Bill Barker and Deidre Woollard discuss:
- Why Yellow shut down and what place it occupied in the world of trucking.
- SoFi’s strong quarter and what it needs to become profitable.
- Tupperware and the danger of meme stocks.
Mauro Guillén, author of “The Perennials”, makes the case for abandoning traditional generational views of society, career development, and retirement.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on July 31, 2023.
Deidre Woollard: Is it trucking company melt down a cautionary tale for the future Motley Fool money starts now. I am Deidre Woollard here with Motley Fool endless Bill Barker. How are you today, Bill?
Bill Barker: Very well, thanks.
Deidre Woollard: Let's start with a big story that unfolded over the weekend. Yellow, a large freight trucking company with a 99 year history, they shut down operations. This is interesting because it's as much as 10% of all the lessen truckload shipping in the US. When you think about Yellow, it's also all of the 12,000 trucks and shipping freight for Walmart, Home Depot, some of the other big retailers. What else is happening here?
Bill Barker: Well, their debt caught up with them and they were in negotiations with the drivers as a union shop and they could not get to a price that was going to work. They didn't really have that much freedom on the company side to negotiate a higher wages because of all the money they had already borrowed and the covenants, they had to go to their lenders to get any significant arrays approved and that really wasn't going to happen. Negotiations broke down and they really stopped taking new orders last week and kept delivering the things that were already in the system. But their are customers fled and then earlier in the month as they lacked confidence in the company and with good reason, they just had too much debt. They were not turning a profit then they had big loan payments coming due soon.
Deidre Woollard: There's a couple of things that happened that teamsters negotiation that I think till around July 24th is when that broke down. That's what you mentioned when the customers started leaving. Now, they announced on Friday that they were laying off all of their non-union employees, and then over the weekend, they finished up with that. Now it seems we're waiting for bankruptcy notification. Do think this is a Chapter 11 and restructure or Chapter 7 and they just tried to celebrate thing off.
Bill Barker: I'm not sure there aren't that many details out there. I think that, prefer from a capitalist viewpoint to see Chapter 7, they just weren't a very good capital allocator. They have being given money to use. They had employed a lot of people. They delivered products, but they were the low cost and the low reliability provider in the space. I think that there are going to be higher prices across the LTL less-than truckload, universe going forward because everybody else charged a little bit more and was more reliable. I mean, they were more worth as those are the outcome of the market interaction, so approves. They were worth more money to do the service than Yellow was. They were used by a lot of the people who are looking for the cheapest price. But you get what you pay for and that's where we are today.
Deidre Woollard: Yeah. Very true. If they're out of the running permanently, is that a benefit for XPO Logistics, Old Dominion's some of those other companies?
Bill Barker: Yes. [laughs].
Deidre Woollard: Simple enough.
Bill Barker: Simple enough. You take somebody who is able to capture 9, 10% of the market that's down from where it once upon a time was, but still a reasonable percent third largest player. You just give that business to all the competitors say XPO, FedEx, Old Dominion, which is the real quality player in the LTL space. They're all going to benefit. They're all going to be picking up business from this and they're all going to be able in the short-term to charge higher prices for taking on the business because they've got to scramble to be able to fulfill all the demand that's now out there.
Deidre Woollard: It's a little bit of good news because the e-commerce sector and the freight sector has been down a little bit. Maybe that's good news for them.
Bill Barker: But I say it's definitely good news for them. Because things are a little lighter, the economy has shifted more toward experiences rather than goods. As we've come out of COVID. There was a little bit of slack in the system and prices had come down. Now they'll go back up, it's a cyclical economy there, but the general economy is healthy. This was not a particularly bad part of the cycle for the trucking industry. It was just a little bit lighter than it had been.
Deidre Woollard: Well, part of the story here is the company received a $70 million pandemic loan. There was a congressional report that came out last month saying the loan was a mistake. Do you think this is going to have any impact on future bailouts? We're not looking at any other bailouts right now, but we know the cycle eventually government bailouts will become a question again.
Bill Barker: Well, you hope that people will learn from this. Unfortunately, the loan was made during the Trump administration and the report was issued by republican congressmen French Hill. He did the writing on it. There isn't the extreme level of politics that one might anticipate where one party is accused of having done something with the other party then gets to take a shot at. This is a little bit more hey, this was done in 2020. It was done at a time where there was a lot of questions about how things were going to play out. But the size of the loan to Yellow, given its history, practically went bankrupt and the last recession, '08, '09, and just really didn't have a great record of capital allocation. It wasn't a surprise that they were immediately in trouble in 2020 and they did do some deliveries for the department of defense and energy. There was this national security argument to make that their continued existence was critical to national security is a bit of a stretch because there are a lot of other companies that did the same work and then were healthier. In retrospect, it obviously was a mistake because the money is not going to be repaid.
Deidre Woollard: The other story here with that is that the Teamsters negotiation that we talked about, so bad news for the Teamsters on this one's about 22,000 union employees. But it's been a busy summer for the Teamsters. They recently negotiated their contract with EPS. They seemed like they got a lot of what they wanted. I feel like we spent a lot of time talking about unions this summer more than we have in a long time as investors. How should we be thinking about unions going forward? I know we've got other workers of negotiation coming up. Seems like unions are in the news a lot lately.
Bill Barker: Yeah, there are a lot of contracts that are coming up and inflation has been a factor since the previous contracts were entered into. There's a very good argument that the wages have to be raised quite a bit. That's a cycle that ends up potentially extending inflation. But this is an isolated situation. The Teamsters negotiated pretty successfully, I would say with UPS, I would assume the autoworkers, again, although there's plenty of cyclicality there, they're in a healthy enough position, which Yellow was just not. Yellow had offered, I think a rather significant raise package that didn't work out and I don't know that they could have pulled it off anyway given what they would have to have had approved from their lenders. But I think that the unions are right now in a reasonably strong position in this particular case doesn't really undermine that.
Deidre Woollard: With Yellow, one last thing about them is that they're divesting themselves of Yellow logistics. They announced this a couple of days before everything finally went down. It's their third-party logistics part. This one seemed like the part of the company that was doing well. It reminded me a little bit of Bed Bath and Beyond where the Buy Buy Baby part was actually the most interesting part. Do you think that Yellow logistics is going to have a future beyond this? Is someone going to buy this because it was perhaps the best part of things.
Bill Barker: Yeah, absolutely. It's the valuable asset other than the physical assets of the tractors and trailers? It's a real business that has a good history and it was growing well and is in the middle of the e-commerce revolution and so somebody is going to pick that up. Within bankruptcy protection, they'll be able to not put this out on a fire sale. They'll get a reasonable market price from a competitive bidding process, I think. But as a standalone, I don't think that it can really go forward given the bankruptcy situation. Yeah, you would expect somebody to buy it and that money to be distributed ultimately to the debtholders.
Deidre Woollard: Last not the shareholders. Let's move on to something a little brighter. We've got a lot of earnings coming this week, not thought so much today, but so far as earnings came out today and this company, I like this company. About a year ago, my husband said to me, you wanted an inexpensive stock with potential. We talked about this one, took a small stake, it didn't go so well for me in the beginning, you gave me a little bit of a hard time about it. It's been a bit of a fried, but these earnings were pretty strong. I think maybe I've redeemed myself a little. Members up 44%, products up 43%, revenue up 37%, seems pretty strong. What do you think?
Bill Barker: Are you in position to take a victory lap yet?
Deidre Woollard: [laughs] Not yet.
Bill Barker: Not quite yet.
Deidre Woollard: Definitely not yet.
Bill Barker: Yeah. It's still I don't know where you entered, it's still about half of it, its all-time high to peaked along with all the rest of tech, late 2021. Despite the fact that it's had a good run lately and is it a 52-week high, it's not an all time high. It's got to double from here, but it's an awfully smooth growth that they've had. It really is every quarter. It's gliding down year-over-year. Forty four percent for new members. That's down from 46% the quarter before 51%, the quarter before that, 61% the quarter before that. That's the law of large numbers that you expect. Still 44% growth after the second-quarter and the year before for the second-quarter in terms of members not revenue at a grown at 69%. They're adding a lot of members. I think they're in a good position. In terms of the model, full-service, asset-light, they don't have branches. They've a stadium named branches. I think that is more of the future, particularly for their young affluent clientele. They've gotten away from what they were once upon a time, which was mostly originating student loans, that's less than 10% part of the business now. If you ignore the stock price, the business is doing very well in terms of its growth other than the fact that it is not yet earning money. Which given the age of the company you can excuse, but the profits do have to show up for the stock ultimately to go much further.
Deidre Woollard: Yeah, that is true. Doubt they are not profitable. They did cut losses though by 50%, so they're making progress there. They are saying they're going to get GAAP profitable for the fourth-quarter. But what could stand in the way of that?
Bill Barker: Of course, the economy. Economy looks pretty healthy. The second-quarter GDP numbers out last week to 2.4% growth, I think. The early GDP now cost numbers are stronger than that for the third-quarter. But yeah, they need to be originating more loans, so they need a healthy economy and they need to, I think, be originating the right kind of loans and their clientele, for the most part, is more affluent. It's going to be less risky. They securitized and sell off most of the loans. They don't hold onto them. But I think that what would get in the way also could be another expansion of the business beyond the very full-service offerings they have now, every time they expand, they're taking on some more costs for to increase another side of the business.
Deidre Woollard: That is the thing I find a little concerning or worrying. They recently partnered with Expedia on SoFi travel. There now dipping their toes into the IPO market. They were part of the audit detect IPO. I worry a little bit that they're going to try to take on too much too soon and kind of like you just said, spread themselves too thin.
Bill Barker: Yeah, they have put in their presentation PowerPoint, which you can get on the Investor Relations side of their website. If you're interested in they talk about the products being nine million products. I don't know what that means exactly. That sounds like accounts.
Deidre Woollard: I think it's accounts [laughs]
Bill Barker: Of all the different kinds of products they have for their membership I guess since they speak in terms of members. It's a lot of different irons in the fire that is part of the business of being full-service with Expedia. I don't know how much of that really business they take on is just an outsourced thing.
Deidre Woollard: Margo & Partners.
Bill Barker: Of the IPO market, I get they're not really in partnership with Audi. They're just getting some exposure to some of the IPO shares which they can then offer to their clientele. The more of those that they can get, I think the more attractive they're going to be to a certain part of the banking sector that wants exposure to an IPO. That's reserve for the most part to other higher net worth individuals. You're not going to be able to get that much of an exposure through them, I don't think, but the feeling of having some is probably attractive to a certain part of their business.
Deidre Woollard: Yeah. It makes sense because it seems like they're trying to be the younger, cooler version of a big bank with some of those big bank characteristics.
Bill Barker: Yeah. They offer more services than many of the big banks. That is potentially going to involve more cost, but they make up for that by not having the branches. To the extent that they maintain a efficient lean website and app, they're in position to ultimately profit and profit quickly if they continue to scale for another year or two above 20 or 30% growth.
Deidre Woollard: Well, we started off with talking about a company that is in debt, let's end with one. I think we might have a new meme-stock on our hands. New meme an old name, Tupperware. Back in April, they filed an 8-K saying they might not be able to continue as a going concern, they were trading under a dollar. It's got around 700 million in debt. It's not looking good, but all of a sudden the last couple of days, it went meme stock, it went about tripled in a couple of days, trading around three dollars a share. Now it's, not in danger of being delisted, but this isn't one I would touch with anybody's money. What about you?
Bill Barker: Now, I think we've seen this movie before. It's not quite as doomed an enterprise, I would say. Seemingly, it's got brand value and it's got products that people actually use and pay for. It's just taken on way too much debt and they have not been a well-run company. But there's a core business there that's going to survive, a brand that's going to survive. It's just with the debt involved, it's probably worth pretty close to zero and the market had gotten there. Now it's been captured by the meme crowds and the stock might go anywhere in the short-term, given the short squeeze capacity of some people to, especially given how low the market cap is, it's still under 200 million. If you get enough people acting in concert with each other, you might be able to get those wild ride and get out at the right point before it ultimately collapses back down to what it deserves to be at, which is something close to zero.
Deidre Woollard: Yeah, not a game I like to play. I do hope the brand itself survives, even if the company doesn't.
Bill Barker: Yes, the brand has value. The brand will survive and the products will survive. They'll just be elsewhere, I think.
Deidre Woollard: Indeed. Thanks for your time today Bill. Good to chat with you.
Bill Barker: Thank you.
Deidre Woollard: [MUSIC] Often hear things like boomers are out of touch. Gen Z is lazy. Why do we pit generations against each other? Best-selling author and business professor Mauro Guillen tackles this way of thinking in his new book, The Perennials, I sat down with him to discuss the future of aging. [MUSIC] Retirement age, it's become controversial lately we had that fight in France happening over raising the retirement age. You pointed out in the book that the retirement age in China is quite a bit younger than it is here in the US. How can individuals and governments are really rethink retirement and retirement aged particular?
Mauro Guillen: Yeah, well, first of all, the French have actually no excuse to protest because on average they retire at age 62 or 63. Whereas here in United States on average we retired at age 69 or 70, and in Japan even later. The French, of all people in the world actually have it already quite good, because they retired relatively early. Retirement has been oversold. Retirements stifles your mind. Retirement disconnects you from your social circles. Now that we live much longer, it doesn't make any sense to be in retirement since your age 60 or 65. The issue here is that we need to find ways for companies and other organization not to discriminate against people in their 50s, 60s and 70s, so that they can continue to work if they wish to do so. A separate problem of course is pension, so we've made some promises to people that they couldn't be. We'll be able to collect a public pension if they work the number of years and of course, when people retired and they have a claim of that pension, another we live in longer. That is putting a lot of financial pressure on social security in the US and similar schemes around the world. We'll certainly need to rethink that. We need to encourage people to save money besides their state pension, and we need people to also consider working on it a bit longer if they choose to do so. I wouldn't mandate it. But I would provide people with the opportunity to show if that's what they want to do.
Deidre Woollard: Yeah, it's not just a public pensions as private pensions as well for certain organizations is also a concern, and when you talk about working longer, one of the things you're talking about in the book is that most people have three careers, maybe even four careers and that retraining becomes part of our lives, which I think it's happening now, but I don't think it's happening at the scale. Perhaps that it might, it makes me think about some of the people that are perhaps in industries that are hard on the body like a construction or truck driving or things like that. How do you see that multi-career focus of playing out for people in different types of careers?
Mauro Guillen: This trend is as you say, the incipient so we only have in the United States, for example, maybe 5% or 6% of people switch careers, not switched jobs, but rather switch carriers so they were teachers and become programmers. I think that trend is going to continue for two very important reasons. One is that the economy constantly changes and maybe when you were 20 years old, you made the wrong decision as to which carrier to pursue. You should have a chance at age 40 to essentially switch careers, right? The other reason, of course, is that technological change is making some careers less attractive and it's making the jobs disappears. Now with AI is not just a manual labor, but it's also cognitive labor and we're going to see much more of this. In other words, we need to help people make transitions in life in a more flexible way, including the transition to another career that will require, as you said, lifelong learning. Now as the physical workers or there's a limit as to how long you can be a construction worker, for example. Typically what companies in those or people in those occupations have done is they become self-employed or they run a consulting business for construction, or they stay at the company, but they become record keepers or they do some perform some other work as opposed to physical work so we need to again, offer much more flexibility for those people who are in physical occupations. Because yes, I mean, once you've turned 50 or 55, it'd be becomes really difficult to continue being a construction worker, for example.
Deidre Woollard: Yeah, the age of those industries keeps going up. Reframing education seems to be something really important here in the book you touched on the idea that we're not really preparing young people for the future because we can't prepare them for jobs that potentially don't even exist yet, so as education becomes spread out through your life, how do you think that changes the beginning of the educational experience?
Mauro Guillen: Yeah. Well, I think the education sector knife worked in it for my entire life is the slowest one to change. Everybody should blame my speaker so not just that scores, but also universities. We changed very slowly and as you said, we should be changing in terms of what are the jobs of the future in 20 years from now as opposed to the rapidly-growing job or occupations today. I think are the online revolution with all of the new competition that is entering the education sector. I think that's going to be a big repulsive for a lot of studies, universities and schools to innovate, to become so much more open to new formats of learning and so on and so forth. Also keep in mind that younger people today learn in a very different way than the way that you and I used to learn, they like more interactive teaching. They like digital, like multimedia and so forth, so the education sector has to change big way, big time. Because otherwise, it's going to be very difficult for people to adapt to all of these economic and technological changes.
Deidre Woollard: Yeah, so you see the future as education, as being more collaborative and less lectured driven?
Mauro Guillen: Absolutely. Because when you take a look at here in the United States, what are the skills that employers are requiring? Well, they do require, of course, that certain technical skills, I mean, maybe accounting skills or math skills or whatever other technical knowledge. But in addition to that, they also requiring social skills and we don't teach them that well so what do I mean my social skills? I mean the ability to work in teams. I mean the ability to negotiate, I mean emotional intelligence and so on and so forth, so those social skills are very important at work and actually companies select people on the basis of those skills. But we don't teach them well at school or in university.
Deidre Woollard: Yeah, that is absolutely true and what are the things you talked about the two is the idea that a lot of people of all ages want to work for younger bosses these days, which I found was interesting.
Mauro Guillen: Yeah, there's that increasingly more and more people have a boss who is younger and this of course is, has been very typical in the tech sector. But it's a spreading now throughout all of the industries in the economy. Then the other phenomenon is reverse mentoring. It used to be the case that the mentor would be somebody older than the I've recipient of that mentorship. But now we have to wait mentoring going on in so many organizations so those are really important changes. Again, I mean age is becoming less and less relevant as you can see in the workplace, less and less relevant and that's why I think it's important to emphasize that the book is not just for people who are approaching 50 or 60 years old. It's also for younger people so that they can make the right choices early on in their lives.
Deidre Woollard: As we get away from the sequential generation idea, does the attitude around investing change in general? Because traditionally we've all been taught to save for retirement, to make money when you're young to head toward that goal. If what you're talking about and we get away from this idea of like age segments in life. Does that change how people should be thinking about their money the whole way through?
Mauro Guillen: I think yes and no. No because I think it's still a very good habit to save for retirement. Whenever I talk to people who are in their late 20s, early 30s, they've got their first job or their second job and I always tell them, take advantage of all of the tax incentives. If you put money in savings accounts, be wise, it's never going to be enough money. You also have so do other things to have a good retirement. But the answer is also yes that things are going to change because as I was telling you earlier, I think that we need to fundamentally rethink retirement and I think full retirement, you know that you're 100% not working, meaning you have 100% of your time for leisure, I don't think it's a good idea. Let's say from the time you are 65 until you're 95, so for 30 years because life expectancy has grown so much exactly. It's like almost another lifetime. I think most people slowly but surely will gravitate towards a formula in which they work a little bit and they make some money. But they also have a lot more leisure and above everything else, they have a lot of flexibility. Now with, for example, remote work, this is appealing to a lot of retirees because they hated community. A lot of people retire, or want to retire because of commuting. But now more jobs don't require commuting or at least they don't require it every day. I think things are changing very quickly and we're going to see, I think, a future in which people aren't going to be in semi-retirement or in hybrid retirement if you want to put it that way.
Deidre Woollard: I think that's true, one of the things I've noticed is a lot of the Uber drivers I've had have been retired and I asked them, do you have to do this or are you doing this for fun and a lot of times they're doing it. They liked the extra money, but they have money coming in from their investments are from social security or pension. But they liked the money because they feel like they can spend this money more easily and they like the interaction. They'd like to have stories.
Mauro Guillen: Exactly right, they can chat to people, they have something to do. I mean, to spend 30 years in retirement without working or without volunteering your time it's almost like a prison sentence, it's like you're you're been sentenced to retirement to be in isolation, to have nothing to do. I don't think that is healthy. I don't think that's good.
Deidre Woollard: That is the opposite of the way it is sold to people.
Mauro Guillen: Yeah, absolutely. This is again, an American thing, you're supposed to be successful in life, if you can retire early. Like at age 40. I think we have to get rid of that, that cliche. I think its very damaging and I don't think it is the best option for most people.
Deidre Woollard: 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. I'm Deidre Woollard. Thanks for listening. We'll see you tomorrow.