Milk was a bad choice

QUOTE OF THE DAY

They will be met with fire and fury like the world has never seen."

Market Snapshot

• U.S. indexes finished lower with the Dow ending its ten-day streak.
• Disney shares fell 3% after-hours; earnings beat, but revenues missed.
• The dollar rose on strong U.S. job openings data (see story below).
• Gold ended up following tension between the U.S. and North Korea.



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Milk Was a Bad Choice

If you want strong bones, drink milk. If you want a strong bottom line, you need Wal-Mart (+0.37%). At least that’s the case for the U.S.’ top milk processor, Dean Foods, which leans on the retail giant as its biggest customer.

For Dean, Tuesday’s second quarter earnings made it clear big drinkers weren’t returning to the bar(n)—sales volumes fell 2.7% and the cost of milk rose 15%, sending Dean Food’s net income down 45% to $18 million.

And things are turning even more sour. To the chagrin of Dean Foods and udders everywhere, Wal-Mart said it would open its own milk production plant—stripping Dean of 90 to 95 million gallons in annual sales. Its stock fell 20%.

Because milk just isn’t what it used to be

An onslaught of changing tastes from healthier plant-based alternatives (think almond and soy milk) to flavored water and juices is—dare we say—milking the industry dry. Just think, U.S. fluid milk consumption has fallen nearly every year since 1975. Meanwhile the milk alternatives market surged from $5.8 billion in 2014 to a projected $10.9 billion in 2019.

Still, Dean Foods doubled down on dairy. From 2013 to 2015, it spun off its milk-alternatives brand, WhiteWaves, into a public, independent company and consolidated all 31 of its milk brands under one unified name, "Dairy Pure."

And how exactly did all of that work out? WhiteWaves’ stock surged almost 300% until it was bought in 2016 by Danone for $12.5 billion and Dean Foods’ share price has fallen 45% this year alone. You tell us how it went.

Zoom Zoom

There’s only one thing for Mazda to do after announcing its push towards electric with Toyota last week—reinvent the internal combustion engine (ICE).

To get those cars purring, traditional gasoline engines mix fuel with air and ignite it with a spark. This method is different from diesel engines (a more efficient type of ICE) that compress air until it is hot enough to ignite the fuel itself. Think of Mazda’s new SkyActiv-X technology as the crossroads between the two.

And it’s efficient. Like, 20% to 30% more fuel efficient than any of its current engines. Sure, it may feel like Mazda took a wrong turn from where automakers are headed, but the Japanese carmaker believes it can pursue electrification while perfecting the internal combustion engine at the same time.

Think about Mazda’s trip in three stages: SkyActiv-X tech rolling out in 2019, electric vehicles by 2020-2021 and autonomous driving by 2025. Sounds like a plan to us.

Help Wanted

Looking for a job?

You’re going to have some options. 6.2 million of them.

If that seems like a lot...it is. The number of U.S. job openings is at a record high since the Department of Labor began tracking them in 2000, representing an 8% monthly increase from May to June. The question is, should you be popping champagne or heading to a nuclear fallout shelter?

Probably go get a marketable skill. These numbers show that while employers are eager to hire, qualified workers are hard to find. And it’s particular industries like business services, healthcare, construction and manufacturing that are hanging "Help Wanted" signs most often.

So, with all the talk of jobs moving overseas, it’s clear that many are ready to be filled right at home. Polish up the resume and submit that application...we like your chances.

The Memo Heard Round the World

If you’ve Googled Google (-0.16%) in the past week, you’ve likely become acquainted with James Damore, a software engineer fired by the company for writing a controversial manifesto. Which, among other claims, argued that women aren’t as biologically fit for engineering jobs as men.

The memo critiqued Google’s commitment to employing a more diverse workforce, which currently stands at 31% women, 2% black and 4% Hispanic...not exactly an accurate reflection of the American population.

With Damore threatening legal action, CEO Sundar Pichai cut short his family vacation to address the issue, obviously of major concern to him and many employees.

And to his credit, he’s not letting the matter rest, scheduling an all-hands meeting on Thursday to discuss inclusivity in Google’s workplace. All are welcome.

Tell Me More…

• Uber is tapering off its U.S. car leasing business.
• Time Inc. plans to cut $400 million in costs over the next 18 months.
• Political news outlet, Young Turks, raises $20 million after a boost in viewership.
• Disney is pulling its movies from Netflix to start its own streaming service.

Economic Calendar

• Monday     Earnings: CBS (+), Twilio (+), Tyson Foods (+)

                    Economic Events: Consumer Credit (-)

• Tuesday    Earnings: CVS (+), Time Inc (+), Wayfair (+), Valeant (+), Walt Disney (+), Michael Kors (+), Plug Power (-), Ralph Lauren (+)

                  Economic Events: Small Business Optimism Index (+)

• Wednesday    Earnings: Alibaba, Cars.com, Office Depot, Wendy’s

                        Economic Events: MBA Mortgage Applications, Wholesale Trade

• Thursday   Earnings: Blue Apron, Kohls, Macy's, Nordstrom, Noodles & Co, NVIDIA, Snap

                   Economic Events: Jobless Claims, PPI

• Friday       Earnings: Dish, JCPenny

                 Economic Events: CPI, Baker-Hughes Rig Count

Brewified Terms

Price-Earnings Ratio:

What it is?

The price-earnings ratio (P/E) measures a company’s share price in relation to its current earnings per share (EPS).

For instance, when the share price = $30 & EPS = $2.50

P/E = $30/$2.50 = 12

What’s its purpose?

The P/E tells us exactly how much we are spending to earn $1 back on our investment. It can be incredibly useful when comparing a company’s P/E to competitors in its sector.

Let’s see an example:

Nike’s P/E is 23.90, meaning you can expect to earn $1 for every $23.90 you invest. On the other hand, Under Armour’s P/E is 43.90.

If you think Under Armour offers higher future earnings potential (aka more money in your pocket), you might say "Hey, it’s worth it to cough up a little more." If not, well...Nike might be the right choice for you.

Let’s take it one step further:

If you really want to impress your friends, consider the PEG Ratio (calculated as P/E over earnings growth)—or, the ratio that measures a stock’s value in relation to the company's ability to grow its earnings.

For example, if Nike’s P/E is lower than Under Armour and its earnings are growing faster that may imply better bang for your buck.

There is wayyyy more to understand about P/E—if you’re interested in diving any deeper, check this out!

Question of the Day

There are five empty chairs in a row. If six men and four women are waiting to be seated, what is the probability that the seats will be occupied by two men and three women?

(Give up?)

Who Am I?

I co-founded the largest mobile messaging app in 2009.

My company was sold to Facebook for $22 billion in 2014.

I now sit on Facebook’s board.

In October 2014, I donated $555 million worth of Facebook shares to the Silicon Valley Community Foundation.

(Got any guesses?)

Stat of the Day

$425 million

The amount of pandemic bonds issued by the World Bank. These bonds pay investors a fixed income, until a pandemic hits, at which point all future payments go towards fighting the outbreak. These bonds allow the World Bank to create a pool of money that can be easily accessed in the event of an outbreak.