered from the stuff on TV:

  • Blackfish dampened SeaWorld park attendance for years.
  • Leaving Neverland could hurt Michael Jackson's Sony music deal.
  • The infamous 60 Minutes segment on Lumber Liquidators ripped the lacquer off the wood company's shares.

What else we’re Snackin’

  • Reverse: Lyft stock stays volatile, falls 12% on Day #2 of trading
  • LéFlix: Netflix unveils its new French content strategy
  • Food$: Amazon announces it's cutting Whole Foods prices on Wednesday even lower
  • Hired: Tinder snags a new Chief Product Officer to focus on college students
  • DTR: Slack chooses the New York Stock Exchange to list its stock

Tuesday

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Chipotle posted much better-than-expected results on Wednesday, with sales rising 14% to a record $2.70B in the first quarter, which is like a billion additions of guac.

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Chipotle has quietly cruised higher over the last year. It’s up 63%, compared to the 24.5% gain for the S&P 500 over the 12 months through Wednesday’s close. Not bad for a rice-and-beans based business model.

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While Reuters reported earlier this month that Tesla is no longer making its long-awaited $25,000 mass-market car — news sent the stock, already suffering from headwinds across the EV industry, down even further— Tesla reported during its earnings that it’s going to make cheaper cars than it currently has.

Before the second half of next year, Tesla said it will release “more affordable models” that “will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up.”

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Not so Gucci

French luxury fashion conglomerate Kering has seen its shares fall ~10% in the last 24 hours after reporting that sales at its flagship brand Gucci had dropped 21% in its latest quarter.

Kering’s other brands, which include Yves Saint Laurent, Bottega Veneta, and Balenciaga, fared slightly better — but the only real bright spot was the company’s eyewear division, where sales rose 24% (9% on a comparable basis).

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.

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Kering Warns Profit to Tumble Following Gucci Woes in China

Kering Warns Profit to Tumble Following Gucci Woes in China

With Gucci responsible for roughly two-thirds of the company’s profit, the ongoing struggles of the brand are weighing heavily on the bottom line: the company expects recurring operating profit to drop 40-45% in the first six months of the year.

Gucci execs will be hoping that new designer Sabato de Sarno can turn the iconic brand’s fortunes around, particularly in China where demand has dropped precipitously. His designs only started hitting stores in February.

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The Federal Trade Commission has sued to block big tech, big grocery, big vacuum, and now, big… “affordable luxury handbag.”

Yesterday, the FTC sued to block Tapestry Inc’s $8.5B acquisition of Capri holdings. The agency is worried that a merger between Tapestry, which owns the Coach and Kate Spade brands, and Capri, which owns Michael Kors, would eliminate competition in the market.

The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

FTC Moves to Block Tapestry’s Acquisition of Capri

FTC Moves to Block Tapestry’s Acquisition of Capri

The crux of the FTC's argument lies in the scope of the "accessible luxury" handbag market, where Tapestry competes with Michael Kors, with the FTC saying the following:

Where Tapestry and Capri most vigorously compete against one another – mainly between Tapestry’s Coach and Kate Spade brands against Capri’s Michael Kors brand – is in the “accessible luxury” handbag market. Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices.

The deal would eliminate fierce head-to-head competition on many important attributes including on price, discounting, and design. Tens of millions of Americans that purchase Coach, Kade Spade, and Michael Kors products could face higher prices

While Capri and Tapestry are two of the largest players in this market, winning an antitrust case won't be so straightforward, as consumers have other options at similar price points, including Marc Jacobs (owned by competitor LVMH), Tory Burch, Cuyana, and Mansur.

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Tech companies that have long touted the enormity of their AI models are now saying size doesn’t always matter.

Microsoft is the latest tech company to introduce smaller AI models, as part of its Phi-3 tech family. Last week Meta released two smaller models of its AI Llama 3 and earlier this year Alphabet did the same. All are open sourcing these models to encourage wider adoption.

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.

Microsoft Makes a New Push Into Smaller A.I. Systems

Microsoft Makes a New Push Into Smaller A.I. Systems

Microsoft says its smallest model, which can fit on a smartphone and wouldn’t need to be connected to the internet to work, is nearly as good as OpenAI’s GPT-3.5. A Microsoft exec suggested this less expensive model could be a good fit for online advertisers, if not doctors.