Hasbro warns supply chain bottlenecks, Sherwin-Williams cuts guidance on inflation fears, Lilly raises 2021 outlook

Yahoo Finances Julie Hyman, Brian Sozzi and Brian Cheung breakdown Hasbro, Sherwin-Williams and Eli Lilly's latest financial results.

Video transcript

JULIE HYMAN: Let's go through some of the other earnings reports that we got this morning. We talked at the top of the show about Facebook. We talked about some of the industrials. I want to touch on Eli Lilly as well.

Now, this company came out with earnings per share that just missed the average analyst estimate by just a penny a share here, but sales did beat estimates. And the company is coming out and raising its forecast for the full year, it looks like for both earnings per share and revenue.

A couple of other things that are important here. First of all, Eli Lilly makes an antibody treatment for COVID. And it looks like that revenue from that treatment came in above estimates, at about $217 million, compared with estimates for $161 million. But it's been sort of moving around the revenue for that for this year, as we have seen, of course, the different waves of COVID and the reactions to them.

The company also said it started what it calls a rolling submission for accelerated US approval of its experimental early Alzheimer's drug. That is something that analysts and investors wanted more information on, contrasted, by the way, with Biogen's drug, which has really seen significant pushback, both on its efficacy, as well as its cost. So that's something that we continue to watch there.

And in the company's core pharmaceutical business, their sales were up by 18%. All of that, though, not equaling much movement in the stock here this morning, guys, as we are watching Eli Lilly.

Brian Cheung, what stands out to you here?

BRIAN CHEUNG: Yeah, well, I mean, I think one reason why the stock isn't necessarily going up despite the changes to their guidance is the fact that this is a stock that's been much loved through 2021 for the most part. I mean, it's up about 44% year to date. Compare that to S&P 500, up about only 22% at the time.

But actually in the middle of the summer it was as much up as about 60%. Obviously the big story for Eli Lilly is just the pipeline of other drugs that they have coming down the line. That early Alzheimer's drug is going to be really important. We saw just how critical those drugs are for Biogen, as you mentioned, which we discussed last week.

But what is also interesting is they have a submission also for type 2 diabetes. I'm going to give this a shot, "terz-ap-a-teed." Apparently this is a drug that's going to be also in the pipeline, that's also working its way through the FDA. So when you have that combined with, again, that hot, sometimes controversial spot of Alzheimer's drugs as well, I think those types of things could offer a lot of catalysts for future growth for the quarters to come.

But again, a lot of that could be already priced in, which is a big reason why we might not be seeing that much with the stock. And the health care industry, that's very interestingly moved over the past few months, up about 45% year to date.

JULIE HYMAN: I would go terz-ep-a-tide." But I don't know. I would watch a show that is just Cheung and I just saying pronunciations of experimental drugs back and forth to each other.

BRIAN CHEUNG: Yeah, the early Alzheimer's drug is donanemab. That's a tough one. It's like anemone. Donanemab.

JULIE HYMAN: Well, we got to get Angelee Khemlani in here for an assist on some of this stuff.

BRIAN CHEUNG: Yeah, right, right.

JULIE HYMAN: All right, let's take a look at some other earnings movers as well. Sherwin Williams on there. And I got two words for you, supply chain. Right, that's what it continues to be about for this company, even as those numbers came in a little bit ahead of estimates.

It was definitely not seeing gains across the board here. I'm looking at the Americas group net sales, down about 4/10 of 1%. Consumer brands net sales, down 23% here. Now, some of these areas still beating estimates, but Sherwin Williams, like many of its competitors, still has supply chain issues, Soz.

BRIAN SOZZI: Yeah, I'll break this down really quickly. This is not a market moving report per se, but a couple things that stood out to me, one, you had CEO John G. Morikis-- easy one to pronounce there-- saying that inflation headwinds will, quote, eventually subside. So Brian Cheung, that does not sound like transitory to me.

And as a result, I'll just throw some more gas on this hyper inflation goal. Sherwin Williams now out there raising prices yet again. I can't remember a Sherwin Williams earnings report where they were not out there saying they have been raising prices. I mean, this has been going on for many years. And, of course--

JULIE HYMAN: Whoa, whoa, whoa, wait. Hold on there.

BRIAN SOZZI: Go ahead.

JULIE HYMAN: How much are they raising prices? Like, hyperinflation is not about the timeline, right? It's about the magnitude. Unless you're talking really short timeline and really sharp magnitude. And I don't think we're paying 100% more, or even 50% more for paint now.

BRIAN SOZZI: You could-- but by the end of the year, Julie, you might be paying 15% more for paint year over year.

Now, Sherwin Williams, they don't disclose these price increases, like other-- a lot of other consumer products companies don't do. They just don't want the headlines. But believe you me, I mean, they are likely out there having raised prices 10%, 15%, 20% when it is all said and done this year.

Now, that is maybe not necessarily the technical definition of hyperinflation. But that's a major, major inflationary boost, and a wallop to one's wallet if they want to repaint their house. Secondarily--

BRIAN CHEUNG: I mean, OK--

BRIAN SOZZI: Second thing I care about in this report, real quickly here, they do note that do it yourself demand in North America, which is essentially sales at Lowe's and Home Depot, that was down in the quarter. So if you have been a bull on Home Depot and Lowe's-- those who trades have worked very well the past two years or so of the pandemic-- you have Sherwin Williams out here I think dropping a red flag onto the heads of the bulls in those trades, something I'd be very curious to track moving forward.

BRIAN CHEUNG: No, I mean, look, the demand is certainly there, right? I was talking earlier in the show about the importance of looking at cost of goods sold in terms of the income statement. But really what's also important is looking at the impact of these supply chain issues on the top line as well when you take a look at a 22.8% year over year decline in just their consumer brands. And they said that it is because of lower sales volumes just because they don't have the raw materials available to make the products that they want to sell to people, that it wouldn't have been 22.8% decline if they were able to source what people were demanding.

But at the same time, to the hyperinflation question, Soz, I don't think that if there is that robust demand that Sherwin Williams, when those raw materials do become available to them, all of a sudden start to raise prices by another 15% to 20%. And that's because if there is a point in time where the COVID outbreak isn't requiring imports to be as limited as they are, people can go back to their jobs to drive the trucks to be able to move these goods, then at some point they would be able to have lower delivery costs, which would actually allow them, if they wanted to, to maybe lower prices again.

So I think hyperinflation within the context of a wage price spiral is certainly salient. In the case of Sherwin Williams I don't think it's as easy or a clear cut of a case as that.

BRIAN SOZZI: Brian, I need them to-- I need the Fed to raise rates. I need lower paint prices. I want to paint my house. So maybe we could put the onus on them. [LAUGHS]

JULIE HYMAN: It's a supply shock. Them raising prices isn't going to do anything, dude.

BRIAN CHEUNG: They can't do anything about that, yeah.

BRIAN SOZZI: Man, you guys are just double teaming me today. Double teaming.

JULIE HYMAN: Come on.

BRIAN SOZZI: These are big price increases. I'm too-- I'm too emotionally close to this issue. I cover a lot of consumer products companies. I think the inflation we're seeing is really disturbing. This is disturbing.

BRIAN CHEUNG: The man loves his paint.

BRIAN SOZZI: I mean, some of these price increases, they're disturbing. And you know what? The consumer's not balking at these things now, but it's coming down the pike. And it's going to have to come out of somewhere.

It's not coming out of retailers like Walmart or Target. All this nonsense is going to be pushed onto the wallets of consumers. And that's money out of their pocket. That's just my take, the hot take.

JULIE HYMAN: Already been pushed, and they're taking it.

BRIAN SOZZI: It's getting worse. It's getting worse.

JULIE HYMAN: But they're-- but they're not balking. They're paying for it.

BRIAN SOZZI: Not yet.

JULIE HYMAN: Because they have the money. All right, let's talk about Hasbro. [LAUGHS] I'm not even going to say anything. I'm just going to toss it to you, Brian Sozzi. How's demand for toys?

BRIAN SOZZI: Toys were good. Next up, Brian, what do you got?

[LAUGHTER]

No, really, no, I think what you're seeing here-- what you're seeing here, Hasbro, one thing, their Wizards of the Coast and digital gaming business, that has really blown up to a lot, to I think a greater extent than investors realize. In this quarter they posted $360 million from this digital universe of content. I mean, that is huge.

And with that they posted $141 million in operating profits. I mean, that was big. Secondarily, I think the market may be a little concerned on the implications for operating margins in the fourth quarter. According to one note I got out this morning, that guidance suggests that margins will be flat in the holiday quarter.

But again, that's not that bad, you know, considering everything we are seeing with supply chain bottlenecks, and inflation, guys. But overall, a good quarter for Hasbro. And I think a lot of folks moving forward will be looking to see who will fill the very big shoes of Brian Goldner.

JULIE HYMAN: We're not saying it's not happening, mind you. Meanwhile, I'm reading Peppa Pig in their release.

BRIAN CHEUNG: That slide's [INAUDIBLE]. They broke every PowerPoint rule in the book. It's like My Little Pony on the supplemental financial information slide. There's too much going on there.

JULIE HYMAN: Yeah, yeah. Well, now I have all of the theme songs, between My Little Pony and Peppa Pig. And I'm just feeling thankful that my kids are older now and I don't here those things as--

BRIAN SOZZI: What about Care Bears? Anybody? No? Was that Hasbro?

JULIE HYMAN: Mm.

BRIAN SOZZI: I love Care Bears.

JULIE HYMAN: Care Bears is-- [LAUGHS]

BRIAN CHEUNG: I was born in '93. That's a little bit--

JULIE HYMAN: Oh, my gosh, all right. We got to leave it there.

BRIAN SOZZI: Time for break. Thank you, Mr. Hyperinflation.